Dan Dalton is a Conservative MEP for the West Midlands.
Whilst the Government has made clear its intentions, some have continued the debate around UK membership of the EU Single Market. Labour, the Liberal Democrats and the SNP are all arguing fervently for continued membership, with the SNP threatening to break up the UK over the issue.
I voted Remain, and have spent the last two years as an MEP as a strong advocate of the Single Market, believing in its potential. So it may surprise some readers that I don’t believe the UK should stay in the Single Market after we leave the EU.
The Single Market was a good innovation, with the potential to be the ultimate free trade agreement. It offered the dream of no tariffs, the same rules on product standards for 500 million consumers and huge gains in economies of scale for European companies. It also promised the end of artificial non-tariff barriers.
However, the reality has not matched that potential. There are no internal tariffs (if you exclude private copying levies) but there are not always the same rules, which means that non-tariff barriers are still very high, indeed multiplying. Many small businesses in the West Midlands find it easier to trade with the US or Canada, outside the Single Market, than with France or Spain. They give up trying to enter EU markets and instead see large multinational companies using economies of scale to get round those barriers and taking over the market. The Single Market appears to only work well for big businesses. In addition, the promised lower costs for consumers have not emerged, with prices in Europe generally higher than in equivalent developed markets.
The Single Market also acts as a justification for further European integration. The original justification for the Euro was as a Single Market measure, and now Single Market distortions are used as a justification for introducing harmonised EU taxes.
Despite all this, if the UK had remained a member of the EU, the Single Market would still be our most important policy priority. But outside the EU, it can’t work for one main reason. The UK would remain bound by all EU rules yet would have no say in their formation.
The Brexit vote was partly about sovereignty, so it makes no sense for the world’s fifth largest economy to have no say over the rules which govern it. In effect we would transfer further power to Brussels by way of withdrawing our representatives in the Parliament, Council and Commission and yet still to be ruled by the legislation which those bodies make.
This is what advocates of remaining in the Single Market are proposing.
In addition, even if we left the Customs Union, remaining in the Single Market would limit the UK’s scope to negotiate free trade deals with other countries, because we wouldn’t be able to negotiate different regulatory standards in those agreements. All imports would have to accept EU rules.
This doesn’t mean leaving the Single Market will be easy. We will likely take an economic hit in the short term. Our companies’ supply chains are pan-European and it will take time for them to adapt. However, adapt they will and their future success will be helped by two main things.
Firstly, the biggest global growth sector is in services, where the UK is already strong. To succeed in services, you need fast and nimble legislation enabling companies to set up quickly, which the UK excels at. It takes one day and costs £12 to set up a company in the UK, whereas in Belgium, for example, it costs between £18,000 and £25,000, and you will need to have a degree, hire a lawyer and produce a detailed business plan that a civil servant must approve. In many countries, a plethora of permits are needed before you can do anything, all costing money and in most cases needing an official notary.
Even outside the Single Market the UK will therefore be attractive for start-ups. Some bigger companies will relocate some services to Europe to have a European base, but the UK will remain a destination of choice, partly because of the ease of doing business and also because of the capital-raising powers of London, unrivalled elsewhere in Europe.
There is a second, more important reason why the UK is right not to put all its eggs in the Single Market basket, which is that it may not remain the integrated and attractive market that it currently is without UK input in the legislation underpinning it.
In fact, the Single Market is a British invention. We were the drivers from the start and have been the country most interested in breaking down the many existing non-tariff barriers (NTBs). Our enthusiasm is not shared by other countries, and most pass national legislation creating NTBs designed to keep foreign products out. It was the UK which was strongest in pushing the Commission to challenge these barriers, so without us there is a real risk the Single Market slowly withers away. Recent relatively modest proposals from the Commission to improve the services Single Market have already met stiff resistance. Of the other big EU countries, only Germany sees unrivalled benefit in the Single Market, and only for their exports, not imports into Germany. So the Single Market in ten years’ time may be much more balkanised than the one we have today.
For a country outside the EU, being in the Single Market is only an option if you have no wish for power in the relationship. I don’t believe the UK would ever want that. Add in the fact that for Brussels it is simply a vessel for ever closer union and it becomes even clearer that staying in the Single Market whilst out of the EU is not an attractive proposition.
We may take an economic hit in the short-term as our companies and economy adjust to new trading conditions, but we can mitigate this with our pro-business culture, securing a trading relationship with Europe which includes mutual recognition of regulatory standards, and opening up new markets with trade deals around the world.
I am not pretending it will be easy – it will be an immense challenge – but staying in the Single Market only works if you can influence its rules. We can no longer do that, so it is time to forge our own path.