Labour’s Brexit stance is as untenable as their tax pledge

 

In my last post about the prospect of Labour breaking its tax pledge, I did something I don’t often do, which is indulge in some ‘I told you so's. In doing this I was reminded that there was one other major criticism I had of Labour’s initial economic strategy besides their underestimation of how much taxes they would need to raise, and that was their position on Brexit. Labour’s basic position on Brexit is that it has ruled out not only rejoining the EU, but also joining its single market, or even its customs union.

It should be said that there are important discussions going on that will ease the cost of Brexit in specific ways that are important to particular areas of the economy. But these initiatives, even if the EU plays ball, will not amount to very much in terms of the aggregate economy. It remains the case that if Labour want to undo the economic damage caused by Brexit in a significant way, they need to either rejoin the EU’s customs union or its single market (or both).

Labour’s rhetoric towards the EU is also a lot more friendly than their predecessors. Rhetoric is important, particularly in countering the populism of the right. It remains the case that one of the most potent attack lines Labour and other political parties have against both Reform and the Conservatives is that these are the parties that brought us Brexit.

It is potent because most voters, including many Conservative and Reform supporters, think Brexit has failed the economy. A recent YouGov poll showed that only 11% of voters thought that Brexit had so far been more of a success, while 62% thought it had been more of a failure. Even among either Conservative or Reform voters, more thought it had so far been a failure than thought it had been a success. According to the same poll, the main reason for this verdict is an accurate belief that Brexit has damaged the economy.

Yet even in terms of rhetoric, Labour’s position is still not as strong as it could be. This is because Labour continue to talk in a vague way about the Brexit deal that the Conservatives did, rather than the basics of Brexit itself. Rachel Reeves recently talked about a “rushed and ill-conceived Brexit”. That is fine in attacking the Conservatives, but it allows Farage a simple get out clause, which is that it wasn’t his deal but Boris Johnson’s. Labour cannot respond by saying Farage also wanted to leave the EU’s customs union and single market and that is what has caused most of the economic damage, because Labour also appear committed to exactly that type of Brexit deal.

In policy terms, it is very hypocritical of Labour to say that it focused on growth, and at the same time ignore two policy changes that would have a really substantial positive effect to promote growth. Of course both Starmer and Reeves know this. The eventual 4% reduction in GDP assumed by the OBR is well known, but over two years ago I noted that work by John Springford implied that 4% was an underestimate. A new NBER working paper suggests the same, saying that productivity may already be 4% lower than it would have been without Brexit, and GDP 6-8% lower. This chart helps show why that might be the case (HT‪@davidheniguk.bsky.social). ‬

The reason Labour have ruled out rejoining the EU’s customs union and single market is not because they discount the economic benefits of doing so, but because they (and/or their political advisers) believe that to do either would be politically dangerous for Labour.

There are two reasons why it might be politically dangerous, and it is important to distinguish between the two. The first is that voters would not appreciate the government spending time and energy embarking on a major negotiation with the EU, and the internal debate that this would provoke, so soon after the years in which tBrexit appeared to paralyse UK politics. The second is that rejoining the EU’s customs union and single market, although perhaps popular with most voters, would still upset some of its own (2024) voters in key Labour constituencies (e.g. the red wall).

If the first reason was the most important, then Labour could be honest with voters and simply say that now is not the time. By saying sometime but not now, Labour could also be honest about the damage being outside the EU’s customs union and single market is doing. Many may not agree that the time is not right to make such a major step back towards being part of the EU, but at least the conversation would be about when, not if, and the costs of delay could be discussed more explicitly.

However I suspect the second reason is more important for Labour. This is just one part, albeit a very important part, of their conviction that they must on all accounts not upset socially conservative Labour voters. It goes hand in hand with adopting much of the right’s rhetoric, as well as adopting pointlessly cruel or harmful policies, on immigration. This, at least as much as the tax pledge, is this government’s original sin.

Should Labour see Brexit as part of their attitude to socially conservative voters, or is there something in addition which is special about Brexit? A good way to answer this question is to listen to Anand Menon’s recent masterly talk on the subject. But a key point must be that there has been a rise in right wing populism around the world, including Europe. This strongly suggests that Brexit was essentially a manifestation of this growing popularity, rather than a cause of it. Whether you view this rise as due to the economic consequences of neoliberalism or not, Brexit can be seen as just one of the many manifestations of the growing popularity of right wing populism.

As I and almost everyone else has said repeatedly over the last several months, Labour’s strategy (the McSweeney/Blue Labour strategy) of adopting populist right positions on socially conservative issues might have been sensible in opposition but it does not work for Labour in government. When in opposition, most social liberals would still vote Labour where it mattered because the primary goal was to defeat the Conservative government, and in most constituencies Labour were best placed to do that. Now that they are in government, Labour taking socially conservative positions worries social liberals much more, which is one reason why Welsh nationalists replaced Labour in a recent by-election and why the Greens are advancing in the polls.

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While this is the general reason why Labour’s current stance on Brexit is untenable, there are two specifics that relate to their Brexit pledge. The first is the size of the boost to growth that either joining the EU's customs union or single market would give. This is likely to be bigger than anything else this government could do to increase living standards. Once again, the fact that Labour are now in government rather than opposition is critical. To see the importance of incumbency on voter decisions, look at the swing from Trump in 2024 to the Democrats in recent elections, a swing that is all about the economy. A little of that swing may be due to Trump's tariffs, but fundamentally it is that the cost of living remains a problem, and voters blame whoever is in government for that.

The second specific reason Labour’s Brexit position is untenable is that, like the tax pledge, it was very likely to constrain Labour not just after the 2024 election, but in future elections as well. Using the last Labour government as an example, Labour were always likely to find it harder to get elected the longer they were in government. If this is the case, both the Brexit pledge and the tax pledge would in effect bind Labour until they got voted out of government, because the electoral arguments for making these commitments would only increase over time.

For both tax and Brexit this is an impossible position for Labour to put themselves into. With tax, because health costs trend up over time (as they have done in almost every country over the last few decades) and with a commitment to increase defense spending as a share of GDP, major taxes just have to rise at some point over the next decade [1], even if you ignore the arguments for increased public spending now.

Equally with Brexit simple demographics mean that the number of voters who are opposed to Brexit will only increase over time. As a result, Labour’s pledge not to fundamentally alter the terms of Brexit is not tenable over the next decade. Labour, and to be honest much of the country, are in desperate need of stronger economic growth right now, and so it would make sense [2] for Labour to follow the abandonment of their tax pledge with initiating discussions on how Great Britain could rejoin the EU’s customs union. [3]

[1] The best way of trying to reduce this upward trend is to spend more on preventative health, as the IPPR argues here. However that takes a lot of investment and is unlikely to yield quick benefits.

[2] Of course it making sense does not mean that it is what Labour will do. It is Labour's fiscal rule that is forcing it to (probably) break its tax pledge. With Brexit there is nothing similar to overcome a misguided strategy and force Labour's hand. 

[3] As I argued here, it makes sense in political terms to rejoin the EU’s customs union before its single market.