Peter Kellner and Kim Darroch explore the challenges and opportunities in resetting EU-UK relations under a new Labour government in Britain.
Following his party’s election victory, UK Prime Minister Keir Starmer is hoping for a fundamental reset of Britain’s relations with the rest of Europe.
Peter Kellner, nonresident scholar at Carnegie Europe, and Kim Darroch, member of the British House of Lords, assess the prospects of revitalizing EU-UK ties on trade, security, and international cooperation.
[00:00:00] Intro, [00:01:24] EU-UK Relations After Brexit, [00:07:59] The Impact of Labour’s Victory, [00:16:36] What’s the Future for EU-UK Relations?
Kim Darroch, July 6, 2024, “In a fragile and dangerous era, strengthening ties with Europe is Britain’s most urgent challenge,” The Guardian.
Peter Kellner, June 27, 2024, “Brexit Has Fundamentally Damaged the Tories,” Prospect.
Peter Kellner, May 28, 2024, “The UK Braces for a Change of Direction,” Strategic Europe, Carnegie Europe.
Peter Kellner, March 9, 2023, “Trust and Compromise Return to EU-UK Relations,” Strategic Europe, Carnegie Europe.
Peter Kellner
Time for a reset. This is what British Prime Minister, Keir Starmer, is hoping for Britain's relations with the rest of Europe after Labour's recent electoral victory.
Can it be done? Warm words are spoken in Brussels, Paris, and Berlin, but what do they amount to? As both sides navigate shared issues, from trade and climate change to Russia's war in Ukraine and the rise of China, what can Britain and the EU do to repair their relationship and tackle these challenges together?
Peter Kellner
Hello and welcome to a new episode of Europe Inside Out, Carnegie Europe's monthly podcast about the continent's greatest foreign policy challenges. My name is Peter Kellner, and I'm a non-resident scholar at Carnegie Europe.
This episode of Europe Inside Out is about EU-UK relations and what we should expect from newly elected executives in London and Brussels. I'm joined by Kim Darroch, member of the House of Lords and former British ambassador to the United States, and indeed, the UK permanent representative before that to the European Union. Kim, welcome.
Kim Darroch
It's a great pleasure.
Peter Kellner
Kim, let's start with the big picture before we get into the details. Keir Starmer talks about a fundamental reset in relations with the EU. Looking at the broad issues of Britain's economy and place in the world, do we need a reset, and if so, why?
Kim Darroch
I think you have to start, Peter, with the impact of Brexit. Now, I think it's what, eight years since the decision, since the vote to leave the EU. And the evidence of its economic damage is piling up. And you can take any one of a number of statistics just to quote a couple of them off the top of my head. There's Bloomberg's estimate of a hundred billion pound cost to the economy. There is Goldman Sachs' estimate of 5% wiped off economic growth. Perhaps most significant, there is the government's Budget Authority, the Office of Budget Responsibility, saying that Brexit has led to a 4% reduction in long-term UK productivity relative to staying in the EU. Look, it feels like that, too. The British economy has been stagnant, very low growth levels. Part of it, of course, was the pandemic. But even setting that aside, we are not doing well economically. We still do about 40% of our trade with the European Union, and we have basically imposed a lot of obstacles to that with Brexit. So the idea that we need to do something to change that seems to me self-evident and inarguable.
Peter Kellner
Inside Britain, there are two sides to the argument. One side says the pro-Brexit lobby. This is because Brexit hasn't been done very well by the previous conservative government. Had it been done properly, we wouldn’t have these problems. On the other side is the argument that it was inevitable. Brexit, by its nature, was going to cause these huge economic problems. Where did you come down on that argument?
Kim Darroch
I think the second one is the honest argument. It's not one you heard much actually during the Brexit campaign, but the first argument was just, for me, pure fantasy. After all, we had a government for most of the period of Brexit implementation, that was going for the hardest Brexit option out here. Certainly, that was where the Boris Johnson government was. I mean, Theresa May wanted to have a softer form, but it was still at the hard edge of the spectrum. The economic damage is careful to see. We've had the reality of the difficulty of doing alternative trade deals around the world, and we've seen the impact that Brexit has had, I think, on the economy across the board. So, I think it was Dominic Cummings who said, of course, there will be economic damage. That is certainly what has happened. You can argue that over time, maybe that damage will disappear because we will do new trading relationships. Or you can argue, as I tend to, that this damage is permanent unless we do something to take away the barriers that we've created in our relationship with the EU.
Peter Kellner
Yes. Dominic Cummings, he was the most important organizer of the original referendum campaign to get Britain out of the EU. Let's narrow on what's happened in the last couple of years. Rishi Sunak, the Prime Minister until the election this year, he essentially inherited the Brexit deal that had gone through Parliament two or three years earlier. He has done various things like the Northern Ireland Protocol to sort out the messy business of Britain, the trade between Mainland Britain and Northern Ireland, which is still part of the UK, rejoining the Horizon Science Program, taking part in a new European political body, which President Macron has been at the forefront of. Did Rishi Sunak do all he reasonably could, or did he make things worse?
Kim Darroch
I suspect that in a perfect world, Sunak would have liked to go a bit further than he did. But two constraints applied. First of all, lack of time. And second, I don't think he could have brought the Conservative Party, as it was in that last Parliament, with him on anything more radical than the steps that he took. The steps were all the right things to do, although the government made them more difficult, more complicated than they needed to be. And of course, the jewel in that crown, although it's not a very big jewel, was in sorting out the Northern Ireland Protocol. By the way, just as an aside, Peter, the Northern Ireland Protocol essentially gives Northern Ireland the best of both worlds. In other words, it's not just a part of the single market, but it's also part of the UK. And this is advertised to the Northern Irish people as a fantastically good deal, a better deal than the rest of the UK has, because they have both. And you can kind of think, if you live in the rest of the UK, well, wouldn't it be nice if we could all have that, please?
Why is the government thinking that it's fine for Northern Ireland, but not fine for the rest of us? But anyway, that's the world that we live in. But Sunak did as much as he reasonably could on the whole, I think. And he also improved a bit the atmospherics of the relationship with the EU. But then that could barely have been done anything else. I mean, they're so bad, were they under the Johnson government.
Peter Kellner
Kim, given your long diplomatic experience, how much does atmospherics count for?
Kim Darroch
Yeah, that's a good question. And one shouldn't overestimate. In the end, it is substance that really counts. And you like your ministers as an official, have good relations with their counterparts. They understand the substance of what they are negotiating on and strike the best possible bargain. But look, if atmospherics are very bad, and in particular, as was the case under the Johnson government, there is no trust because the government was saying to itself it might simply tear up the agreement it had signed if it couldn't somehow change it and improve it, then you're in a very bad place and it's going to be very difficult to make progress of any kind because the other side doesn't trust what you say.
Peter Kellner
Well, let's move on to where we are now. Two months ago, Britain chose to elect a new government, Keir Starmer heading a Labour government, and the atmospherics seemed to be pretty good. In the last few days, he's had constructive conversations with Chancellor Scholz and President Macron. I think he's heading off to Brussels in the near future. He talks about a fundamental reset. What do you understand he's after?
Kim Darroch
I think that, first of all, you have the happy coincidence that you have now center-left governments in London, Paris, and Berlin, and that certainly helps with the atmospherics. And I think Starmer has done well in his first few weeks in making the most of that reality and in striking up what looked to be good personal relations with his French and German counterparts. But I hesitate and start to think there's a bit of hype here when I hear about a fundamental reset on the back of the Starmer-Scholz meeting early this week. And here's why. As I've said, the crucial thing about economic relations with the EU, I think, will have most benefits for us, with our economic performance so weak at the moment, we'll be getting much closer to the single market. That isn’t in Scholz’s gift. You need a deal with the EU on that. You can't do anything bilaterally about removing barriers to our access to the single market.
Scholz is certainly an important voice around the European Council table, but he can't do anything by himself, because the EU is a trading block, and you can only negotiate with it as a block. You can do lots of cooperation on science, technology, and all sorts of interesting things. You can have more political dialogue, all the rest of it. But you can't change the nature of the UK's relationship with the single market in any of its important elements, just by a financial view between the UK and Germany. That's just the reality.
Peter Kellner
Right. So in the recent general election campaign, Keir Starmer has said repeatedly, and I think he's repeated it the last few days in his meetings with Scholtz and Macron, that Britain, under him, will not seek to go back into the single market, will not seek to go back into the Customs Union, and will reject any thought of freedom of movement, even for ideas of short-term working visas for younger people under 30. Can he stick to that? What can he do?
Kim Darroch
First of all, he had an election to win. He wanted to win back those so-called red wall seats, previous Labour-safe seats, which the Tories had won in 2019, and he felt he had to be absolutely emphatic on not rejoining the EU, no wiggle room at all to get that. I don't know whether he really needed to say that, but he felt he did, and that's where we are. What I noticed, nevertheless, is British public opinion seems to me to be a bit ahead of where the Labour Party and Conservative Party are. The excellent You-Gov did a lot of polling on this. I just noticed some recent polls, which I will quote, British opinion, public opinion on who ought to rejoin the EU, 53% support, 36% opposed. Should we rejoin the single market? 48% support, 25% opposed. Should we rejoin the Customs Union, 49% support, 20% opposed. Now, as a pollster, you'll tell me there's a lot within those figures that you need to unpack before you assume you can make policy on that basis.
But I do think that public opinion has shifted quite a lot on Brexit. I think the Labour Party and this government are probably being overcautious on what is possible and that they could go further. He made those promises in the election campaign, but I think he could go further, particularly on single market membership, because there's a great myth out there that somehow all these single market rules are imposed on us. Truth is, when we were in the EU, we were a prominent part, I used to do this every day when I was a permanent representative, of making those rules. Nowadays, we have no part in making those rules, so we're rule-takers rather than rule-makers, but we're still doing 40% of our trade with the EU. So one way or another, you're following the rules. So why not? If you're going to do that, unless you really believe you can stop all this trade with the EU and just trade with New Zealand and Australia, and Fiji instead, under this Pacific deal, why not get a bit closer and just accept reality?
If you're going to trade with other countries, you need to trade on the rules they have set, and the single market is where we should be making those moves.
Peter Kellner
I'd like to come back shortly to the longer-term possibilities of more radical measures like the single markets and Custom Union. Meanwhile, what is on Keir Starmer's wishlist? When he talks about a fundamental reset, what is he talking about rather than what he's not talking about?
Kim Darroch
What he's talking about, I think, is three or four things. Number one is a foreign policy, defense, and security agreement, which I think he has given David Lammy, the Foreign Secretary, the task of negotiating, which is basically putting a structure around. I mean, my friends in the Foreign Office who are still in the saddle, as it were, tell me ever since the Ukraine war started, there has been a huge amount of informal consultation, coordination with Europe, as you would expect, over sanctions policy, over how to handle Putin, of how to respond to the war, of how to support Ukraine. Now, it wouldn't just be about Ukraine. It's lots of other things going on in the world, the Middle East, relations with China, all the rest of it. But this is putting a proper structure and formal channels and formal sequence of meetings around cooperation on foreign policy, on national security issues, and a bit more on defense. Quite how far it goes, we will see, because then you get into quite tricky questions about defense procurement rules and all that thing. But at the least, much closer or structured cooperation on the great foreign policy challenges of the age, I think is number one objective.
Then you get into a veterinary agreement, energy, granite, whatever you call about. It's essentially about easing trade and removing barriers and delays in trade in animal and plant products across the EU, perishables. So things don't get stuck at the border, costing a fortune in refrigeration or just rotting away. Then you get into something potentially about visas for artists so that our orchestras and our pop groups and our traveling theaters can go to Europe more easily and at much, much less cost and vice versa. Then there is something still out there potentially about youth mobility. So young people and students from both the EU can come to the UK and the UK can go to the EU much more easily, the way they used to, but much more easily than they can now post-Brexit.
Peter Kellner
Kim, on that particular point, there have been a lot of stories in the last few weeks that from the Brussels end, there's a lot of enthusiasm for limited freedom of movement for young people, Britons going across the Channel, people from Europe coming to Britain. But Keir Starmer seems to consistently reject this. What's going on?
Kim Darroch
Well, there's some tricky stuff in here. It is reported that the EU said “Hang on, this deal would involve allowing young people from 27 countries to come to one country, but allowing that one country to send its students as young people to 27 countries.” That's a bit unbalanced. That's a bit asymmetric. So we need a bit more concessions from the UK to balance this out. And the immediate response from the British government was negative, and I think that the EU had handled it rather clumsily in the way that they made this potential demand public. And there's been a bit of a reset going on, but I think this is still on the agenda. I think it will actually restart and they'll get somewhere.
Peter Kellner
Now, returning briefly to the battery, rotting foods and all that. If Britain asks for this, what will Brussels want in return? In other words, can Keir Starmer get his wishlist, or will he run into difficulties when he tries to negotiate them?
Kim Darroch
There is a concern in the Commission about what they call cherry-picking, which in other words is, we try to get a much better deal on single market access by picking out the best bits while not picking on any of the commitments, obligations of single market membership, which they would say included free movement and paying into the EU budget. Now, they obviously, surprisingly, prefer this government to its predecessor because the tone is so much more positive, but they still worry about cherry-picking and about us, Brits, managing to get the best bits of EU membership in terms of access to the single market without the obligations and the costs. So you've seen two things. One is Brussels, I think, on the 15th of July, they presented to the Europe Minister a list of eight tests, demands of the UK, which are basically about in full and proper implementation of all the existing post-Brexit arrangements.
They say that one of these is that we haven't properly implemented the Northern Ireland Protocol. Another is we're not properly recognizing what we promised to do in terms of rights and status of EU citizens in the UK. There's also issues about authentic and accurate certification of animal products and plant products and about a PET, checking scheme and this kind of thing. So there's some quite small detail of it, but there's a list of eight demands where they say we're not actually doing what we promised to do yet. Second, I don't think they've actually said this yet publicly, Peter, but when we did the post-Brexit deal on fisheries, part of it was that over five years, up to 2026, 25% of the EU fishing quotas in British waters would be transferred back to the UK to benefit British fishermen. Now, this is massively unpopular, of course, particularly in France, but not just in France. And this deal comes up for renegotiation in 2026. That's when it expires and needs to be reviewed and new quotas set. And so there is already speculation that as a price for doing a deal on things we want, like the veterinary agreement, the EU will say we'd like rather bigger fishing quotas next time around.
And that's the transactional sort of process and demands. But frankly, I would be surprised if the commission didn't do.
Peter Kellner
It sounds to me, from what you're saying, Kim, that there's an imbalance. You say it's transactional. Keir Starmer is keen to get these things. It doesn't seem to me that anybody in the EU is that bothered, whether they do a deal or not. Couldn't this just run on and on and on and just run into the sand and get nowhere?
Kim Darroch
I think that certainly because we are still a major military power and we have a lot of foreign policy knowledge and experience and clout still around the world, I think that the foreign policy and national security deal is of clear benefit to them as well as us at no particular cost. So I think that can happen. I think the veterinary agreement, and there's a lot of EU exports to the UK, we discussed this kind of thing. So that's also a mutual benefit to the EU. They always exported more goods to us than we did to them. We made up that gap in services. The deal just covers goods, and it's a very nice deal for them. They won't see any massive advantage for them in renegotiating it so it's a better deal for us unless there is something more in it for them. Second point, they have three big headline issues they have to think about. There is internal dynamic and the rise of the far right in Europe. There is what they would call the deteriorating international context, war on the European continent, potential instability in the Middle East, the challenge of China. And there is a difficult economic outlook for them all because none of them are doing economically that much better and some of them are doing worse than the UK is. Those are, they would say, the three big challenges facing them.
And doing new deals with the UK comes somewhere down the top 10 list on that.
Peter Kellner
Right. Well, it sounds to me as if we will get towards the end of this five-year Parliament, and Britain may have achieved a few things, probably not everything it wants. Let's just, for the sake of argument, suppose that at the next British election, due in 2029, Keir Starmer realizes he has to go much further on issues such as the single markets, Customs Union, freedom of movement, and put that into Labour's manifesto. He seeks a mandate from the British people to go much further. So he goes to Brussels shortly after the next election and says “Right, we're ready for a big deal.” Could he get one? Or because, as you say, the EU has moved on, would they regard Britain as just too much trouble?
Kim Darroch
There's a lot of known unknowns in that question, Peter, but let me try and speculate and answer it. I mean, first, the qualification or the context point. If it's going to get re-elected, they need to get economic growth restarted, and they need to sort out our public services which are plummeting in a really parlor state. They won't need to list all the problems we faced, from bankrupt local governments to a fading National Health Service to hoopless deteriorating infrastructure and so on. Now, to get the money to tackle these problems, you need economic growth of more than 100% a year. If he can get to 2% plus, and it looks steady and it looks consistent, and there's money coming into the exchequer without doing something radical on Europe, maybe he just carries on with the status quo. I think that's quite a stretch to see that happening, given the economic damage that Brexit has done. So maybe in 2029, maybe earlier, he decides to go to another election, and he puts into his platform something about the EU.
I mean, there's various choices there. There's rejoining the Customs Union, there is rejoining the single market, and there is trying to rejoin the whole thing. And I don't think he would ever go for rejoining the whole thing. I noticed, by the way, he said just before the election, he didn't expect the UK to rejoin the Customs Union, the single market, or the EU in his lifetime. I don't mind him talking about parliamentary terms, but saying in his lifetime, that seems to me quite a stretch. But anyway, just supposing he wants to change his mind. I think two things. One, he would say, we are going to explore the possibility for rejoining a single market or the Customs Union or whatever. We don't even go any further than that. You will have a referendum on whether to do it or not. So he would say, The choice is still for you, but let's have a go and see what we could get. That's one side. Would the EU want it?
The EU is divided into two groups of countries, a larger group, somewhere between two-thirds and three-quarters membership, who are net recipients from the EU budget. Some of them large sums of money, most of them from Central European countries, not just the Central European countries. And then you have a group of countries that are net payers. We were quite big net payers, even with Mrs. Thatcher's rebate. If you were to rejoin the single market, you would have to, one, go back into paying into the EU budget. I think given the economic damage of being outside the single market, it would be money well spent, but it would be a controversial political issue, and we wouldn't get a rebate this time around. Second, you would have to accept free movement. And those are two really quite big things for the British public to accept.
Now, both paying into the EU budget and accepting free movement would be very controversial issues in the UK. I can make the arguments for them, whether the British public would accept or not, I don't know. But that would be why you would have to offer a referendum before you even took the step of rejoining a single market.
Peter Kellner
Okay, let me finally move on to a bit of crystal ball gazing. We've talked about the issues short and medium term. What would be your best guess at this moment of where Britain's relationship with the EU will be in 10 years' time?
Kim Darroch
This comes down, Peter, to a tussle between my personal preferences and the political realities as I see them. But I think things will err toward caution rather than toward radicalism or ambition. I think we might actually think about rejoining the Customs Union or the single market, and we might negotiate something. That's different from our rejoining, because we'd essentially be members of the European Economic Area. And I think that's just about possible in 10 years. But I think it's a kind of 50/50 thing.
Peter Kellner
But let's suppose that Keir Starmer does want to do something like single market reentry, something like Customs Union, something like free movements in his second term. Would he get a deal with the EU to achieve those things?
Kim Darroch
If you were to rejoin the single market, the Customs Union, you would have to return to paying substantial sums into the EU budget, which then get redistributed to the poorer members of the EU, and you would have to accept free movement happening again, which you would quite like to see the UK included in. I don't see a problem really with the EU. Why wouldn't they want to expand the single market to include an economy, the six biggest economy in the world? It makes no sense that they wouldn't want to do that. I think membership is a different thing because the reality is the Brits still have a fundamentally different vision and ambition for the future of the European Union than most of the continent do. We were blockers and holders back on a number of issues around EU construction, and they would suspect that we hadn't changed on that.
Peter Kellner
And do you think a second Labour government could achieve this? And would the EU accept it if the Conservative Party is still in its recent anti-European mode and says, if Labour negotiates these and we return to power the following election, we'll go back to Brexit.
Kim Darroch
I think if in my imagination of how things would unfold, in running for a second term and putting this as an intention for the second term to negotiate, say, reentering the single market, Keir Starmer would certainly, surely offer a referendum with the British people, ultimately, to choose. If you're going to do that, you say to the Tory Party “If you don't like it, you campaign against it. Let's see what kind of deal we get, and then, gloves off, say what you want about it.” But to even say you should never even negotiate it is sort of ridiculous.
Peter Kellner
Kim, it was a great pleasure having you on this month's episode of Europe Inside Out. Thank you very much for taking the time.
Kim Darroch
Peter, it was a great pleasure for me to talk about my favorite subject. So thank you for the opportunity.
Peter Kellner
For those who are interested in learning more about EU-UK relations, I encourage you to follow the work of Carnegie Europe on X (formerly Twitter) @Carnegie_Europe and on LinkedIn.
Our producers are Francesco Siccardi and Mattia Bagherini. Our editor is Futura D’Aprile of Europod. Sound engineering and original music by Jeremy Bocquet.