25 January 2023

Why Labour thinks it has solved the Brexit conundrum

If Keir Starmer’s party wins, expect a slew of specific UK-EU treaties to be negotiated.

Photo by Oli Scarff / AFP via Getty Images

News from January: leaders ended up in the wrong place. In national leadership, there is outward facing and inward facing: speaking for your people outside your borders and speaking to them. Political leaders need to be speaking frequently to their electorate, on whom they depend. But they also need to talk in their electorate’s interests to the world’s big forces.

Both are essential. The more trouble a country is in, the more important being outward facing becomes. Think of Volodymyr Zelensky: yes, he must rally the Ukrainian people, sustaining morale; but even more, he needs to rally the West to supply weapons, money and solidarity. That was why he addressed Davos, the Swiss resort that hosts the World Economic Forum, via video link on 18 January.

I wasn’t there this year, but I’ve been before, rubbing claws with the other scaly lizard people, swapping recipes with the globalist conspirators for cooking and eating the children of the workers. Or something. My memories are a tad hazy. They were revived, however, by Emily Maitlis and Jon Sopel on their podcast The News Agents, describing a late-night drinks event in a swanky Davos chalet. Princess Beatrice was in one corner, while in another Tony Blair was sitting with Keir Starmer, as Blair’s former staff scurried busily about to find CEOs for an audience with the Labour leader. And I thought, “Yes, that’s exactly what it’s like.”

The point is that Starmer was there, when you might have expected the opposition leader to be out on the stump, somewhere in the north; and Rishi Sunak wasn’t there because he was doling out money in Morecambe. The Downing Street narrative might briefly have seemed perfect: snooty metropolitan Labour leader having après-ski cocktails with the global elite, while their man was down and basic with the Lancashire folks.

And yet, somehow that’s not how it all came out. Sunak had to pay a fine for not wearing his seatbelt while filming a video for social media in the back of a car; heard protests by Tory MPs whose backyards hadn’t got levelling-up handouts; and is now struggling with yet more Westminster sleaze and backscratching allegations, around the party chairman Nadhim Zahawi’s tax affairs and the chair of the BBC, Richard Sharp.

Asked a “trick” question by Emily Maitlis about whether he preferred Davos or Westminster, Starmer, meanwhile, didn’t miss a beat before replying: “Davos. Because Westminster is too constrained. And, you know, it’s closed… Once you get out of Westminster, whether it’s Davos or anywhere else, you actually engage with people that you can see working with in the future. Westminster is just a… tribal shouting place.”

Watch: Andrew Marr explains why Keir Starmer may have solved Labour’s Brexit conundrum

I found that fascinating, not only because Starmer – who is swelling in confidence like a comedian whose jokes are working at last – genuinely seems to loathe Westminster, but because of his unabashed glee in talking to decision-makers from outside British politics. It’s the difference between liking politics and wanting to govern.

Davos 2023 was an important moment for Starmer and for Rachel Reeves, the shadow chancellor. They met CEOs and European ministers and found themselves taken seriously as long-term partners. For them, the scariest thing about the (overstated) anti-British mood at Davos was the expected impact of President Biden’s $369bn Inflation Reduction Act and the EU’s rejoinder – the Net-Zero Industry Act, announced by Ursula von der Leyen on 17 January. Here were two gargantuan heaves towards a green energy revolution on both sides of the Atlantic, sucking up capital and excluding Britain.

Labour has its own green prosperity plan on a similar timetable to the EU’s. But the biggest hole in its economic thinking has been how to get growth while being firmly locked out of European markets because of Brexit. Starmer has dead-batted the issue by confirming Britain would not return to either the customs union or the single market. Now, at last, the “however” is emerging from the Swiss mists.

Though unrepentant Rejoiners, many of them Blairites, denounce Starmer for betrayal, his political argument against reopening even quasi-membership of the EU is strong. It would be a gift to the Tories. Senior Labour people in “Red Wall” constituencies assure me that returning to the customs union would certainly lose them their seats; “respect” from MPs for voters trumps economics. But on the economics, imagine just how long, divisive and chaotic negotiations about returning to the EU would be – and how off-putting for potential investors.

Ending the perception of chaos is Labour’s strongest card. At Davos, Starmer and Reeves listened to endless criticism of the government from investors who consider the Tories flaky – they hear muttering about an attempted coup against Sunak by Boris Johnson and roll their eyes. Business craves stability and a British government that isn’t fighting with itself and which investors can expect to be there for a decade. If Labour wins with, say, a 40-seat majority, some of the missing investment will come whistling back.

But that, of itself, isn’t nearly enough for a credible growth strategy, particularly if the big money is going to the US and the EU. A range of shadow ministers, including Jonathan Reynolds (business) and Nick Thomas-Symonds (trade), as well as Reeves and Starmer, have been discussing how to unlock frictionless trade from outside the EU. The Germans have been particularly helpful and engaged.

Starmer and Reeves’ answer is to negotiate sector by sector and accept the need for a dynamic alignment with EU standards. Most of these EU rules or standards remain very similar to British ones, are in effect global standards, and were set originally with British involvement. This wouldn’t work for the City, financial services in the UK being simply too big to import EU regulations. But in agriculture, the pharmaceutical and chemical industries, veterinary standards, professional qualifications, cultural traffic and some areas of engineering, Labour is convinced there are many individual deals to be struck.

“Both sides understand the parameters,” one frontbencher told me. “If they say fine, but you have to have freedom of movement, they know we can’t accept that. But they are talking seriously. We have no problem with dynamic alignment.”

If Labour wins I would expect a slew of specific London-Brussels treaties to be negotiated, quite quickly, from outside the customs union and single market.

On growth, Starmer also believes a more active government working, for instance, to clear the bureaucratic blockages and planning delays for onshore wind farms and other green infrastructure will help. He will probably inherit a radically lower inflationary outlook, though not the benign economic situation Tony Blair enjoyed when he arrived in office. Labour, like the Tory Party, emphasises a stronger and tighter defence and security relationship to open a deeper friendship with the EU – but then wants to go significantly further.

But sorting the Northern Ireland protocol is seen as an essential second step before dynamic alignment can occur in suitable parts of the exporting economy. It all depends on goodwill inside the EU – but again, here, Labour may be lucky: after the last few years, European politicians want to regularise relations.

Most of what happens in Davos is very boring. But it’s a weird moneyed huddle where you can wet a finger and sense the wind changing. This year European politicians and bankers are focusing on the likelihood of a Labour government. It’s not a solid bet. If there is one thing Labour’s really good at, it’s finding new ways to lose a winning position. Still, Davos ’23 was a moment. I wonder whether Rishi Sunak now rather wishes he had gone there, not to Morecambe, after all.