UK must seek closer trade ties with EU to reverse economic damage of Brexit, think tank warns

The UK must forge closer trade relations with the EU if it is to reverse the economic damage caused by Brexit, a leading think tank has warned.

The Resolution Foundation, which appears to have views aligned with Labour, said a move towards negotiations on a return to the single market for goods would be a significant step forward, but the party’s manifesto expressly rules out this.

He also said the government should slow public sector pay rises and repeated his call for the triple lock on pensions to be removed.

Economists say the hit to the economy since the 2016 Brexit referendum has been significant, with campaign group Best for Britain claiming losses of between £180bn and £240bn so far.

The Office for Budget Responsibility said Brexit would cost 4 per cent of Gross Domestic Product in the long term.

The report comes amid turmoil at the top of government, with Sir Keir Starmer’s days as prime minister numbered. The government is under attack for many things; especially regarding the inability to achieve good economic growth. This was a key commitment in Labor’s return to power in July 2024.

The Resolution Foundation, formerly run by pensions minister Torsten Bell, said: “Trade is one area where delivery has fallen short of target. There is still more to be done, particularly on the UK’s relationship with the EU, where closer integration could bring material gains. The single biggest step here would be negotiating a single market for goods.”

The report rejects plans put forward by some candidates to replace Sir Keir to spend more government money or raise more taxes. Former Labor deputy leader Angela Rayner has previously called for corporation tax on banks to be increased and the tax-free allowance for dividends from shares to be abolished.

Ruth Curtice, chief executive of the Resolution Foundation, said: “The government’s appetite for a reset stems from the disastrous election results. But the backdrop of weak growth and the fact that the war in Iran has brought a £550 hit to family finances as well as a £16bn hit to public finances, means it is in everyone’s interest for the country to shift economic gear.”

He added: “There is no sensible way to grow in Britain today that does not involve sounder public finances and combating those who oppose more trade with Europe or having more homes in their backyard.”

Respected independent City economist Julian Jessop said: “This is a mostly good report, but references to closer alignment with the EU are little more than arm-waving. The reality is that UK companies still have access to the EU’s single market on relatively favorable terms. The hit to overall trade has been much less than many feared.”

Last week, Reform UK, whose leader Nigel Farage is one of the main drivers of Brexit, had a strong showing in local elections across the country. This may mean that the public is not convinced about the benefits of the EU.

But Best for Britain’s latest poll shows more than half of Britons now support rejoining the EU. More than 80 percent of Labour, Liberal Democrat and Green party supporters support the move.

“The United Kingdom’s decision to withdraw from the European Union is a rare contemporary example of a major developed economy removing trade barriers and retreating from international economic integration more generally,” said a paper by Stanford University in February.

He added: “Rather than a sudden, visible economic shock following the vote, the costs of Brexit have been gradual and cumulative.”

A report two weeks ago, also by the Solution Foundation, found that Britain has the third-highest rate of young people not working or studying among Europe’s richest countries, due to rising health problems and a failing welfare and job support system. Only Italy and Lithuania had worse figures.