Today the Foreign Affairs Committee is taking evidence as part of our inquiry into the UK-EU reset: rebuilding a strategic partnership in uncertain times. We have three great witnesses in front of us today. Could you introduce yourselves?

My name is David Paton. I am professor of industrial economics at Nottingham University Business School. I am also editor of the International Journal of the Economics of Business.

I am Naomi Smith. I am chief executive of Best for Britain. We produce a lot of policy recommendations related to trade and of polling about public opinion on the relationship with Europe.

I am Anand Menon. I am an academic at King’s College and director of UK in a Changing Europe, which is a think tank devoted to UK-EU relations.

Thank you all very much for coming. I will start with a few general questions and then there will be some specific questions from Members. How would you describe the geopolitical importance of a UK-EU reset? What is at stake?

The concern in Government from an economic point of view is the trade progress with the European Union. To some extent when Brexit happened there were real worries it was going to be a big hit to trade and hence to GDP. The latest trade figures are somewhat reassuring, in that UK overall exports have for example increased in real terms since 2019. There has been a shift from goods to services. In the EU, there has been a little reduction in exports although this is hard to figure out as the figures are very hard to interpret because of the way in which goods are categorised. Some goods which were categorised as exports are no longer included. You have had some big structural changes to the UK in terms of our manufacturing output but overall to date trade seems to have held up pretty well. There are concerns though on particular sectors. For example, the Government are concerned about travelling artists and musicians and about small exporters, particularly, which may have been hit by the checks in the agricultural sector. There are certain sector areas they really want to work on. The big picture of course in terms of our UK-EU relationship is at the same time our relationship with other strategic partners—the US, the CPTPP cross-Pacific trade partnership, the Commonwealth and so on. There is an important balancing act in improving our EU relationship where we can, but also not risking other relationships and other potential relationships in some of the faster growing parts of the world, where there may be quite a lot of potential for future growth and economic benefit.

You asked us to describe the geopolitical environment. I think the tectonic plates shift underneath our feet on what feels like almost a daily basis, but it is very clear that what are emerging are three large blocs: North America, Europe and China. We all know that trade declines with distance. Geographically, we in the UK are closest to the largest single market in the EU, which is our most important trading partner. There is growth on offer for the UK—let’s not forget that the Government’s stated No. 1 ambition is to get growth, and to have sustained growth and the fastest growth within the G7—and trade improvements could be negotiated during any kind of review of the trade and co-operation agreement. According to Best of Britain’s work, which was undertaken by Frontier Economics but published by us, there is up to 2.2% GDP growth available if there is deep alignment with the EU on goods and services. I am sure we will talk about the detail of whether or not that is possible. The other point I would like to make on the geopolitical situation is not simply about growth, what is on offer, the geography of proximity, and the importance of that to trade, but about reliability. While my fellow panellist is correct to say that we should be open to doing trade deals with other blocs and countries around the world, as of course we have been over the last few years, we must remember that the trade deal that we have with the EU is far more reliable than those that could be negotiated, particularly with the current Administration in the USA, which is changing its trading strategy on a seemingly weekly, if not more frequent, basis. Members should be mindful of the proximity, the growth on offer and the reliability of a closer trading relationship with our reliable partners in Europe.

Trade declines with distance, which is certainly something that I have repeated. Can we actually evidence that?

Yes, and I am very happy to share it with the Committee afterwards. Many, many pieces of work have been done on that, not just by Best for Britain but by others. It happens the world over. In the climate that we are in at the moment, which is in an era of democratic backsliding and deglobalisation, we are seeing more concentrations of trade within regional blocs than we have done previously. This is for a number of reasons. There is, of course, unrest the world over. We are not just seeing issues that you will be extremely familiar with as a Committee, such as conflict in the Middle East; we have seen global supply chains being disrupted because of conflicts all over the world, and by natural disasters as well. For all of those reasons, reliability of trading proximity is something that offers us more security than doing even more trade further away, and that is before we think about the climate impact of bringing lamb from New Zealand versus north Wales.

I am not sure how much is left to be said, to be honest.

Can I ask you about SMEs? There was a comment made about small and medium enterprises, and we have talked about trade holding up. Can we really say that when it comes to small and medium enterprises?

I think we can say it is not holding up when it comes to SMEs. The LSE did some work two or three years ago that showed that, whatever the aggregate figures show, the number of discrete trading relationships that exist between us and the European Union has fallen quite significantly. The evidence suggests that that fall is made up of smaller businesses that do not have compliance departments and big legal departments, so they cannot cope with the paperwork that is now being imposed on them—it is just too complicated. SMEs have been far more badly hit than larger companies. Of course, one of the consequences is that you do not hear about it as much.

When we talk about barriers to trade, we think of tariffs, but the barrier to trade for small businesses is the red tape.

The barrier to trade for all businesses is red tape. Even if you go back to those much-maligned Treasury forecasts that came out in 2017, they were absolutely clear that tariffs make up a small proportion of the frictions. It is the red tape and being outside the single market that are responsible for the majority of the cost.

Do you want to say anything more?

What I would say is there is obviously an intimate link between geopolitics and the reset. It is obviously and probably quite sensibly the Government’s ambition to try to minimise that at the moment by trying to remain on good terms with both the United States and Europe. We are in a particularly exposed situation in the UK, because one is our closest security relationship and the other is our closest economic relationship. Whether that strategy pays off only time will tell, but of course one of the interesting things is that European states are all reacting differently. The language of Friedrich Merz about Europe needing to be independent or the long-held position of the French about an autonomous Europe is very much at odds with what our Prime Minister is saying at the moment, but we will have to wait and see what the American Administration do to see whether this strategy pays off.

Do the Government have an overall strategic vision for this reset? We have heard a suggestion of some of the things that the Government might be interested in. What do you think of their shopping list? Could it be longer and more ambitious?

It certainly could be more ambitious, and I think it should be if they are concerned about what the public are looking for. At Best for Britain, we did a poll, with YouGov, of 5,000 voters very recently, and trade is voters’ top priority for the upcoming EU-UK summit. Above defence and tackling migration, the public are looking for progress on trade. You have asked whether I know what the Government’s strategic vision is. We know what their red lines are. We know that that is a firmly held view, and that they believe that the mandate that they were given at the 2024 general election was based on those red lines. So at Best for Britain, the work that we have done in producing policy recommendations through the UK trade and business commission that we run is within those red lines, and there is a huge amount that can be done. According to the growth figures I talked about earlier, there could be up to 1.5% GDP growth if there is deep goods alignment with the EU, and up to 2.2% GDP growth if there is deep goods and services alignment. The detail of how you do that deep alignment is within the Government’s stated red lines. The problem with the Government not having been very explicit about what their strategic vision is—I understand that they do not want to give a running commentary on live negotiations—is that it leaves the rest of us to speculate as to what their vision might be. We have heard that—obviously—defence and security is a very, very high priority. I think everybody is now expecting an announcement on that following the 19 May summit. They also have ambitions for a deal on the agrifood sector and touring artists, which was mentioned previously, but our work with Frontier Economics, the independent econometric analysis that we had done earlier this year, showed that an agrifood deal will deliver 0% GDP growth. While it will of course ease difficulties for some in the agrifood sector, it does not, in aggregate, help the UK economy. Indeed, the agrifood sector itself gets the biggest boost when you do deep alignment on all goods, because of the interconnectedness of supply chains across the country.

In order to get the—was it one point—

It is 1.5% if you do deep goods alignment, and 2.2%—I should enter the caveat that we asked Frontier to give us conservative estimates, so we see these as a floor, not a ceiling. That is without Trump tariffs. With tariffs, those numbers come down to about 1.5% for goods and services alignment and about 1% on deep goods alignment.

Goods alignment means what?

Excellent question. We have talked about Brexit red tape and in particular the impact of that on small and medium-sized enterprises; and the most important way to align on goods will be through the mutual recognition of conformity assessment.

That is an extraordinary—

It is.

For those of us who are getting lost and, I imagine, some of the people who are listening and might also be getting lost, do you mind explaining that?

I will try to make it interesting! When we talk about the thousands of times that all the new Brexit red tape can go around the world from the UK traders that are desperately filling out double the amount of paperwork, it is exactly that. If you want to produce a product that is qualified to be sold into the single market, it has to be produced to those standards and it has to be certified as such with a CE marking. In the UK, we now have the UKCA marking. What this has effectively done is that either it has had a depressing effect on trade and exporters have decided to no longer sell into the single market because the margin is not there once you add on the extra cost and time of duplicating the conformity assessment, or they are spending the money and time to do both in order to still sell in both jurisdictions. Mutual recognition of conformity assessment sounds very dull, but actually is extremely important. With the UK Trade and Business Commission, we have taken evidence from thousands of SMEs across the country, from every corner of the UK and every sector of the economy, and without question, the thing that comes up from all of them is that we need to get rid of that red tape. It is not good enough to have the deal just on agrifood; we need it for all goods if we are to remove the trade barriers at the border.

Just help me with this: I am sure we all remember seeing things with CE on, and now British goods have CA. I can see that in practice that means that you then have to fill in a whole lot of forms and say that your goods conform with CE, because they do not automatically, but what is the real difference? What benefit have we had from having CA rather than CE? What differences are there now in our goods?

That is an excellent question, which gets us into the opposite of alignment, which is what business is calling to have in our relationship with the EU, and into divergence. When we left the EU, we had the retained EU Law Act, which ported the existing EU law on to the statute book that we wanted to bring over. Of course, since then, the EU has continued to upgrade and change its animal welfare standards, product safety standards and children’s toy compliance, and we have not kept pace with that. Either we totally align and keep pace with that, or you have one of two things. One of those is passive divergence. For instance, titanium dioxide—sounds absolutely delicious, I’m sure—is now a banned ingredient for consumption in the EU and is not banned here in the UK. When do you eat it? It is often found in things like icing, so birthday cakes and that kind of product. If you have a product containing titanium dioxide, you can no longer sell it into the single market. What you are getting to, Emily, is that point about passive divergence or active divergence, where we have chosen to go on a very different path from Europe. In things such as AI and tech, there seems to be a direction where we are having more active divergence. The reality is that the benefit for the product is either that we have chosen to follow a different standard or that we do want to keep pace with the standard, so we have dual regulatory regime compliance checking. That is adding to the cost for the business and inevitably being passed on in inflationary means to consumers.

You have talked about the deep alignment of goods, and explained it to me so I now understand what you are talking about. When you were doing the polling, what did the public think about it?

The public are very supportive. We poll it at a constituency level as well as a national level, and it is very clear that across the country, the public are prepared to make trade-offs for a deeper trading relationship with the EU. They are very keen to get the growth that they know is on offer. They have seen for themselves that they are not better off, and that there is a premium to what they are paying as a consequence of global factors and a separate impact from the inflationary aspects of being outside the single market. They want that alignment—definitely; it is the most popular option when given to people in every constituency in the country. Voters get it, and want it, and the risk is that they are further ahead in their ambition for the reset than perhaps we have heard from the Government to date.

What does popular look like? Are we talking 42%?

That is an excellent question. I will share all our polling with the Committee in writing afterwards. Some 53% think that closer trade ties with the EU would have a positive economic benefit; 54% are happy to follow some EU rules to achieve that; and 66% want a two-year reciprocal youth visa scheme. There is plenty of detail and I will share that with the Committee afterwards.

I will go to Professor Menon, then to Professor Paton, and then to Phil.

I just want to make a couple of points. First, alignment is different from access. Alignment makes sense because it means that if we have the same rules as the EU, businesses do not have to conform to two sets of rules. It does not mean that you are free of the checks getting into the single market—that requires something completely different called dynamic alignment. Dynamic alignment is an inherently one-sided process whereby we decide that we will automatically track developments in EU regulation and that the EU court will have oversight of whether we are doing it right. It might involve us paying as well. We can align, but it does not mean we are getting into the market. The second thing is that we in this country sometimes forget that the EU also has a vote when it comes to the reset. At the moment, the EU is a little lukewarm on mutual recognition of conformity assessment, not least because the fact that it does not do mutual recognition has been good business for its conformity assessors. That is to say, it has nicked a lot of the business that we would otherwise have had if it had recognised us, so there is a slightly mercantilist rationale behind this as much as anything else.

To go back to the polling, it is a little bit more nuanced. The poll that Naomi was talking about found that 41% of people wanted closer ties with the EU, but 41% of people wanted either weaker ties or the same ties, so it was fairly evenly split on that. We need to be realistic about the opportunities for growth from the reset. That does not mean that we cannot do good things, but given that trade overall has not been significantly affected, partly because services are so important for the UK, we also need to take account of the fact that the EU is not growing very fast relative to other parts of the world. We have a very good trading agreement with the EU, in that it is tariff-free and quota-free, so relative to our trading agreements with other parts of the world, it is really strong. If you take a step back and look globally at where the gaps are, we have this very strong relationship with the EU, as well as the growing Canadian and Pacific agreement, which covers a lot of countries and is potentially quite powerful. We have gaps in two places: India and America. America is our biggest single trading partner and fastest growing trading partner. Of course, distance is important, but it is only one factor, particularly when you come to services. In terms of looking at the scope for future opportunities, it is important to think about the benefits of alignment, particularly if we go down the route of dynamic alignment, where you lose both political and economic control over standards. That might mean we face risks in relation to deals with the US, for example, not just in alleviating the high tariffs—we have a particular vulnerability to the 25% tariffs on aluminium and cars—but in further developing services relationships, including mutual recognition, and mutual standards on food. The US document on trade barriers was really exercised about the EU’s general approach to SPS and agrifood standards. There are not only benefits to be had but risks in how we tackle the reset, and we need to be clear-headed about what the benefits and costs will be.

I want to come back to the comments you made, Naomi Smith, about how regulatory divergence is impacting the UK. I wonder, Professor Paton, whether you have conducted any research that looks at what impact that has on how competitive British exporters are in the European market compared with our European competitors.

There is very little research that looks directly at the competitiveness of UK exporters. I think it is fair to say that there is a difference between the larger exporters, which are large enough to cover the fixed costs and compliance, and the smaller exporters. It is worth making the point that trade was not necessarily free when we were in the single market. It was costed differently: the UK Government paid the costs of trade by sending tariffs and VAT contributions to the EU. Those costs have now been moved to companies, and the smaller companies have been further hit, but they are faced with similar costs to those of exporting to other countries. On alignment, it is worth saying that in terms of access to the market, companies that choose to export can opt to agree with EU standards, and they have to do that if they want to export. The issue with the single market is that all companies, whether or not they are exporting, have to comply with certain standards, so there may be issues and costs in terms of domestic production. There are potentially some benefits from alignment; mutual recognition is probably less risky than going down the road of dynamic alignment—that is probably something that it is important for you as a Committee to grill Ministers on when they come back with their deal—but alignment might also imply costs for UK-based producers that are not exporting to the EU, as well as having implications for other deals. We need to remember that we are a very big and important market for the EU, and it is right that we look at what the EU wants out of it. It has a vote, and it has incentives, so it is in the EU’s interest to have standards to which we are aligned. That may make it a bit more difficult for other exporters to export goods to the UK, because of course that will mean less competition for their markets, particularly in the area of agriculture, which is an important issue for the EU.

On that point about the balance between the benefits of alignment versus being able to regulate independently, not being part of the EU has meant that, for example, the UK has been able to become a world leader in gene editing in fruits and vegetables. Professor Paton, in your view what are the implications for areas where we have been seen benefits if the reset risks mirroring those agricultural rules?

There are two areas where there is risk. One is the risk to growth, as there are clearly very important potential areas in terms of innovation in food, and AI in particular. The EU may have a reputation for being experts in regulation, but it has not been the best in facilitating start-ups and growth and innovation. There can be a trade-off between innovation and regulation: regulation is important, but when you compare EU growth figures with the States and the far east, perhaps the EU has not quite got the balance right in that trade-off. There is lots of potential there. I am an economist, but I think it is also worth mentioning the political cost in terms of political autonomy. We have talked about animal standards: the UK has banned live exports of animals for slaughter, tightened up shark fin regulations, and done other animal welfare things that would not have been possible in the single market. This was a significant part of the Government’s manifesto coming in, so if we do go down the route of dynamic alignment, we need to be aware of the trade-offs and of the political restrictions that doing so can impose in terms of loss of autonomy. The other question to be asked in reference to whether we have an SPS agreement or some sort of dynamic alignment is: will the EU expect a contribution? We do not know, as we have not had a White Paper from the Government setting out what their lines are. That is obviously an important issue in terms of potential direct financial cost, and if we come on to defence, that is a particular issue there.

There is also a geopolitical element. Clearly in the case of agriculture, if we sign an agricultural deal with the EU, we cannot do one with the United States, so there is that direct trade-off. But in areas like AI or financial services, if we decide to diverge from the EU, we could benefit from that, because we could regulate better than the EU does in those sectors. The difficulty is that in the new security environment, both AI and capital markets are going to be crucial to European rearmament efforts, and one risk is that if we decide to go our own way or look like we are going to move closer to the United States, we might find ourselves having greater problems accessing those European funds and European initiatives on rearmament. The geopolitical situation complicates things quite fundamentally.

Is there more that can be done to help SMEs? Yes, in terms of mutual recognition and easing up some of the paperwork that needs to be done. Even with agriculture, I do not quite agree that it is a question of having one or the other, where if we have an agricultural deal with the EU it means we cannot have one with the US. It depends on the type of deal we have. For example, the New Zealand vet deal that we have with the EU is very much based on recognition. The EU may not be willing to go down this route, but in terms of what the Government should be seeking, it seems like quite a good model that does not put at risk potential relationships with the US. The US is very exercised about SPS and food rules, but the political situation is that the UK is not going to relax or change its rules to suit the US, so if there is a deal, the US will need to comply with UK standards. That is a possibility, depending on what is involved there. The difficulty is if there is open-ended agreement to align dynamically with the EU. That is where the US would have a significant problem. In terms of Government resources, as I said before, the big scope for growth and development  is in the faster growing markets around the world. That means in the US, where we will see that tariffs have reduced growth estimates, although the IMF is still saying that the US will grow faster than the EU or the UK. Certainly, that also means in the far east, developing the Canadian-Pacific trade relationship, as well as India, which has traditionally been a hard country to reach a trade agreement with. You will know better than I do, but if we believe what we hear, we are perhaps not too far from being able to get something there, which would strategically be a really important route to go down. I do not think it is either/or. We just need to recognise the resources we are putting into the growth agenda. Although there are certainly things we can do in resetting with the EU, that is not what is really going to drive growth in the UK economy.

It is worth saying this because you talked about the New Zealand veterinary agreement, which is precisely where geography comes in. The European Union is willing to have quite a permissive regime with New Zealand, because not many cows wander over the border between New Zealand and the United Kingdom. They will not give a deal to a country that is next door, that shares a land border with them, simply because of that factor of geography. Geography matters in the calculations of what the EU is willing to offer different partners as well.

It is also worth noting that, Boris Johnson’s Government’s assessment of the value to the UK of a US free trade agreement was 0.16% GDP growth. That compares with to the 2.2% figure I mentioned earlier in relation to not dynamic alignment but beneficial alignment with the EU for the UK on goods and services.

I think Sir John has more questions on the US.

I have questions on several things. I shall start with a question to Naomi Smith in particular, but others too. You suggest that there are great benefits to be had particularly from dynamic and deep alignment. To what extent is that different from the Government’s red line, which is rejoining the single market?

We at Best for Britain call it beneficial alignment, so aligning when it is beneficial to do so. One of the policy recommendations of the UK Trade and Business Commission was to set up a new UK-EU co-operation council that could oversee alignment and divergence where that needed to happen, or it was in the interests of either side for that to happen. That remains a good idea. It does not involve freedom of movement, so it is not a return to that. That would come with single market access. It is very much about removing as many of the trading barriers and as much of the friction at the border that SMEs in particular are struggling with, though large companies are as well. They might have the balance sheet strength to absorb that shock, but it is eroding margins and having an impact on forward pricing for consumers. Beneficial alignment is about removing as many of those trade barriers as possible, without being a member of the single market.

That sounds remarkably like what Michel Barnier used to call cherry-picking. To what extent is that going to be available to us, where the Europeans will agree to allow us the alignment that helps us but not accepting anything else?

As Anand mentioned, we are one of two negotiating partners. There will be give and take on both sides. We were pleased to see, about a fortnight ago, that a group of businesses and trade bodies on both the EU and UK sides signed a letter in support of mutual recognition of conformity assessments. This is not a demand coming solely from UK SMEs. There is also strong opinion in favour of them in the EU as well.

That is the fundamental difference between limited alignment and the single market. Both of those things are achievable from the European Union. There is no evidence that the EU would even offer us dynamic alignment on anything beyond agriculture. It is worth saying again, that this is dressed up by the European Union as principle. Having an SPS agreement is cherry-picking. It is preferential access to a part of the single market. They can do it if they want to. The problem, at the moment at least, is that they do not seem to want to do it in areas other than agriculture. The choice, therefore, becomes binary: you can do agriculture and nothing else, or you can rejoin the single market, with all that that includes. It might be a negotiating tactic that they are willing to row back on, but at the moment there is no middle ground available.

Your view is that the burdens that small businesses more generally face cannot be removed without a commitment from the UK to rejoin the single market?

Yes, if you want to reduce all the burdens, if you want to get rid of all the paperwork, checks and inefficiencies that have come in, you join a customs union and the single market.

Politics is always about the art of the possible, though. We know that the EU is a rules-based organisation; it tells us that very regularly. However, it does more bespoke-looking deals than simply single market/EFTA/full EU membership. It did so with the trade and co-operation agreement FTA—the Brexit deal we have at the moment. Anand rightly points out the risk aversion to doing deals with countries that are closer rather than further away, but it is worth pointing out that the EU has included mutual recognition of conformity assessments in a recent trade deal signed with Canada. We are much closer to them than Canada is and of course we share a land border. If there is ambition on both sides, I think there is every possibility that something more bespoke could be achieved. The public want this Government to be as ambitious as possible going into the reset.

It is right that the EU has the ability to do that. They face competing pressures from some of their big members. We have seen this with Germany, when its car trade has been at risk from individual countries. From the UK point of view, I think it is perfectly reasonable for us to be clear about what is in our interests and benefits us, and to talk about bespoke deals looking at the CPTPP model for alignment, where you do not diverge from your partners’ regulations where possible, but you retain complete autonomy over what the laws are. I think it is possible for us to do that, as a Government with a strong hand, if you like. Looking at the big picture, of course it would be nice to reduce some of the bureaucratic burdens, but that is not crucial. We are trading well and have a very good trading agreement with the EU. That is the big picture. There is a question about whether we can do better at the margin, but the big picture is that we are tariff-free and quota-free, and trade has held up reasonably well, subject to the caveat that it is very hard to interpret trade figures. There is no evidence of any big drop off, though.

We have a piece of evidence from University College London about shortages of medicines and of medical equipment. So far, we have been talking about us exporting to Europe, but I believe that there have been difficulties with getting medicines and medical equipment over from Europe. It cuts both ways, doesn’t it?

Yes. I do not know the details of the medicine issues but, absolutely, in some sense imports are just as important as exports. People worry about exports in terms of growth, but we import goods because they are useful to us and we want to get them at a good price. They are things we perhaps do not produce in the UK or which we have not got a comparative advantage at producing. The import process is very relevant. I do not think the medicines thing has been highlighted by the Government as an area they are looking to really work on.

No.

However this is perhaps an issue in agriculture. We have not applied the checks on agrifood coming in that the EU have for food going there. The checks keep getting delayed. Some people think that has affected the EU’s willingness to agree mutual recognition. They are not currently subject to the checks and we do not necessarily want to have the checks. If we trust the EU standards, we can unilaterally recognise, if you like. There are some arguments for doing that and delaying our checks further. It depends whether you want to take the Trump view that barriers to trade can be used as a negotiating tool. The scope is there.

On medical devices, you can slice and dice mutual recognition of conformity assessments. You can do it for particular sectors, and the medical sphere is one where I think there is a real mutual interest. No one has an interest in either side being short of medical equipment or drugs, so it is one area where you could possibly come to an agreement to speed things up, and thereby address the question of shortages. Very quickly on the last point made, about the relative competitiveness of UK and EU industries, you have to bear in mind that the playing field is absolutely not level. UK exporters face the full gamut of checks when they export to the European Union. European Union firms who export to us do not, and so have a massive advantage in terms of trade because we have not put those checks in place yet.

Are they not now, since foot and mouth?

That is a short-term measure for that specific crisis. It is not part of the implementation of the border operating model.

Can I go back to the dual objective of the Government, which you touched on to some extent already? The Government are keen to remove barriers and make it easier for businesses to trade with Europe, but at the same time want to achieve Donald Trump’s “beautiful” trade agreement on offer to the UK. To what extent are those two objectives compatible?

Trade is about trade-offs. When we hear about anything the US have ever said—now or in the past under previous Administrations there and here—it is very clear that they want to be able to sell their agricultural products in the UK. Chlorinated chicken and hormone beef are the two most often cited. That is one trade-off. In the other direction, if we talk about trading sovereignty for growth, you are trading the deal with the US in order to accept products that very few consumers in the UK would find palatable and want—and certainly not our farmers, who have already been facing the negative impact of the New Zealand and Australia trade deals. I am sure you will have heard evidence from them yourselves. We have certainly heard, through the UK Trade and Business Commission, that that would make them even less competitive. That is before you talk about the impact on consumers. Those cheaper, lower-quality products flooding our supermarkets would of course be more likely to be consumed by people on lower incomes, rather than those of us sat in this room who would probably still opt for organic home-grown produce.

We need to bear in mind that the UK is not self-sufficient in agriculture. We rely on huge amounts of imports, for example, of beef and lamb—a lot of lamb being seasonal. At the moment, we have completely free imports from the EU, and in particular from Ireland. As a general strategic goal, trying to diversify our food access to other parts of the world is positive. For example, we have diversified our access to sugar. A lot of sugar now comes from Brazil, where it used to come from France. That is a good strategic objective to have, and it can also help with relationships with developing countries. There is the secondary issue of particular countries and food standards. As we have said before, the UK will not change its food standards for US access. That does still leave scope for work with the US. The US are interested in agriculture and other things, but the important thing to focus on in UK is the services sector. That is where we have seen the biggest growth, both to the EU and to the US. It is an area where distance is still important, but overall, probably less important than for the transport of goods. Thinking about mutual recognition in the professions—in legal services and so on—with the US and the trans-Pacific partnership, that is where there is some real potential for benefit. Who knows what will happen with the US, but there is scope to come up with some sort of a deal. Relationships become more important because of tariffs. We know that with tariffs, our aluminium and car sectors are particularly vulnerable. In terms of that trade-off, pre-tariffs, it was still perhaps more important to deepen our relationship with the US; post-tariffs that becomes even more relatively important. That is not to say that we cannot do things better with the EU, but relatively, our focus needs to be on the US and other parts of the world.

The danger for us is that a deal on tariffs is tied to a deal on food standards. When it comes to agriculture, that is the one area where there is a clear and unavoidable trade-off, which is if the Americans say, “You have to lift the regulations that restrict the access of our goods to your market.” That is incompatible with what we need to do to sign an SPS deal with the EU. I think that is the only area at the moment where there is a direct trade-off, but there are indirect trade-offs lurking. As I said before, if we decide to regulate more like the Americans do in areas such as AI, what we do not know is whether our European partners will turn around and say, “Whose side are you on here?” It depends on the extent to which transatlantic tensions intensify.

I would just like to bring us back to my opening statement about which of the three blocs we choose to align with, because the real risk for the UK is bobbing around in the mid-Atlantic and being tethered to precisely no one while they are doing bilateral agreements or tariff wars with one another. Where does that leave us? Professor Paton touched on it as well. I think he said, “Who knows what America will do and where it will end up on all of this?”, and that was exactly my opening point about reliability. In terms of where our Government needs to focus its energy, it needs to be where we can get a deal that is relied upon, rather than one with a regime that imposes tariffs one minute and a 90-day freeze the next. We do not know what will have tariffs come Christmas and what will not, which products they will apply to, and how much those tariffs will be, so the strategic imperative for our Government is to prioritise. It is not about choosing between blocs, but about prioritising the EU. As Anand points out, we risk not getting anything with the US because they are concerned about the SPS stuff we are doing with Europe. Europe may not give us the SPS stuff because they are worried about what an AI deal or a gene-editing divergence might mean for our relationship with the US. That is the real risk: no growth whatsoever, because we are stuck with the status quo. You have mentioned that the TCA is a very good deal, but none of the SMEs, the larger organisations, the fishermen and the farmers I speak to would describe the current deal with the EU as a good one.

You quote the assessment of the potential benefit to GDP from a UK-US trade deal as being relatively small by comparison, but that does not take tariffs into account. For instance, if an alignment between the UK and the EU led to the UK facing the same level of tariffs as the EU faces from an American Administration, that is going to change the cost-benefit analysis quite a lot.

I would imagine not hugely. Anand and Professor Paton would know better than I would about the detail of that, but given that we do not really trade many goods with the US and that tariffs only affect goods, getting rid of tariffs does not automatically mean that you see a surge in services, which is where our trade with the US is.

But as Professor Paton indicated, we are potentially facing the same level of tariffs on things like cars and steel. If we managed to achieve a deal that meant that we were able to reduce those tariffs by comparison with the EU, that would be of considerable benefit.

Yes, it clearly would. It would perhaps be less so on steel, because it depends on the category of steel you are exporting. But aluminium—for aircraft wings, the electric car market and so on—is clearly where things are very important. It is worth going back to the deal. In terms of the strategic importance, we have a deal with the EU that is much stronger than our trading deals with most other countries around the world. I keep going back to it, but it is not that we cannot do things better. There are particular sectors that have faced costs, but in terms of the big picture on the real prospect of growth, there is not a lot more we can do that will really drive growth with the relatively slow-growing market that is the EU. I am not saying we should not be doing something; it is just that in the big picture, that is not our strategically most important area.

Can I just pick up something about the US? We have talked about alignment in relation to the UK and the EU. In the negotiations to try to get a deal with the US—there have been ongoing negotiations for some time—has there ever been any suggestion from the US side that they would change their rules? Let’s not talk about tariffs for a bit; let’s talk about the non-tariff barriers to trade. Has there ever been a suggestion from the Americans that they would change their rules and regulations for any scheme to align with ours? Or is it the other way round, and they always say, “If you want to trade with us, take our standards”?

It is always like that. On the one hand, that just underlines the difficulty of doing deals in services, because it means you have to change your rules at the behest of someone else or accept their rules, so it is very sensitive. Continent-sized economies do not make concessions to individual countries, and that is as true when it comes to us talking to the European Union as it is when we are talking to the United States. There is massive asymmetry in terms of economic heft.

It would not be a question of the US changing their rules or regulations, just as it should not be for us. It is a question of whether they are willing to export subject to our rules and allow us to export subject to their rules. That is the basis of a trade deal, as opposed to the single market, where you agree to have exactly the same standards. A good trade deal like we have with the EU is based more on that idea of, “What are you willing to export? Will you accept our standards when you export?”—of course you have to—and the other way around. Of course there may be an element of give and take in terms of recognising different standards for checks, but ultimately a trade deal does not have to have any give and take on the regulations themselves. You can say, “You can trade free of tariffs, and we’ll try to reduce checks as long as you meet our standards,” and they can do the same.

I am interested, Professor Paton, in returning to Ms Smith’s point about the reliability of partners. Obviously, in President Trump’s first term he ripped up NAFTA and created a whole new trade agreement—the US-Mexico-Canada agreement—and in his second term he has effectively ripped that up with the introduction of tariffs. When we talk about the reliability of a partner, what do you think of the outlook for any agreement signed with the EU versus one signed with the US, and how concrete should we take it to be?

That is a political calculation, and it depends on the nature of the agreement. Our trade and co-operation agreement with the EU would, we hope, be stable. It will be up for renegotiation in a couple of years. Whether the EU has always been a reliable partner is also open to question. For example, in the reset, we do not know what has been going on behind the scenes, but there has been talk of “Well, we’ll come to an agreement as long as you pay into the EU funds,” or, “You won’t have access to EU spending on defence unless there’s a contribution or you come to a formal security pact.” There are concerns on both sides. Clearly with the US, it is hard to interpret exactly what the outcomes are. My interpretation is that President Trump genuinely thinks that the idea of tariffs at a base level can be important for his revenue, and he has been very consistent on that over the years. But there is also quite a willingness and a recognition in the US that they also need to use that as a negotiating weapon to arrive at trade deals, and that is going to be very important for them when you look at the impact on the markets and so on. There is an economic necessity if you like—there is scope there for the US, as long as we do not put ourselves in a position where a deal is impossible.

I slightly take issue with that. If you are asking which is the most stable and predictable regime, the EU or current US one, it is the EU. The EU has the opposite problem which is that it struggles to change. The EU is very predictable, slow-moving and bureaucratic, whereas President Trump is mercurial. It is also worth adding that there is an element of that in our relationship with the EU. You will hear from some capitals in the EU that, “We’re not going to go too far in this reset, because what if you have an election and a fundamentally Eurosceptic Government comes in and unpicks it all?” In a sense, the idea that, “We’re not going to commit ourselves to too much until there’s a degree of predictability about the medium-term political future of the UK,” is something that people are talking about on the continent.

I have a question on transparency. You mention some of the things that the UK is looking to get out of the reset—SPS, touring artists, a security arrangement—but it is not always clear exactly what we are hoping to achieve. That is certainly the case when we speak to European partners: they are very interested in what the UK actually wants to get out of this. How useful is this ambiguity in our negotiating position as we go through the reset? Should we be more specific in our asks, or is what we are doing the right sort of approach?

Again, it is a political judgment—there can be benefits to keeping your cards close to your chest. The danger is, if you look at what happened with the Theresa May agreement, for example, that was announced without much scrutiny. It was announced to a big fanfare but quickly fell apart, because when it came to scrutiny, the obvious flaws came out. There is a danger of that happening if the Government come back and say, “This is the agreement: take it or leave it.” The political scrutiny then starts, and there may be political noise, but there may also be genuine issues that come up that perhaps have not been thought of by negotiators—unintended consequences, particular trade groups, and so on. So that process of scrutiny probably outweighs the need for secrecy.   My view would be that there should be something like a White Paper, setting out very clearly what the Government want to get out of negotiations, what their red lines are, and what they think there is scope for. We have to remember that a lot of these things are about mutual benefit for the UK and the EU. It is about setting those out, letting those be scrutinised, letting people such as this Committee work on flaws in that White Paper. I worry that something will come back and there will not have been sufficient scrutiny.

It has been briefed that the Government’s trade strategy will be published next week, so we may have more detail then. If we think back to when the Boris Johnson Government were negotiating the current Trade and Co-operation Agreement, it was very clouded in mystery. The UK had not done any of its own free trade negotiations for the best part of 40 years, and as a consequence perhaps did not have quite the negotiating muscle that the EU side had. At the time, Best of Britain was publishing reports, written by Australian trade negotiators who had done an enormous number of trade negotiations for Australia over the years. They said you would typically have industry on one end of the phone and your negotiating partner on the other. They would say, “10%” and you would say to your domestic people, “Can you live with 10%? No, but could you live with 8%? We could do 8%.” You would land at 8.5%. The Johnson Government were not doing that. Business did not feel sufficiently consulted at all. It was done in a rush, and in spite of them rather than with them. I think this Government have done a better job at including input from important critical sectors, in terms of the impact on communities versus necessary economic value, but also those that are of very significant economic value to the UK.

May I chip in? If Parliament had a say, as happens in some countries, and it had to go through elected representatives signing something off, that is another negotiating tool. Negotiators could say, “We can’t possibly agree to that, because there is no way that our MPs will ever sign up to it.” We don’t have that in the UK.

Indeed.

Maybe you could say, “How best could this Committee and Parliament in general scrutinise this as we go through the process?” There is a real role for us, which we are just starting to play.

I will come back on that.

There are different layers, aren’t there, when we are signing a trade deal? To be honest, I was a little appalled by what happened to the Trade and Co-operation Agreement in Parliament, when the whole thing was done in 24 hours. You would struggle to read the TCA in 24 hours, let alone scrutinise it.

We still bear the scars.

If you are signing major trade deals, there should be room for parliamentary scrutiny and approval. It makes perfect sense to carry out negotiations in private. The bigger question there is one of comms, isn’t it—whether you want to bring people with you in what you are trying to achieve? There has been precious little in the way of pitch-rolling, as far as I can see, around that. The biggest dilemma on scrutiny and transparency, to which I’m not sure I have an answer, is what happens on a day-to-day level with the European Union. You now have the Product Safety and Metrology regulations, which allow a lot of alignment to be done by statutory instrument without scrutiny. You don’t have the European Scrutiny Committee any more. There is a bit of a hole in Parliament. A lot of the decisions about where to align and where to diverge are, by definition, massively political. They are about winners and losers and big issues of economic principle. I do worry that it is there, rather than in the reset specifically, that we are not scrutinising things as well as we should.

On scrutiny, my advice would be to focus relentlessly on the potential benefits of each of the measures, on how they will benefit either growth or politically. There are also the costs in three areas. One is any direct financial cost that the Government might incur. Related to that is debt, when thinking about the European Defence Fund loan scheme. Secondly is cost in terms of risks to other strategic or trade relationships. The third one is political autonomy—keeping, for example, defence sovereignty—and to what extent there has been a trade-off of autonomy over our own laws, such as the Government implementing their own agenda, as we talked about. Those are the three costs that I suggest the Committee focus on, comparing against any potential benefits.

To focus on cost or value, you need evidence and data. One of the other policy recommendations that the UK Trade and Business Commission published pre-election was the establishment of an independent board of trade, modelled on the Swedish National Board of Trade, which is often looked at as world leading. It would be like an OBR for trade, on a statutory footing. It could publish independent impact assessments of changes to trade deals and new trade deals that are about to be signed, in terms of their impact on every region and nation of the UK and every sector of the economy, so that Parliament would at least have independent analysis of changes to trade deals before it makes that decision.

Why do the Swedes have a board of trade if they are in the EU? The EU does their trade for them. I don’t understand.

Because they like to consult with business. They like to make sure that businesses have a say and a voice in everything the Swedish Government are doing that might affect them, rather than stuffing it full of friends, which previous Governments may have done.

Moving on to security and defence policy, we have been on a few visits to Ukraine and Brussels, and this is an area in which politicians from every Government we have spoken to have been very forward-leaning in asking us to do more. Ahead of the summit on 19 May, what do you think the UK should be prioritising in our security and defence co-operation?

The key thing is capabilities development, and that means access to some of the EU funds that have been created in the last few years to promote weapons development and collaboration between member states. There has been a problem with things like the European defence fund to date, which is that they are defined in such a way as to exclude states that are not in the single market. I don’t think it makes any sense for us not to be part of those conversations, given what is happening in European security, but as importantly, I don’t think it makes any sense for the EU for us to be excluded. That is the key thing.

What do you think the cost of our involvement in that fund might be?

We would have to contribute to the fund, and obviously that will need to be negotiated, because there is always that conversation about how much you are putting in versus how much you are taking out. But if we are serious that over the medium term, Europe has to be better equipped to take on a larger share of assuring its own security, I don’t see how you do that without the UK and the EU working together, and building the capabilities of the future is part of that. There is all sorts of interesting stuff around the edges of that, such as whether the way we do procurement is in serious need of an overhaul. One of the lessons from Ukraine is about agile technology—essentially, Ukrainians are changing commercially available drones on their kitchen tables with screwdrivers. Do you need these massive great defence corporations to dominate defence spending? That is a debate for another day. Then there is the normal stuff around the UK-EU relationship and institutionalising co-operation. One of the things the Ukraine crisis taught me is that, for that sort of stuff, we probably don’t need much from the EU, because we have co-operated very closely with them in a political sense despite the absence of a formal arrangement. The key thing is around the political economy stuff and the capabilities.

The defence industrial piece.

Yes.

So there is no scope for us to be involved in some sort of legal framework around European security, you think, at this point.

In what way?

You are saying that everything the EU does is quite legalistic. Is it worth looking through that lens when we are talking about security co-operation, or is that unhelpful?

A lot of this hinges on our assumptions about what Donald Trump’s ultimate policy towards Europe is. A benign view is that we will have to do a bit more but things will remain pretty much as they are. A more extreme view is that the United States is no longer trustworthy and we have to look to alternatives for NATO. If the latter scenario transpires, a whole load of thinking needs to be done about legal structures. If we think about the conversations around Ukraine at the moment, one of the problems is that there simply is not an institution that is capable of allowing all the Europeans who are in the coalition of the willing—sort of the EU minus Slovakia and Hungary, plus the UK—to work together, independent of the United States. That sort of institution simply does not exist.

I suppose there is the model of the Joint Expeditionary Force, which has a different set of countries. There might be something similar to that.

But it is not the planning process, the deployment plans and things like that. Those of a certain vintage will remember the Western European Union, which was mothballed some years ago. Ironically, that was created precisely in order to give Europeans that sort of framework, but it is no longer there.

On the European defence fund, there are a couple of aspects. There is this €150 billion loan fund, which is part of their funding. There are two ways the UK might be involved. One way is if we were to draw on that fund for our defence spending—yes, there would be an understanding that we would contribute in some way. An important question for the Committee would be, “What would that mean? How would the debt liabilities work?” The other aspect of it, even if we don’t do that, is whether European countries using that money are able to spend some of it on UK defence contractors. At the moment, they have said that will not be possible unless there is some sort of agreement, but I don’t think it is specified what that agreement will be.

We are heading to a defence agreement with Europe.

There is really no reason for the EU not to allow their countries to access the UK defence industry, because the UK defence industry is so advanced and important, and the supply chains are so integrated. That is something on which it is worth the Government and the Committee pushing and exploring.

There are really difficult decisions for Governments here, because it will require some Governments to say, “Actually, we’re going to stop making that.” One of the many problems with European defence at the moment is fragmentation and duplication. Everyone is doing the same thing, and the stuff I make does not fit the stuff you make. If it comes to actually fighting wars together—

This may be quite an advantageous process to get to a European fighting force that is more effective.

That is why, in a way, Europe has ended up buying so much American kit. At least if we all buy American kit, different countries can work it.

Then again, that hinges on your assumptions about the United States. It was very interesting, two weeks ago, to hear the Portuguese Defence Minister—who is a proven Atlanticist—say, “We’re going to have to reconsider our purchase of F-35s because they might stop us using the software.” There are a lot of assumptions on future reliability that you have to think about.

Yes—and the increased use of black boxes; you buy American kit but then you don’t know what you are buying, and you cannot control it yourself. I understand that.

I would like to ask a few questions about youth mobility, perhaps starting with Professor Menon. How important is youth mobility as part of the reset with the EU?

It is very important for some people on the EU side, which is to say that it is very important. I have never really understood why this was a necessary part of the thing, and the way in which some European states have said, “You either sign this or we don’t negotiate further”, has struck me as slightly getting their priorities wrong. It is important because, for some on the European side, it is seen almost as a proof of faith: “If you’re serious about this, give us this.” Economically it is interesting, particularly for a lot of high-skills sectors and services sectors. You talk to people in financial services in this country and they are really keen on it, because they see it as a way of getting access to talent. What I understand is being negotiated at the moment is very similar to the sort of agreement that we had with a host of other countries. I don’t think the economic impact will be huge, but I think the political impact of us agreeing—on the European side—will be significant.

You mentioned pitch-rolling earlier, in a slightly different context. What do you make of the Government seemingly softening their position in public over the last few weeks on this issue?

I don’t know what the opposite of pitch-rolling is, but that seems to be what the Government are doing. This is one of the things that I would love to learn one day. I do understand the political utility of, whenever you hear the words “youth mobility”, saying the phrase, “freedom of movement.” The way in which Government Ministers have responded to questions about this by saying, “We are not rejoining freedom of movement,” has created a link in my mind between youth mobility and freedom of movement, which is ridiculous. It clearly is not freedom of movement.

Would you like to expand on that for the benefit of the Committee?

The youth mobility scheme involves short-term stays with visas; by definition, it is utterly different from freedom of movement. The Government have created that link by referencing it every time, which I thought was a strange political tactic. If I were the Opposition, I would play back the Government’s words if and when they sign up to a youth mobility scheme. It seems to me that that sort of language has made it harder to do what it looks they intend to do.

And a question for Naomi Smith. What does the polling say on youth mobility?

In every single constituency—even in Clacton—it is popular: 66% want a youth mobility scheme for two years, and 50% want one for four years. A majority of people in the UK support it for as long as four years, which is not being discussed at the moment; it is looking like it might be one or two years, maybe with a one-year extension at most. It is extremely popular with all kinds of voters in every part of the country. Professor Menon is right: the EU will want this as part of a negotiation. We talked previously about our relative size compared with the US and the EU. The fact of the matter is that we do not have a huge amount to negotiate with, and a youth visa scheme is one of their asks of the reset, alongside everything we can offer on defence and security. It is very important, and it is incredibly important for young British people as well.

Has your organisation done any cost-benefit analysis of youth mobility for the UK?

When I mentioned the growth figures that we published from Frontier Economics, I said that they were a floor, not a ceiling. That is partly because we did not model the growth from a youth mobility scheme, because it would have been a completely different kind of econometric analysis. One can expect those figures—between 1.5% and 2.2% GDP growth—only to go north if there was such a scheme in place, because of all the economic benefits that we know it can bring, plugging gaps in sectors like hospitality and social care and providing intangible benefits. Young people who come here or go to the EU today are the entrepreneurs and job creators of tomorrow. In terms of a cost-benefit analysis, we have analysed the impact of the 13 other youth mobility schemes we have in place with Uruguay, San Marino, Iceland, Japan, South Korea and Australia, among other countries. In 2023, I believe, more young UK people left to take up those schemes than young people came to the UK from those countries. It is definitely something that young British people would like the opportunity to do more, and obviously, the cultural exchange, and people learning languages and bringing all those new ideas and skills back to the UK, can only be of benefit to us here.

One of the things that is really important—in its own right, and politically as well—is to think about who gets to benefit from a youth mobility scheme. Rightly or wrongly, there was a perception under the freedom of movement that it was something that was done for the middle class and to the working class. That is to say, if you were middle class, you got to go and do your lectures abroad very easily or have your Polish builder, but if you worked in a trade, all it gave you was competition. If and when they put into place a youth mobility scheme, it is important to try to do it in a way that is as inclusive as possible, so that it is not just about Penelope going to Provence for her gap year but far broader in social terms. That is really important in its own terms, but also in terms of how this looks politically.

It has been fascinating listening to your evidence. I was in Brussels for the UK-EU Parliamentary Partnership Assembly, and we heard at first hand how important this youth mobility scheme, or whatever label people use for it, is to various EU member states. It is not just having something written down; it is a statement of intent and of mutual respect for us really resetting the relationship. Professor Menon, you said you do not know why the Government are linking it to freedom of movement, but I think it is really important to make the differentiation, because there are people out there who are trying to mix the two things together. This is about opportunities for the future for business, trade, collaboration and all the things you have all set out. Do you think improvements in the trade relationship are even possible if the United Kingdom says no to both Erasmus and youth mobility, or even one of them, given the strength of feeling in EU member states?

It would be utterly bonkers if a security deal was stymied by a failure, in the current geopolitical context. The security stuff will probably carry on, and that has economic implications because of the procurement things we were talking about. I think it will be very difficult to shift the broader economic relationship. We talked about the Government’s asks. The Government’s asks are a bit odd and slightly trivial in economic terms. I have lost count of the number of times the European Union has told us we can do nothing about touring artists because it is tied up with customs—it told the last Government that three or four times. It is a curious choice of asks, but I think if we say no to youth mobility, any prospect of SPS or anything in the trade sphere will become a lot more difficult at a minimum.

What do you think this means for the wider context of the reset? The Government have really gone heavy on the reset with the EU, given the state of play with US relations and the tariffs and things. If this does not go through, what do you think that means for the future of the reset?

I am not particularly optimistic about the future of the reset in economic terms anyway, because there is a real limit to what we can achieve and what the EU will be willing to give us, but it would certainly look like a terrible diplomatic failure if you came out of the summit without anything agreed. I think the Government have also stopped calling it a reset; they have started calling it strengthening the strategic alliance with Europe, as far as I can see.

I think it would be very damaging for the Government. We know that 43% compared with 14%—three times the number—expect the Government to pursue a deeper relationship with Europe rather than with the US. That is from our YouGov March poll of 2,000 people. Our YouGov poll in April of 5,000 people showed that the majority of people think the Government are not going far enough. Only 15% think that the Government are going too far in the reset, and about 15% think they are about right. If they come away more or less empty handed, bar the security and defence pact, the Government would be perceived poorly by voters.

On youth mobility, I would not overstate the importance of tying that into other aspects of the reset. As I have said before, there are areas of mutual benefit in terms of security and trade agreements; we are a really important market for the EU from an economic point of view. So we should not overstate the importance of tying up youth mobility; it is clearly more important to the EU than to the UK.

Would you not say for the next generation—for our younger constituents—that it actually is really important?

It is more important for the EU in terms of demand—at university, for example. We also found it really difficult to persuade our UK students to go to Europe on exchange. Perhaps it was a language issue, but it was much harder than the US or Australia and so on, whereas it was much easier the other way round. I will just throw in another issue for the Committee. Because there has been talk about university fees and bringing down EU fees to UK level, there is perhaps a question about how that would play in terms of subsidising EU fees. The university sector suggests that base level UK fees are subsidising those students at the expense of students from Nigeria, India or other parts of the world who might be on the full level, so that is an aspect of the relationship. Of course, I love our students going back and forth—that can be very beneficial—but from the point of view of demand, it is more important for the EU than for the UK.

I will say that the EU are pretty happy with the TCA status quo in terms of economics. They can obviously make gains from changing it, but one of the frustrating things about talking about the reset in European countries is that we have fallen off their list of priorities. Talking to us and negotiating with us is just not up there. We forget sometimes that one of the things we have to do is entice them to negotiate. Actually, one of the really curious things is that that is even true in security. We are used to assuming that we are doing them a favour by saying that we will work with them, but that is not how it is seen on the other side at all. They are giving us access to their collaborative schemes—that is how they see it. It sometimes strikes me that there is a slight misalignment of perspective on that.

One final thing to add is that the Frontier Economics work we did modelled the impact of tariffs on the EU and the UK. In a situation where the EU are aligned deeply on services with the UK, they are shielded from the negative impacts of US tariffs by around a third, so there is also potentially that sweetener on top of youth mobility and defence and security for the EU when we do the negotiation.

Sorry, Chair, I should have declared my membership of the UK Trade and Business Commission at the start of my questions.

As we are pausing for a moment, just so everybody knows, there is an urgent question on Kashmir at 12.30 pm, a Home Office question at 1.15 pm and then an FCDO statement on the Palestinian Authority Prime Minister’s visit.

On law enforcement and tackling crime more broadly, there is a two-pronged approach. You saw in the memorandum of understanding that we signed with the Germans that we are planning to do stuff with individual member states. For me, on the reset, the important thing is to try to get quicker access to the EU information that we lost access to after Brexit. I should add, in parentheses, that that sort of access is tied very intimately to membership of the ECHR, as far as the EU is concerned. We lost access to things such as the Schengen information system II, and there are technical ways by which we can perhaps prevail on the EU to share more information more quickly, via Interpol, that we can get our hands on. There might be ways of working with Eurojust that are better than those that we have at the moment. There are technical fixes that we can use to improve information sharing. On the broader question of irregular migration, everyone is struggling with the same problem and no one has a solution, so I am not convinced that talking to the European Union is going to solve the problem. I have always been rather sceptical about a returns agreement, because irregular migration is massively politically salient in the member states as well. It would be a brave EU Government that says, “We will take people from you without sending people the other way.” I think it is going to be really difficult to agree anything on that, to be honest.

As far as I know. I am not privy to what the UK Government is negotiating with individual member states. The model of the German deal suggests to me that it is something that they are going to talk about bilaterally, or at least with some of them.

It is clearly very important in relation to the labour market, in terms of short-term shortages, and also for long-term productivity. We have had an ongoing debate about the impact of large-scale migration at the lower-wage end of the scale, and how that may depress productivity and provide excessive competition for UK labour markets. I think we are now in a position where we can take this from a global point of view—and we have been since Brexit. It has obviously not gone away as an issue. But I think that it is probably important for us to bear in mind that it is not just about our relationship with the EU, in terms of free migration; it is about looking across the board so that we can have, ideally, a more rational economic look at the sort of migration we want to see, and at where the skills shortages are—whether that is via a points system or some other mechanism. I think it is important not to take the EU reset in isolation when looking at that. At the moment, I think the Government has struggled under the weight of numbers, and that has driven the political narrative. That has perhaps prevented a more focused analysis of the type of managed migration that we want to see. It would be nice to get to a position where we can do that and look at what is really going to benefit us long term, in terms of capturing global talent and driving productivity.

Not that I have done, but there is a lot of polling in terms of migration, which is done very regularly. I think that Ipsos probably has the longest-running tracker on sentiment on migration. We have done it on youth mobility and freedom of movement. Actually, freedom of movement was surprisingly popular when we polled it most recently. I will share that with the Committee in writing after this session. On the issue of managing migration, I think successive Governments have failed to plan for migration and population change. When we look at countries such as Canada that have done it much more effectively, it is because they have taken a much less laissez-faire approach to managing migration. There is a lot more that goes into helping people learn English and French—state-funded schemes and projects for that—and a better proactive approach to home building and making sure that people do not feel as though they are being squeezed out of their area because of migration. I think there is an awful lot, very separately from the reset, that Governments could do in terms of managing population change. When it comes to specific skills, as Professor Paton mentioned, in the short term we do have shortage occupation lists, and they are growing. They have grown since we left the EU. When we are speaking to sectors like hospitality in particular, but also health and social care and agriculture, they are suffering acute shortages, and the problem is that the people who do not have jobs are not in the areas where those jobs exist. There is a very holistic view needed around transport, housing and access to the jobs that exist, if you are thinking about filling them from the domestic market. We very much welcome a joined-up approach with Skills England on looking at all of this in the balance. It has to be a twin-track approach.

We have done some work on the polling, and there are several things that come out of it. On the macro level, one of the interesting things is that the public’s concern about and opposition to immigration are both significantly lower than they were in 2016. One of the most interesting phenomena we have seen in this country is that the salience of immigration dropped precipitously after the referendum. If you think back, it was not really talked about in the 2017 or 2019 elections. It has gone up a bit since 2021, in terms of salience and concerns. If you dig into it and ask people, “You want immigration numbers to go down. Which of these areas would you like to see immigration numbers go down in?”, the only one where there is massive, overwhelming support for fewer people coming is bankers. In all other areas, there is basically a plurality of people who say they do not want numbers to go down in social care or healthcare, or among students or whatever it might be. Even those people who think it would be good if the numbers were lower, if you provide them with different categories, struggle to make that work in a practical sense.

In a visit I seem to have made to a by-election seat, we had people talking to us regularly not about what profession people had, but about the fact that there were young men—they did not know who they were or where they came from—hanging around in the centre of town and making people feel excluded from their centre. They do not tend to think of it in terms of, “We need people for this job.” It is the social impact of particular situations that has quite a big impact on people.

I also think the debate about regular and irregular migration often gets muddled up, which does not help in having any clarity for either.

It clearly does not, and I think the point about the change since the referendum is very important. The notion that we, in principle, took back control over deciding who was migrating into the country was a very important pressure valve release for public opinion. Of course, that does come under tension when it is irregular migration, and people still see that there is not any control there. That is where that tension comes in terms of people’s slight ambivalence to migrants.

Since the UK left the EU in 2020, the UK’s fishing opportunities have increased each year. The current agreement on fisheries expires in June next year, and there has been a very public discussion, particularly from some member states, about linking a defence and security agreement to fishing rights. How far apart are the UK and the EU on fish? How can industries that are vital for some parts of the UK—in this instance particularly for coastal communities and for Scotland—but that might be perceived as small in comparison with other sectors, not get lost in these negotiations?

The latest we have been hearing is that both sides have agreed, more or less, to stick with the status quo on the fishing quotas. Professor Menon can correct me if I am wrong, but that is the latest we have heard, and we will hear more about that in the coming month.

But the status quo is that it is coming to an end next year.

No, I think they are pre-briefing that that will get rolled over.

What is being briefed at the moment is that there are moves towards maintaining the status quo on a multi-annual basis, so it will go beyond next year. Bear in mind that the trade-off is deliberate. When they made the fishing quota deal run out next year, they made it coincide with the deal on energy co-operation. Right from the outset, there was a very clear desire to do linkage on the EU side.

And you are right: the economic value of the fishing industry is one thing, but the contribution to the communities where it is based is enormous. The fishing industry has been appallingly let down. The catastrophic decimation, frankly, of that industry is not to be undermined at all. If there is one thing we have heard again and again from the fishing sector as we have been taking evidence as Best for Britain at the UK Trade and Business Commission, it is that we could have all the access to all the fishing waters in the world, but if we cannot get the fish to market—if we do not remove the trade barrier to sell it—it is pointless. They are very supportive of removing those trade barriers and getting the alignment to help them to actually sell a Dalgety Bay prawn that needs to get on to a restaurant table in Paris by lunch time. If it gets held up at the border, forget it—you have lost the lot.

But it is true that the catch in the UK has increased very significantly since before Brexit, as you would have expected with the quotas, and that fish has been sold. I do not think that these are barriers that we cannot get over. There will be disappointment in the coastal communities if the balance is not further extended after 2026 in the UK’s favour—that was certainly the hope. There is more pressure from the EU because, economically, the fishing industry is more important in certain countries in the EU than it is to the UK, but we should not underestimate its political importance in the UK. It may be small in numbers, but there is scope for quite a lot of growth there, and these communities are very significantly affected and I am sure it will be on MPs’ minds. It is perhaps something for you to explore. It would be very disappointing if the fishing industry was used as a negotiating tool for other areas that may end up not being so strategically important for the UK. It is certainly something for the Committee to watch out for.

Are there any lessons that the UK can learn from the recent EU-Switzerland agreements?

We got the SPS agreement with Switzerland. Switzerland is a very different case because it is landlocked. It is surrounded by the EU, so pretty much all food imports go via at least one EU country unless they are flown in. My understanding is that that involves some element of dynamic alignment. It has not been described as a red line in the Government, but it would be consistent with the red line on the single market that it would be a very big step to move on agriculture in a way that we agree to European Court oversight and to change our laws dynamically. That would be a very big step change with all sorts of implications for our other relationships and our political autonomy. That does not mean that it will not be proposed—we do not know what the Government are negotiating over—but I would have thought that that would be a very significant step. It is hard to see how Switzerland is the right model for us to be looking at.

What the Swiss deal shows us is that dynamic alignment is the price of access that the EU will demand. I do not think there is any flexibility on their side at all about that. Again, it is partly down to size. The EU is a big enough market to think that it can say to its neighbours, “If you want access, you align dynamically.” It is also worth stating that, if you want to go beyond individual sectors that the EU is happy to negotiate in, the Swiss accept freedom of movement and pay into the EU budget. There are very strict limits to what we can do while keeping to the Government’s red lines. The final point worth making is that any EU policymaker you talk to, if you mention Switzerland, will grimace and say, “We hate the Swiss deal.” They are not in favour of duplicating that in any way, shape or form.

Can I raise one point on the market? In agrifoods, including beverages, we export about £13 billion to the EU. They export to us about £46 billion per year. We are a huge market and much more important to them than they are to us in terms of the level. That needs to be borne in mind in our negotiations.

We have one more section of questions. I want to try to get through it in about 10 minutes so that those who want to can get to the UQs.

What is the minimum set of outcomes from the 19 May summit that you would deem a successful reset? We have differed on the term “reset”, but, summarised in three bullets, what would you say is a success?

First and foremost, that we get a security deal that gives us access to EU procurement funds. Secondly, that the relationship is institutionalised in the sense that provision is made for frequent interaction at not just the official but the political level between us and the European Union. It is mad that the Chinese get an annual summit with the EU at a political level and we do not, so that needs to be written in. Finally, if you want to build the relationship, practical milestones need to be built into the summit communiqué that do not just set out vague ambitions but say, “We’re going to negotiate on SPS and we expect to be able to report back by this date and that date.” There need to be very clear, verifiable milestones. If the Government are serious about renegotiating, that needs to be written into the communiqué. Those are my three.

I will go with just two. First, the security and defence pact—or whatever it will be called—is clearly urgent and of most significant importance. Then, whether it is called a political declaration, a strategic partnership, a framework for future negotiations—whatever political title it is given—we need a timelined framework for negotiations on all the things that we know will remove friction at the trade border, like mutual recognition of professional qualifications and conformity assessment, issues around touring artists, and whether the youth visa scheme can and will happen, what flavour it will take, how long it will last, the age limits, and when it can come into force. If we got that from the overarching ambition for the TCA reset into 2026, that would be great.

I think success can be gauged as much by what is in the agreement as by what is not in it. It would be lovely to see some progress on mutual agreements on trade facilitations and so on, but it would also be good to see, for example, that we retain defence sovereignty, political autonomy over our laws rather than European Court oversight, and flexibility to continue to develop our geopolitical but economic strategic partnerships with other parts of the world, and that they are not compromised by things in the reset agreement.

As a wrap-up question, I want to take what Uma said a little further. It seems that we all agree it is not going to be fixed in the next month or so, and that this will need to be an ongoing negotiation. To link back to our original questions, what is the Government’s overall strategy? What is it that needs to be achieved? What do we think the Government should be going for? Let me ask it this way: by the end of this parliamentary term, where do we hope that we will have got to in our negotiations with the EU, and how would we measure success?

The first thing I would say is that, in the broad gamut of things that the Government do, this is not the priority. The priority is clearly economic growth, and it is clear from the terms of the reset that it is not seen as central to the strategy for economic growth. As we have discussed before, the things that we are talking about in the context of the reset are not that important when it comes to the aggregate size of the UK economy. My sense of the Government’s strategy on the reset has always been that they want better, closer, friendlier relations with the EU and its member states, while actually committing to changing remarkably little of the extant economic relationship. Security is a completely moveable feast because of what has happened since the US inauguration, so that is a different kettle of fish. But on the economics, the ambitions have been very limited to date, bound partly by red lines and partly by a desire not to have public debates about the EU and the reset—that is not where the Government want political debate to be. Judged by those metrics, we would set quite a low bar for them by the end of this parliamentary term.

Their ambition—the growth—needs to be delivered. That is their No. 1 stated ambition, and by the end of the Parliament they need to have delivered that. I cannot see another policy proposal or infrastructure project on the table that delivers you 2% GDP growth over that period, but alignment—beneficial alignment, rather than dynamic—on goods and services can deliver that. This is a point that I should have made previously: we asked Frontier to break down the GDP growth figures by nation and region of the UK, and there is a disproportionate benefit in growth for—Professor Paton will be pleased to hear this—the east midlands, the west midlands, Yorkshire and Humber and the north-east, because those regions are the manufacturing heartbeat of the UK economy. As the Government head towards the end of the Parliament and into an election period, delivering on not just economic growth but well-distributed growth around the country, with people beginning to feel the impact, is without question the most important thing for them to be focusing on as they head into this reset or rapprochement or whatever we call it now.

The reset is not going to be the driver for growth, so that is not the strategic driver for the Government. It is hard to disagree with Professor Menon’s assessment that, if we end up with friendlier relations but not changing that much that might risk other aspects that do affect growth, that will probably be not too bad an outcome.

Thank you all very much for your time. We do appreciate it. I know that Naomi Smith has already committed to sending us some further information, but if there is anything else that you have not shared with us today and would like to send in, please do so and we can add it to the evidence that we are collecting. Thank you all very much for your time.