"Botched" Brexit: should Britain rejoin the EU?

It is nearly ten long years since the British people voted for Brexit and to leave the European Union. The latest opinion polls show that a majority now believe that Brexit has gone badly. Too much time has been wasted searching for a satisfactory halfway house that does not exist. The additional uncertainty has delayed business investment and dampened economic growth. The increase in friction at the border has hampered the UK’s trade with the EU, at least in some goods. The politics has also remained toxic. In particular, net migration to Britain has surged, rather than being brought under control. The carving out of Northern Ireland has undermined the integrity of the UK.

On the other hand, even this “botched Brexit” has not been the economic disaster that many predicted. The UK still leads the rest of Europe as a destination for foreign investment. Domestic investment is rebounding as uncertainty fades. There has already been some good progress in lowering barriers to trade with the rest of the world. Meanwhile, trade in services has boomed. The City of London continues to flourish and is now a champion of the benefits of smarter regulation. Susan Langley, the new lady mayor, has said that the prospect of realigning financial rules with the EU has passed and warned against linking regulations to any single jurisdiction.

On the money front, Britain has already saved tens of billions of pounds in contributions to the EU budget. Some argue that this has been more than offset by the loss of tax revenue as a result of weaker economic growth. However, it is still hard to separate the impact of Brexit from other shocks, notably the UK’s relatively high energy costs. Overall, the performance of the UK economy has been similar to that of France, and much better than Germany’s. The really big divergence has been between Europe’s persistent economic weakness and America’s strength.

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Finally, just to chuck another uncertainty into the mix, many argue that the creeping isolationism of the US under Donald Trump has strengthened the case for Britain to realign more closely with the EU.

Is Brexit being reversed by Keir Starmer?

This is the complicated backdrop against which many of the old debates about Brexit are now resurfacing. Thus far, Keir Starmer’s Labour government has attempted to steer a middle course, with some success. Under Starmer, Labour has stuck to the “red lines” in the party’s 2024 manifesto. This explicitly ruled out a return to the EU’s single market or to the customs union and said no to the restoration of “freedom of movement”. In the meantime, the Labour government has developed the new global trade deals started under the Conservatives and continued the gradual decoupling from EU rules in areas such as financial services and animal welfare (both for the better). Until recently, the long-scheduled “UK-EU reset” also looked like something that most people could happily support. The government was simply proposing to tidy up parts of the post-Brexit arrangements that could easily be improved. Examples here included the mutual recognition of veterinary standards and professional qualifications, and making life a little easier for touring artists.

This strategy has had some real benefits. Brexit has dropped way down the list of concerns for the public and, at least as importantly, for businesses. The Bank of England’s “Brexit Uncertainty index” had already fallen sharply since 2019, but it has remained low under Labour. Yet, this “middle way” now appears to be unsustainable. Labour had framed its position as accepting Brexit as a settled fact. But 2026 could be the year when this starts to change.

This partly reflects internal Labour party politics. The days of Starmer’s premiership appear to be numbered. Potential leadership rivals, notably Wes Streeting and David Lammy, have already broken ranks by backing a new UK-EU “customs union”, at least implicitly. This followed YouGov polling that suggests that 80% of Labour voters would also be in favour. Prominent figures in the trade-union movement and in the media are banging the drum for the customs union, too.

This echoes a wider debate. Could renewed and closer ties with the EU help to address Britain’s economic problems? Some say that forming a new customs union would be a good first step. Others argue that we could also improve our access to the single market by accepting more EU rules. But scratch just a little deeper and it becomes clearer that the choices are not that simple.

In a nutshell, a “customs union” is an agreement to remove tariffs on most, or all, goods traded between member countries. To make this work, all members must apply a common external tariff to goods imported from outside the union. It is not possible for a non-EU nation state, such as the UK, to join the EU’s Customs Union (capital “C”, capital “U”). But it would be possible to enter some more limited form of “customs union” with the EU, as Turkey has done, and as then prime minister Theresa May initially proposed as part of her Withdrawal Agreement.

Would a customs union with the EU work?

However, there are three compelling reasons to oppose this idea. First, there would not be much to gain in terms of lower tariffs. Most UK-EU goods trade is already tariff-free and quota-free under the terms of the existing deal (the EU–UK Trade and Cooperation Agreement). Admittedly, EU tariffs are still charged on some imports from the UK where the appropriate “rules of origin” are not met, including some high-tech manufactures, or where it is too costly to prove compliance with them, such as some low-value goods. But any remaining tariff benefit from a new customs union would still need to be set against the UK’s obligation to apply the EU’s tariffs on goods that we import from the rest of the world. These EU tariffs are often higher. The UK would probably also be obliged to share customs revenues with the EU, and to allow countries that the EU has trade deals with to access UK markets with no guarantee of reciprocity.

Second, there is not much to gain in terms of non-tariff barriers either. Crucially, there would still need to be checks at the UK-EU border, especially if the UK remained outside the single market and the Schengen free-movement zone. These checks could only be reduced by accepting a raft of other European regulations – with no say on how these are determined.

Third, the ability to do independent trade deals with other countries would be severely limited. The UK might still be able to negotiate a few agreements covering some aspects of trade in services, but not trade in goods. At the very least, the government would have to renegotiate all the new trade deals it has done since Brexit – as Starmer has rightly stressed. The UK may have to cancel most of these new deals altogether, making the UK look like a very unreliable partner. For instance, UK goods exporters currently face lower US tariffs, on average, than those from our competitors in the EU selling the same products. This advantage is partly due to Brexit – and it would be lost.

Any support for rejoining a “customs union” would surely fall away if these costs were properly explained. Indeed, other polling by YouGov last summer found that only 9% of Labour voters would be happy for the UK’s tariff policy to be decided by anyone other than the UK government itself.

Single market would bring few benefits

There have also been many dodgy claims about the economic benefits. In particular, the Liberal Democrats have argued that a new customs union with the EU could boost the UK economy by 2.2% and tax revenues by £25billion. These figures are attributed to a February 2025 study by the consultancy Frontier Economics. In reality, this study relied on some heroic assumptions about the impact of small changes in trade openness on productivity.

Moreover, the report modelled something that is simply not on the table, namely regulatory alignment based on “mutual recognition”, with the most favourable results assuming that this applies to both goods and services. So this was not, in fact, the same thing as a “customs union”.

Some supporters of a new UK-EU customs union also still claim that the EU would be willing to offer relatively favourable terms. But this is a triumph of hope over experience. The recent negotiations over a limited UK-EU reset have stalled in several areas precisely because the EU wants to extract every possible concession. For example, the UK is being asked to overpay to rejoin the EU’s Erasmus student exchange programme and even for the right to contribute to Europe’s defence. Adopting the EU carbon-emissions scheme and imposing additional carbon taxes will raise energy costs even further.

There is also little evidence that realigning with the single market would provide much of an economic boost. EU policymakers are experts in “managed decline” and masters of overregulation.

It might be argued that the EU is a worse place without the UK to support other more instinctively market-liberal countries. But the counter-argument is that it would be madness to seek to realign more closely with a failing economic bloc. The euro debt crisis and now the need to ramp up spending on defence have put modernisation of the EU on hold.

The UK could do more good by demonstrating the economic advantages of supply-side reform and smarter regulation outside the EU. If other European countries then want to follow, all the better. Indeed, Europe’s biggest banks and insurers have already called for EU regulators to copy the example of the UK with a formal objective to support economic growth and competitiveness, intensifying the sector’s drive to ease the cost and complexity of its rules.

A more positive vision of Brexit

This would support a more positive vision of Brexit, based on going back to basics. The vote to leave the EU in 2016 was essentially a vote to regain control of borders, laws and money. Polling shows that the British people still want their own government to make policy in a wide range of areas, not just trade. This is surely incompatible with giving sovereignty back to the EU. Viewed this way, the UK must be able to diverge from European regulations, especially in growth sectors such as AI and life sciences. The UK also needs to be able to run its own trade policy and choose who comes to live, work or study here.

This more positive vision of Brexit may seem hard to square with the academic studies that suggest that the departure from the EU has had a large and negative impact on trade, productivity and growth. But just like the headlines from opinion polling, it is worth digging a little deeper. This can be illustrated by dissecting two numbers – 4% and 8% – which are widely quoted by those arguing that the UK should rejoin the EU, or at least the single market and customs union.

The 4% is the assumption made by the Office for Budget Responsibility (OBR) about the long-term impact of Brexit on UK productivity. Clearly, any analysis from the government’s own fiscal watchdog needs to be taken seriously, but this figure is widely misunderstood. For a start, the 4% is simply an average of the results of 13 external studies, rather than original work by the OBR. These studies, all done before the final shape of the exit agreement was known, used a variety of different models and assumptions, most of which now look far too pessimistic. Even then, nine of these studies put the impact at less than 4%.

Moreover, the key driver of the 4% hit to productivity is assumed to be a sharp fall in the “trade intensity” of the UK economy. Specifically, UK imports and exports are both assumed to be 15% lower than if we had remained in the EU. This covers total trade, both goods and services, and with the whole world, not just the EU. These assumptions are only weakly supported by the actual data – if at all. Falls of 15% had always looked pessimistic given the relatively favourable tariff terms in the initial UK-EU trade deal. In reality, the overall “trade intensity” of UK GDP has continued to track that of our peers in the EU, rather than collapse.

Most economists agree that UK trade has held up much better than expected after Brexit. The UK’s trade intensity might be a few percentage points lower than it would otherwise have been. This is unlikely to make much difference to productivity in a large, advanced economy that remains relatively open. Moreover, any drag is likely to fade over time as businesses adjust, the full benefits of new post-Brexit trade deals start to come through, and the major EU economies continue to underperform against the rest of the world.

Last but not least, the OBR’s 4% does not take account of any potential benefits of Brexit, including new trade deals, smarter policies on immigration and better regulations at home. This omission is partly because the OBR judges that these benefits will be small. But it is mainly because it does not usually incorporate the impacts of policy changes that have not yet been made.

Applying the smell test

But one of the most extreme estimates of the “harm done by Brexit” comes from a Working Paper published in November last year by the US National Bureau of Economic Research (NBER). This study estimated that Brexit has already shrunk the UK economy by as much as 8% since the vote to leave in 2016, which would indeed be nothing short of a disaster.

However, the 8% figure fails a simple “smell test”. For context, the UK economy has grown by about 12% since 2016, outpacing Japan, Germany, Italy and France. If you add another 8% the UK would have been the fastest growing economy in the G7 – bar only the US – and left its EU peers far behind. This would not be impossible, but it is surely unlikely.

So, how did the authors of the NBER paper arrive at an 8% hit? They compared the UK’s per capita GDP growth since 2016 to that of a wide range of other countries and assumed that any underperformance must have been due to Brexit. There are a number of problems here. But briefly, any GDP-weighted comparison is dominated by the US. Over this period the US economy has benefited disproportionately from low energy prices, a large fiscal stimulus and the boom in artificial intelligence.

The NBER paper also uses a computer program to find the weighted group of countries (or “doppelgänger”) whose performance was closest to that of the UK before Brexit. This control group can be a very odd bunch. The NBER doppelgänger gave the highest weight (61.4%) to the US, followed by Estonia (10.9%) and Greece (9.5%). Latvia, Iceland and Hungary also featured. There was no place for Germany or France, which are more obvious benchmarks. More fundamentally, the best fit in one period and in one set of circumstances may not be the best in another, especially where there have been many other shocks (not just Brexit) which could be expected to hit the UK differently, including Covid and the energy crisis.

Finally, Canada is the laggard among the G7 group of major advanced economies in terms of growth in per-capita GDP, not “Brexit Britain”. That perhaps has something to do with Canada’s very high levels of net immigration – a feature shared with the UK. But clearly it cannot be blamed on changes in trade relations with the EU.

Which way should Britain jump?

In summary, the mainstream narrative on Brexit’s economic impact relies on many dodgy assumptions and selective use of data. While it is important to acknowledge the negative effects, it is equally important to question the magnitude and duration of these effects, and to consider alternative explanations.

Looking forward, the UK needs to decide which way to jump. Many will continue to argue that Britain’s economy can only thrive again if properly unbound from the EU. However, it is increasingly easy to imagine Labour heading into the next election with an explicit commitment to realign much more closely, even if this stops short of full membership. That would at least be a more honest position than the current fudge. But reopening the “Brexit wars” could increase uncertainty again and do more harm than good, especially as many in the EU seem as determined as ever to punish the UK for daring to leave.

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