Britain and the EU can share ‘mutual investments’

Good afternoon. We had a sneak preview of the dismal quality of debate we can expect in the forthcoming general election campaign this week when Rishi Sunak attacked Keir Starmer at the despatch box for being the author of a book on the case law generated by the European Human Rights Act. (Used copies available on eBay for about £6.50).

It was a pretty sorry attempt to distract from another two days of internecine Conservative party warfare over its plans to send small boat arrivals to Rwanda for processing. (One day, you never know, the discussion might actually turn to the UK’s crumbling public services and infrastructure.)

On the substance of the Rwanda legislation Sunak comfortably saw off the rebels to stay just about on the right side of international law, but nonetheless, the threat of legal shenanigans still gets noticed in some quarters of Brussels.

Any talk of ignoring the rulings of the European Court of Human Rights would “cast a shadow on the UK’s trustworthiness and ability to abide by international treaties”, wrote Nathalie Loiseau, who chairs the UK-EU Parliamentary Partnership Assembly in the European parliament.

One shouldn’t clutch one’s pearls too hard — the EU is riven by its own challenges over handling illegal migration and Loiseau, a former French Europe minister during the heat of the Brexit negotiations, is a longstanding critic of Brexit Britain — but it all contributes to the picture of a ragged UK in the final throes of the Johnson-Truss era.

Perversely, the further down this road Sunak goes, the easier it will be for Starmer, if he wins this autumn, to draw a very clear line in Brussels and Paris between his administration and the last eight years of strife. This will hold doubly true if Donald Trump, riding high in Iowa this week, also wins in November.

How that shift towards the EU lands with the British public will depend in part on how broadly Starmer chooses to address the issue of repairing UK-EU relations, not just on general rule of law issues, but as part of his promised drive to revive UK trade and investment.

This week I found myself alongside Professor Chris Grey doing a webinar discussion on the state of Brexit for the European Movement, a campaign organisation dedicated to taking the UK back into the EU.

I fear we both somewhat disappointed the pro-rejoin fraternity by dwelling too much on how long and complex the process of re-engagement (let alone rejoining) is going to be.

It’s not about rejoining tomorrow

But as Mike Galsworthy, the EM chair, put it to me after the event, this isn’t about rejoining tomorrow but starting to rebuild relations in a way that puts the UK back into the wider European neighbourhood at a time when we face mutual strategic challenges.

“The direction of travel is still back towards British-European cohesion and away from the fever dream of Brexit,” he said. “So that’s still all good because it’s the fundamental principles of human collaboration and mutual investment that matter. Those will be the foundations to rediscover and everything else flows from that.”

Hard to disagree with any of that; the trickier question is how to translate that slightly fuzzy sentiment into a more concrete approach of actual collaboration and “mutual investment” in strategic industries including defence, green technology, science and pharmaceuticals.

We saw last year that it took seven months to come to a deal to avoid electric vehicle tariffs despite an overwhelming mutual strategic EU-UK interest to build local supply chains as a hedge against the dominance of China.

But Brexit has created a wealth of such counter-productive barriers whose drag effects will increase if the trends towards local-shoring and deepening regional trade blocs, noted in last week’s newsletter, are borne out.

Drug licensing delays

A concrete example. This week I spoke to Mark Samuels, the boss of the British Generic Manufacturers Association, which represents the UK end of an industry that provides four out of five drugs prescribed by the NHS.

Brexit has been a miserable experience for the industry. The BGMA has said that since Brexit there has been almost zero investment in the UK generics industry compared with £4bn in Europe, with manufacturing output down by one-third in the decade to 2021.

All these things have complex causes, but Samuels points to two major Brexit factors.

First, he says budget cuts and restructuring at the UK regulator, the Medicines and Healthcare products Regulatory Agency (MHRA), have led to a doubling of wait times to get generic medicines approved.

So in 2019 it took 12 to 15 months for the agency to license generic medicines. But as a result of Brexit the MHRA lost the EU regulatory approvals work that provided 20 per cent of its budget. Now (December 2023) it takes 24 to 30 months to get a generic drug licensed.

“The MHRA currently has a backlog of approximately 500 generic medicines to license. The agency licenses 35 to 50 generics per month as its maximum capacity, so a 500-medicine backlog is over a year’s logjam,” Samuels says.

This can be fixed with more money. The resourcing of the UK’s post-Brexit regulators is out-of-whack with the country’s ambitions to be a “science superpower”. A Labour government could start to address that.

Second, under the terms of the UK-EU trade deal, the European Medicines Agency (EMA) does not recognise “batch-testing” (checking medicines conform to standards) that is done in the UK. This has to be done in Europe — so, just as Michel Barnier warned, the UK would not be allowed to become a “certification hub” off the coast of Europe.

The question is whether a Starmer reset that engenders the neighbourly “goodwill” and mutual interest imperatives that EM’s Galsworthy alludes to could actually translate into fixing material issues such as this, where narrow commercial interests are at stake.

Samuels points to the Windsor framework negotiations (where issues on medicines were resolved by the European Commission) as evidence that Europe can address these problems when it suits them.

That may sound naive to old UK hands that have been scarred by years of butting heads with the commission, and know that any read-across from the unique circumstances of Northern Ireland to the wider relationship is tempting, but likely futile.

But Samuels argues for a bigger-picture view. In a world of pandemics, narrowing global trade blocs and the US no longer guaranteeing European security, a UK that was deeply committed to the European neighbourhood ought, he says, to be able to reframe narrow issues, such as medicines and cars, more broadly.

“If you were to think of medicines as a regional security issue, you’d want the whole of Europe, including the UK, to be resilient. The world has changed. We have two wars now in Ukraine and the Middle East and colleagues minded to take a regional perspective ought to be open to the issue of batch-testing.”

There are a series of big leaps there, but given the state of the world at the moment, it is worth both sides lifting their gaze to the horizon.

Brexit in numbers

This week’s chart comes from an interesting new paper by Jonathan Portes, professor of economics and public policy at King’s College London, which tries to assess the shift in the composition of migration to the UK after Brexit.

Portes compares actual HMRC payroll data with a counterfactual UK where Brexit didn’t happen. He allows for the likelihood that EU migration to the UK would have fallen anyway after 2016 — Portes takes Germany as a benchmark which saw a 50 per cent fall in EU migration in that period to 2022 — but still finds a sharp drop in EU migrants to the UK post-Brexit.

He estimates that EU citizens employed in the UK are about 600,000 lower in total than they would otherwise have been absent Brexit, while non-EU numbers are about 900,000 higher than if pre-June 2016 trends had continued.

What’s interesting is that, despite the introduction of salary thresholds under the points-based immigration system, there is a big jump in non-EU workers doing relatively low-paid jobs, such as social care, hospitality and administration.

Portes ascribes this — in the title of his paper — to the “unintended consequence” of those lower wage jobs being filled by the dependants of those coming to the UK from outside the EU on work visas, student visas or by overseas students who are allowed to stay in the country for at least two years after graduation.

“The skills and salary-based approach to prioritise high-skilled jobs is working. You can see that in the data,” he tells me. “But the downside of giving up free movement was you would lose the flexibility of labour market responsiveness. That’s what happened initially to some extent (think of those post-Brexit stories on truck driver and restaurant staff shortages), but I think we’ve got some of that back in an unintended way.”

Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.