Insight

How we’re helping clients navigate the next year in trade

If the government secures a trade deal with the EU this year, it will want to stop talking about Europe, talk up the benefits of trade deals around the world, and shift the political agenda to post-Covid recovery, with a heavy dose of State direction. How the government pursues this agenda may radically diverge from companies’ needs. What should business priorities be, and how can Lexington help companies engage this government?

Playing a role in improving the terms of EU trade

Any deal this year is likely to be as close to no deal as makes little difference for regulated goods sectors and services. But the UK will not be content to stay long-term in such a minimal trading relationship with its largest market, and a deal this year creates some political space for the government and regulators to quietly work on reducing the newly-created barriers to trade. That will matter; in services access to the EU market, in the speed and cost of getting goods approved and to market in both jurisdictions, in transporting goods and people, in maintaining data sharing, and in improving customs cooperation to move good across the new borders more easily. Businesses may be ready for ‘no deal’ costs, but they need not accept all of them as permanent. We can help businesses navigate the next phase of negotiations.

“The stronger and more independent UK regulators are, the better placed they will be to work with the big regulatory players, and so help shape global standards”

This points to the second priority: don’t lose out in the regulatory rewire

Independent and credible UK regulators will be crucial in the many areas where powers return from Brussels; for well-informed, predictable rule-making, and so for business investment in the UK. It is also, though, an essential step towards rebuilding cooperation with the EU and other major trading partners, to apply rules pragmatically. The stronger and more independent UK regulators are, the better placed they will be to work with the big regulatory players, and so help shape global standards. However, this government unfortunately often sees de-centralising power as constraining its ability to make rapid decisions. At Lexington, we can help businesses think now about what new regulators should do, and how, and start to shape the debate in their sectors. Where possible, we can show how to run with the government’s own ideas: the Chancellor’s proposal that UK financial services regulators should be able to take into account the impact on trade with other countries could be usefully extended to medicines, chemicals, food and other sectors.

More broadly, shape the competitiveness agenda for Global Britain

Business is told it must accept the extra costs of increased trade friction with the EU, but also that the government has greater regulatory freedom than ever before to reshape the economy. Regulation will matter more than tax breaks, with public finances heavily constrained post-Covid. So far, the post-transition policy landscape is vague. That’s an opportunity. We can help businesses define what they need, by sector, to maintain or enhance UK competitiveness. We can also help to make the case for full use of new regulatory powers in order to maintain the attractiveness of the UK as a place to invest and innovate.

“Business is told it must accept the extra costs of increased trade friction with the EU, but also that the government has greater regulatory freedom than ever before to reshape the economy”

What about those much-touted independent trade deals? Some deals could, no doubt, make a difference in some sectors, notably a US trade deal which removed prohibitive tariffs (e.g. on food and drink) or genuinely opened markets. However, it looks unlikely that the government is prepared to pay the political price – by opening up to US food and on the NHS – which a deep US trade deal would require. Other trade deals could help in particular sectors, and businesses should engage the government on specific asks. But there is little sign that the government will pay the price for big new trade opening in other markers; this will generally mean upsetting farmers, who can mobilise powerful support among backbench MPs.

These priorities do not line up exactly with how this government sees the next few years, but there is enough of a hook in Boris Johnson’s levelling up agenda, and the need to rebuild after Covid, to engage government. And although this is a government which likes to work only with those it sees as its friends, we have also seen how sensitive it is to pressure from backbench MPs. It is likely to increasingly worry about the Labour Party, too.

Come and talk to us about ensuring your business is best positioned to engage on trade in the post-Brexit landscape. We’ll provide strategic counsel and advice to test and shape your priorities, and to develop a robust engagement strategy. Our ongoing advice and expertise on policy, comms, digital and campaigns will help you deliver your priorities. We will help you work with the government agenda where possible, but be prepared to campaign where businesses priorities diverge, to talk to Labour, and especially to engage backbenchers to explain how these priorities will help jobs and investment in their areas.