It’s time for the UK to make some radical choices

Good afternoon. One of the frustrations I hear most commonly expressed by business about this Labour government is the sense of inertia that has been created by the deferral of critical decisions and inability to sketch out a clear vision of its plans for the future. 

First we waited for the October Budget; now we must wait for the spring spending review that will underpin a host of other linked major policy proposals — the industrial strategy, skills reform, new towns, planning reform and so on.

By the time everything is in place late next spring, and everyone has taken their summer holidays, it will be September 2025 — a full 14 months after Starmer won his landslide — that the big structural changes are only starting to be implemented.

It’s not just the wait for implementation that makes business impatient, but the lack of advance clarity about the shape of the policies themselves. Rome wasn’t built in a day, but it would help to have clearly drawn up plans.

Business, for example, still awaits the shape of the reformed apprenticeship levy and how much flexibility they’ll have; the construction industry for the regulation and planning underpinning a promised building boom.

The US election is yet a further cause of delay, as the government now considers its stance towards the EU and Beijing in the light of Donald Trump’s return to the White House and unanswered ‘will he? won’t he?’ questions on tariffs, China and Ukraine.

It has been commonplace to hear that since Trump’s election victory the UK lacks agency, and now finds itself friendless and adrift in an increasingly bipolar world, waiting to see whether it can triangulate with Trump. 

But waiting comes with its own costs. Take the much-vaunted reset with the EU. The governor of the Bank of England Andrew Bailey reminded the country last week how Brexit is costing the UK or has “weighed on the level of potential supply”, as he put it. 

The hit to UK trade — exports and imports 15 per cent down in the long run — “underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people”, he added.

Bailey’s remarks were reported as if they were somehow consonant with those of the chancellor, Rachel Reeves, who acknowledged in her Mansion House speech on the same evening the “structural challenges” caused by Brexit, before pledging to stick resolutely to the same red lines that created them. 

Bailey’s comments, as I read them, were an implicit rebuke to Labour’s refusal to actively confront the damage that is being caused to investment and growth by Brexit, even within its red lines, of which two clear examples happened to land in my inbox this week.

Out of fashion

The first was a report by the Fashion Roundtable lobby group on the continuing impact of Brexit on an industry comprising 72,000 mostly small businesses, that employ over 700,000 people and have a collective turnover of nearly £110bn.

It suffers from restrictions on both goods and services. Customs barriers, rules of origin and the need for temporary export carnets make selling and hubbing products through the UK very challenging, leading to a 60 per cent drop in UK clothing and footwear exports to the EU since 2019.

Meanwhile, limits on mobility and freedom to deliver in-person services impact the movement of the people — models, stylists, photographers — that are the human engine of a global industry.

“Labour must act decisively to reverse this decline,” says Michelle Kazi, the content editor at Fashion Roundtable. But the truth is there is no decisiveness. 

Instead, the Labour government continues to debate internally the merits, or otherwise, of a youth mobility agreement which the EU is clear is vital for any deep reset with Brussels, while simultaneously signalling that it can’t make up its mind what to do on trade. 

“They [Labour] are just really struggling with the substance,” as one senior (and exasperated) northern EU diplomat in London put it to me this week. 

Carbon constraints

The second example came from Rob Caruso, customer support manager at Infinity Engineering, a Lincolnshire-based small company that provides servicing and tech support to the gas turbine and oil industry.

In May they replaced a computer control panel for an oil rig for a client in Poland which included a piece of 3mm thick stainless steel that was specially cut in order to make sure the new (smaller) touch screen fitted correctly into the old slot.

In October Infinity suddenly received an email from Green Reporting EU warning them they were in breach of the EU’s Carbon Border Adjustment Mechanism for failing to provide details about the embedded carbon content of this piece of metal.

This is a small business that trades internationally but was unaware of the new rules requiring UK exporters of goods to the EU to provide importers with detailed breakdown of the carbon content in their products. 

Reporting requirements are already in force, with taxes payable from January 2026, but many UK businesses are unaware. There will be plenty, like Infinity Engineering, getting nasty surprises as they become ensnared in EU CBAM bureaucracy.

Caruso was already struggling to compete with EU competitors because of the “90 days in 180” travel restrictions, and has been turning away work as a result. CBAM divergence — on which the UK government could align with the EU — is just another blow.

“Our concern now is tendering for more EU work in 2025 as it’s difficult to forecast how much investment we need to put in to comply with CBAM,” Caruso says. “We need a specialist company for the CBAM compliance and incorporate the cost to our tender but not even our freight forwarder knew what to do last time. We’re stuck and it’s a risk to our business,” he says.

Making choices

Thus far, Labour has presented itself as almost powerless to resolve such issues, trapped by the politics of immigration and loyalty to broadly maintaining the status quo, despite the economic damage. But other routes are available even within their red lines. 

The UK could make a big offer on youth mobility (not free movement) which — according to one German diplomatic paper sent to the EU Commission last year — is a potential gateway to enhanced professional mobility.

The UK could also signal its clear intention to harmonise its CBAM — currently coming into force a year behind the EU version on a different set of products — with the EU’s. 

As business secretary Jonathan Reynolds observed at a Lords Committee this week, the UK does £300bn-worth of bilateral trade with the US and over £800bn with the EU a year. London is also seeking a newly pragmatic relationship with China despite Trump’s promised antagonistic stance towards Beijing. 

An inflection point is likely to come next year. As Reynolds said, the UK as a small country that relies on being open to trade is “much more exposed” to the blowback from a US-China trade war than Washington is, and will have to make “hard-headed assessments” of UK interests when the time comes.

Yet such clarity of purpose and strategic thinking has proved troublingly difficult for this government. Deferring decision-making is a dangerous habit to get into, but as one senior government adviser put it: “more radicalism may become unavoidable next year”. 

Britain by Numbers

This week’s chart comes from something I stumbled across when researching a forthcoming article about the broken and dysfunctional state of the UK’s special needs education system.

Nothing illustrates that quite so clearly as this chart showing just how many parents are now having to fight for their rights via a legal tribunal — fights that they almost invariably win, but at a financial and emotional cost.

Why are families fighting? Because the system for providing for special needs children has been overwhelmed by a near doubling in demand since 2015, which councils can’t keep up with — financially or bureaucratically.

The result is that over half of all education, health and care plans that entitle parents to additional support are not issued within the statutory 20 weeks. As a result, Pro Bono Economics estimates, parents are resorting to tribunals that cost cash-strapped local governments as much as £80mn in 2021-22. It will be even more now.

And all that money is being spent despite the fact that more than 95 per cent of tribunals are won by the parents. That success rate tells you something is deeply out of whack with the system.

To produce such profoundly unbalanced outcomes, either the local councils are all making terrible decisions about children’s needs; or the guidance on which tribunal decisions are based is so weighted in favour of parental choice as to make the review process close to meaningless.

This is a very delicate subject. No one would want to deny a special-needs child every possible help and opportunity — but there is a balance to be struck, because creating an unlimited entitlement backed by a limited resource has knock-on impacts elsewhere.

As one local government insider put it to me this week: “We have finite resources. At some point, we have to draw the line, because right now the government is telling parents they can have whatever they want but not providing the resources to deliver.”