Sir Keir Starmer faces a clash with businesses, MPs and peers over a push for closer alignment with EU rules to boost the UK’s economy.
The British Chambers of Commerce (BCC) has called for “as much alignment as possible” ahead of a move in Parliament to make the adoption of Brussels regulations the default position for the UK.
A cross-party group of politicians is attempting to amend legislation in the House of Lords to provide “regulatory certainty” for businesses by requiring Britain to mirror the EU’s product regulations unless a minister decides to diverge, in which case they would have to explain why to Parliament.
Firms have warned that it is too expensive to have to follow two different sets of complex rules.
A rival group of pro-Brexit peers is tabling a separate amendment which would stop the UK from automatically aligning with the EU and make it easier to strike deals with other countries or trade blocs by recognising their standards in UK legislation.
The parliamentary showdown comes as Starmer faces a dilemma after the election of Donald Trump as US President between moving closer to Europe to avoid being dependent on an unpredictable administration in Washington or seeking a full-blown trade deal with America, which could shield Britain from a possible tariffs war but make it harder to do business with the continent.
Ministers have insisted they want to deepen trade relations with both the US and the EU at the same time – but they have been warned that may prove impossible given the need to ensure some level of regulatory alignment in order to maximise trading opportunities for businesses.
Over the weekend Stephen Moore, an economic adviser to Trump, said that Britain should reject the EU’s “socialist model” or risk a break with the US.
But Pascal Lamy, a former head of the World Trade Organisation, called on the UK to align with Brussels rather than adopting the “very hard, brutal version of capitalism” he said was being promoted by Trump and his ally Elon Musk.
The Lords amendment is backed by senior MP Stella Creasy, chair of the 150-strong Labour Movement for Europe, who said the change was “in the interests” of “a Government committed to growth”, after disappointing GDP figures last week and following calls from the Bank of England to move closer to the EU to help businesses.
But i understands that ministers are set to reject the move when it reaches the Lords because they fear that it would harm the Government’s ability to set an independent regulatory regime, which has long been seen by Brexiteers as a key benefit of being outside the EU.
The BCC said that it would not comment on the individual amendment proposed to the Product Regulation and Metrology Bill, but its head of trade William Bain – a former Labour frontbencher – said: “We would encourage the Government to bring forward an indication of the policy it intends to follow under the bill in terms of whether it would be the default that there would be alignment with relevant EU measures in scope of this or whether they will look at it on a case-by-case basis.
“But the BCC in its report and surveys and evidence has the data from our members to say that they think for traded goods, having as much alignment as possible is beneficial for trade with the EU.”
He added: “On traded goods, it’s about keeping costs for manufacturers and exporters down and avoiding regulatory compliance duplication, so as much alignment as we can is the default we believe would be good for our goods exports.”
The BCC insisted that aligning more closely with the EU would not scupper trade ties with the US. Bain said: “We don’t believe this is a zero-sum game; we can have strong trade links with the US and remove barriers to trade with the EU as well.”
Official figures on Friday showed UK GDP near-flatlining between July and September, expanding by just 0.1 per cent, despite the Government’s promise to make Britain the fastest-growing economy in the G7.
Creasy told i: “The chaos and costs under the last Government of trying to set up separate regimes for the sake of it caused no end of problems as companies had to choose which one to pick and most, understandably, chose European regulations to be able to sell to the bigger market.
“We now need to give business the confidence to invest in the UK by stabilising the future regulatory landscape they will face. This amendment does that both by being clear alignment is the default and by giving Parliament a mechanism for scrutinising when divergence would be in the British interest. It’s in the interests too of a government committed to growth.”
Product regulations which business groups have been particularly keen to see aligned between Britain and the EU include those governing the chemicals industry.
Crossbench peer Lord Russell of Liverpool, who is pushing the amendment alongside Labour, Conservative and Liberal Democrat peers, said: “If we are serious about economic growth we must give companies the confidence to know that if they invest in new technologies, products and markets that there is discipline, certainty and a consistency of approach and process to orderly and efficient product regulation.
“A default approach which tries to cherry-pick will not serve us well and will be unpopular with British companies and the international markets they serve.”
A spokesman for the Department for Business and Trade said: “This Government wants to reset our relationship with the EU to make it easier for businesses to trade with Europe. But we have been clear that there will be no return to the customs union, single market or freedom of movement.
“The Product Regulation and Metrology Bill gives the Government the power to set our own regulations, choosing how and when we wish to diverge from updated EU law.”
Analysis: Why PM can’t sit on the fence
By Hugo Gye
To govern is to decide, and this Labour Government has already shown it can be decisive when it wants to be.
Slapping inheritance tax on farms, axeing winter fuel payments for most pensioners, rolling back City regulations to boost the economy – all of these were bold calls with upsides and downsides, where Sir Keir Starmer and his team decided it was time to take a firm position.
But sometimes this group of relatively new ministers tries to stay on the fence, for example on the issue of the bus fare cap, which is being increased but not abolished in an attempt to split the difference between voter handouts and fiscal rigour.
On the increasingly thorny issue of international trade, Starmer will before long face another decision point where he cannot dodge making a big call.
The imminent return of Donald Trump to the White House means the global trading system is likely to be shaken up, with direct and indirect effects on the UK economy.
One possible response to this is to cling close to the US, finalising the transatlantic free-trade agreement that was begun during Trump’s first term but kiboshed by Joe Biden.
Another is to speed up the post-Brexit “reset” with the EU, as suggested by the MPs and peers who want to amend a piece of technical legislation passing through Parliament to make it the default that Britain mirrors European regulations in future.
The Prime Minister cannot have it both ways. Both Trump allies and Brussels veterans are clear that getting closer to one means moving further away from the other, at least while The Donald is still in office.
It is an unpleasant message for Starmer to hear, but he has no choice but to make up his mind one way or another in the coming months.
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