British exporters are losing up to £6.5 billion in annual revenue as a direct result of regulatory friction with the European Union. A report from the IPPR thinktank indicates that the inability to secure a mutual recognition agreement (MRA) for product testing has caused significant financial damage since post-Brexit trade arrangements were implemented in 2021.
The study estimates that the annual loss falls between £3.7 billion and £6.5 billion, representing approximately 0.18% of the UK’s total national income. This figure is roughly triple the projected economic benefits of the UK’s trade agreements with Japan, Canada, Australia, and Singapore combined, known as the CPTPP deal.
Economist and co-author Joseph Sassoon stated that this research is the first to isolate the specific impact of regulatory divergence from other variables. Researchers controlled for factors such as the pandemic, supply chain shifts, energy market volatility, sanctions on Russia, and changing re-export patterns. “The estimated impact of not having an MRA remained large and statistically significant throughout,” Sassoon noted.
The lack of a deal has led many firms to stop selling to EU markets entirely, while others have moved their operations to subsidiaries inside the bloc to avoid administrative burdens. The report advocates for an MRA based on “dynamic alignment,” which would see the UK keep relevant product rules in lockstep with the EU to enable mutual recognition of assessments.
The economic impact is particularly concentrated in three key sectors. Motor vehicle and parts manufacturers could have seen gains of between £2.48 billion and £3.42 billion annually, while electronics exports could have been £1.17 billion to £1.67 billion higher. Additionally, pharmaceutical exports faced an estimated annual shortfall of between £740 million and £820 million.
The current government attempted to pitch a single market for goods to Brussels earlier this year, but the proposal was rejected. EU officials maintained that while they desire deeper cooperation, any arrangement must respect fundamental principles, such as avoiding the “cherrypicking” of policies.
The issue has gained political traction, with Liberal Democrat leader Ed Davey announcing at his party’s conference that he would seek to rejoin the EU single market and customs union if in power. He argued that such a move would align the UK with its primary trading partner and effectively stimulate economic growth.
“The findings highlight the scale of trade missed out on as a result of post-Brexit regulatory barriers, providing one of the clearest opportunities to reduce friction in UK-EU relations,” the IPPR concluded. The organization is now urging the government to reopen formal discussions to mitigate these ongoing costs. The report also notes that the UK is losing out on annual exports to the EU that could be worth as much as £6.5bn without a deal with Brussels that allows manufacturers to jettison duplicate product testing. The report also notes that electronic exports could have been between £1.17bn and £1.67bn higher. The report also notes that changes in global supply chains, sanctions on Russia, energy market shocks or shifts in re-export patterns could be to blame for the decline, he said researchers tested whether Covid-related disruption.
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