Ahead of the announcement of the budget on Wednesday, Senior Vice Chair of European Movement UK, Molly Scott Cato, asks if the elephant in the room, the UK's departure from the EU, will be mentioned in this huge political moment. Molly is also The Green Party of England and Wales' spokesperson on the economy.

How can the UK economy compete against the low costs of China, the vast subsidies of America’s inflation reduction act and the frictionless borders of the EU? How will we hold our own as the global economy goes through its greatest transformation in two centuries, in response to the climate crisis? We are going to be told that Reeves’s first budget is ‘a budget for growth’, but how is the Chancellor of a small market outside the main trade blocs of the world going to compete and achieve that growth?

[Image: Shutterstock.]

The biggest challenge will be the economies of the EU that have the support of a strong institutional and policy framework. Back in 2019, when Margarete Vestager was answering questions about her vision if she were confirmed as competition commissioner, she characterised the European trading bloc, by contrast to those of China and the US:

‘So my pledge is not to make Europe more like China, or more like America. My pledge is to help make Europe more like herself: to build on our own strengths and values, so our society is both strong and fair – and that for all Europeans.’

This has been the EU’s vision over the past five years: to be a major global player that maintains commitment to social and environmental standards and protects them against unfair competition from other powerful global trading blocs. She also promised a European Green Deal in her first 100 days, a plan to make Europe a carbon-neutral continent by 2050 and achieve a slew of other environmental ambitions through legislation and considerable public finance.

But Vestager was also clear that the EU’s higher standards must not allow the other global trading blocs to undercut European businesses. One of her last actions as competition commissioner was to announce new, higher tariffs on Chinese electric vehicle imports, on the basis that they had benefited from unfair subsidies. The EU has also protected its pro-climate producers through the Carbon Border Adjustment Mechanism, a tariff imposed on imports into the EU that do not meet the bloc’s own stringent climate requirements.

The US has also invested massively in the future green economy via its Inflation Reduction Act, which has subsidised clean-tech sectors including battery, solar panel, and wind turbine production to the tune of a vast $369bn. Some EU politicians have felt threatened by subsidies on a scale on the backing of the US dollar can achieve, but the bloc can at least operate on something approaching the same scale. What about the UK?

The decision by a succession of Conservative governments to turn the net-zero debate into a culture war has damaged our potential to compete in these new sectors as has the reluctance to invest in green technologies, as demonstrated by the collapse of the start-up company British volt and the demise of its plan EV battery plant in Northumberland. The boss of the Society of Motor Manufacturers and Traders has been vocal about the threats to the future of the UK car industry unless they receive subsidies similar to those on offer in the US, the EU and China.

The harsh reality of what this means for the UK economy, vulnerable now we are outside these three powerful blocs, was made clear this week by Dave Ricks, CEO of global pharma giant Eli Lilly. Speaking on the Today programme he made his position blatantly clear: ‘I think the difference with the UK is, on your own, separate from Europe, it’s a relatively small market for most multinationals – and certainly Americans. So something needs to be quite different to make it interesting.’ By interesting he means less tightly regulated.

The EU is a large and powerful enough market to defend its high social and environmental standards; outside the EU, the UK is not.

But this risk to EU standards through the back door was anticipated by the EU’s Brexit negotiator, Michel Barnier, which is why he included what he titled the Level Playing Field in the Trade and Cooperation Agreement. This protects the EU single market against UK attempts to reduce environmental standards or offer favourable conditions to encourage inward investment that would undercut the EU.

So, while we are out, we are still protected by EU standards via the TCA. If Labour are tempted to offer ‘interesting’ tidbits to Ricks and other corporate CEOs, we could face the enforcement procedures included in the TCA including suspensions of other favourable trading terms to access the EU single market.

If we seem to be caught between a rock and a hard place, I can suggest an obvious way out: becoming again part of the single market, and not just for trading purposes.

Rejoining the EU's political institutions, and taking our rightful place in designing the global bloc that puts its values of environmental protection and social standards at its heart, offers the best future for the UK to flourish in the green economy that is springing to life all around us.

[Header image: Shutterstock.]