The options are familiar. The world around them is not.

By Jun Du, TPI Managing Director

Ten years on, the productivity cost of Brexit is clear. But the UK now chooses its relationship with Europe in very different circumstances, and existing estimates capture little of what has changed.

The Prime Minister’s commitment to lay out “different options” for the UK’s relationship with Europe, and his acknowledgement to the BBC that a future referendum on membership is “possible”, has reopened a question with large consequences for UK productivity. The options are familiar, from staying broadly as we are to a closer partnership, a customs union, the single market or membership. As Jill Rutter of the Institute for Government notes, the EU has said in the past it could offer the last three.

What is unfamiliar is the world in which the choice must be made. Most of the evidence describes the cost of leaving the single market as it stood in 2016. The greater risk lies in judging the options as though that world still existed.

What we know

The evidence on Brexit’s trade costs is broadly consistent. The Centre for European Reform estimates UK exports to the EU are about 12% lower than they would otherwise be, with leaving the customs union accounting for only around a quarter of the loss in goods exports. Research with colleagues at Aston University’s Centre for Business Prosperity on supply chain lock-in finds export varieties to the EU down by more than half and, outside agri-food, technical barriers rather than tariffs or customs as the dominant friction. That matters for the options, because a customs union would leave those barriers in place. Our work on mutual recognition of conformity assessment, with Oleksandr Shepotylo of Aston University and Lin Zhang of TPI, estimates that recognising each other’s testing and certification increases trade by around 10% on average, and by close to 28% in the sectors where the effect is significant.

The wider cost is larger. Bloom, Bunn, Mizen, Smietanka and Thwaites estimate that by 2025 UK GDP per head was 6–8% lower than it would otherwise have been, against forecasts in 2016 of around 4%, with investment down 12–18% and productivity down 3–4%. They attribute part of the gap to how long the uncertainty lasted. The Office for Budget Responsibility still assumes productivity will be about 4% lower in the long run. Trade is a large part of the mechanism: firms that sell fewer products to fewer markets spread fixed costs more thinly, face less competition and learn less from abroad. Which option brings lost products back is therefore a productivity question as well as a trade one.

These estimates produce a hierarchy, set out well in the UKICE staircase: each step towards the EU buys more GDP for more alignment with EU rules. That ordering underpins most of the commentary since the Labour conference.

Why even what we know is less certain

These estimates look backwards, and the context has since changed in at least five ways.

Integration may not simply run in reverse. After five years of reorganised supply chains, suppliers that switched have little reason to switch back, at least not quickly.

The EU has become a different kind of partner, less a rule-making project and more an industrial policy one. Its Industrial Accelerator Act would set EU-origin requirements for steel, aluminium, net-zero technologies and vehicles, with partner countries qualifying only at the Commission’s discretion. The question is now also whether UK goods count as European once they have entered the EU

The US, often treated as the UK’s main alternative to Europe, has become less predictable. A 10% baseline tariff on UK goods remains, steel and aluminium face 25%, and the May 2025 Economic Prosperity Deal stalled in December over food regulation. That sits awkwardly with the SPS agreement expected at the UK–EU summit. My earlier work on veterinary agreements with Oleksandr Shepotylo of Aston University and Greg Messenger of the University of Bristol suggested agri-food exports to the EU could rise by more than a fifth, but aligning with EU food rules narrows the room for the farm access the US has sought.

China, which featured little in 2016, now sits inside the UK–EU question. The EU imposed duties of up to 35.3% on Chinese electric vehicles in 2024, Chinese brands took 15% of the UK new car market in the first half of this year, and last week an EU official linked the UK’s treatment of Chinese cars to its prospects under Made in Europe. Clean-energy goods raise a similar issue: China holds more than 80% of global capacity at every stage of solar panel production.

Technology adds a further layer. The EU’s proposed Cloud and AI Development Act would set sovereignty requirements for cloud and AI providers, from some of which the UK’s renewed data adequacy status could exempt it. Meanwhile US firms have pledged £31bn for UK AI infrastructure, and Chinese open-weight models such as Alibaba’s Qwen are among the most downloaded. Existing Brexit estimates do not address where the UK ends up between the three.

What we don’t know

Several things that will shape the outcome cannot yet be measured. The scope of Made in Europe, and the terms on which non-members qualify, are still before the European Parliament and Council. What the EU would ask in return on free movement, budget contributions, rule-taking and fisheries is unclear, and some member states, France in particular, want a hard bargain. The EU’s own direction is uncertain too: the Tony Blair Institute’s proposal to rejoin within a decade is “subject to internal EU reform”.

So is China’s response. After the EU’s duties on Chinese electric vehicles, China answered with duties on EU brandy, pork and dairy. Closer alignment with EU trade defence could invite similar responses, putting at risk UK exports, Chinese investment such as the proposed Chery–Nissan partnership at Sunderland, and financial links in the world’s largest offshore centre for renminbi trading. Staying apart could bring more diverted Chinese goods: cheaper inputs for some firms and more competition for others.

Washington’s response is equally hard to predict, as is how long any route would take. The largest unknown is whether any choice would survive the next election. One recent poll found 56% support for rejoining, but firms need more than a majority on one day to invest. If Brussels or investors expect a deal to be reversed, the EU will offer less for it and firms will invest less on the strength of it.

The danger of simplifying

Each option therefore must be judged by its effect on the UK’s relationships with the US and China as well as the EU, because a gain in one can carry a cost in another. The risk is that so complex a choice is reduced to a ranking by a single GDP number. Such numbers are needed, and better ones are part of what we are working on, but an estimate built on 2016 says little about EU origin rules, a US trade policy that can change within weeks, Chinese exports that shape what Brussels asks of London, or AI rules still being written.

The best option may not be the one that scores highest on today’s numbers. It may be the one that holds up across scenarios we cannot yet quantify, and that commands enough support, for long enough, for firms to invest against it.

Anand Menon observed this week that the 2016 referendum generated “far more heat than light”, and that avoiding a repeat means being “clear about the trade-offs”. This time there is a decade of evidence to draw on. Over the coming months, we will set out what it can and cannot tell us about each option, and what each would mean for UK productivity.