UK-EU Customs Union

Lord Katz Excerpts

Thursday 29th January 2026 Lords Chamber

[Lord Monks (Lab)]

My Lords, I thank the noble Baroness, Lady Gill, for that absolutely excellent speech, revealing her rich experience in many areas across both the European Union and localities in the UK. She has already made one significant mark on our work: I was not aware that you could have two locations in your title. I am sure there are precedents for it, but the noble Baroness, Lady Gill, has certainly established that. I am pretty sure that, if the citizens of Jewellery in Birmingham and Southall in Ealing get to read that speech, they will be very proud of their girl for what she is achieving on their and other people’s behalf in this country.

We are proud of her on these Benches, too. She is going to bring a fresh perspective on a number of things, including housing and inequality, and perhaps on the EU as well. She was not exactly on any party line with her remarks at the end, but her basic pro-Europeanism shone through very strongly. We look forward to further speeches to come, which again will make us think and take us forward. We have a new colleague who will be a big hitter in this Chamber. While I am on my feet, I wish the other noble Lords who will be delivering their maiden speeches today all the very best for the future. If they do as well as the noble Baroness, Lady Gill, they will be doing very well.

I follow the noble Lord, Lord Newby, in a number of ways—not all ways—and I appreciated his opening speech very much. It set the scene for this debate very well and the scene for the country more generally. I, too, like him, remember vividly in the EU referendum that not everyone on the leave campaign thought that leaving the EU necessarily meant leaving the customs union and the single market. I remember the noble Lord, Lord Hannan, was among those who initially thought that. Reference has been made to Boris Johnson’s famous remarks that we could have our cake and eat it, keep the benefits and still leave—one of the biggest whoppers told in that very bitter campaign.

Now, we are faced with reality, and a hard reality it is, too, as the evidence of the costs of leaving the EU continues to pile up. I am not going to repeat all the statistics that were mentioned by the noble Lord, Lord Newby, other than to say that goods exports are still languishing below pre-2019 levels. I am particularly concerned about small firms, bewildered still by increased paperwork and customs-related red tape.

Nor are non-EU countries filling the gaps. The new trade deals have so far been disappointing. The one with India is unfortunately not yet in force. Others, such as the one with Japan, replicate the EU arrangements; Canada is more interested in a deal with the EU than with us; and the deal with Australia is very good for Australia, but reflects a desperation on our part to get some agreements over the line. As for a deal with the US, as Mark Carney said at Davos recently:

“We are in the midst of a rupture, not a transition”.


I acknowledge warmly that the US has helped rescue us and other Europeans in the past, but can we still rely on it, given the capricious behaviour of the present White House Administration? Well, nobody is too clear about that.

So it seems to me that this can be used in a number of ways, with a number of opportunities as well as a number of threats. It can be used to open a new chapter with the EU, as we huddle together with our neighbours and allies and try to make common cause on a wider range of issues. Defence is an obvious priority area at the moment, but trade should also be another. Prime Minister Carney’s call for medium-sized powers to come together should be heeded and used by the UK as a way to approach our problems in a new way. We need that new way and we need it quickly: we need this reset of key relationships, as the Government are at last exploring.

As the excellent Library briefing for this debate reminds us, the Office for Budget Responsibility reckons that UK imports and exports are both 15% lower than if the UK had remained in the EU. That is a heavy blow to our growth prospects.

I live in hope that people on the other side of this House will begin to acknowledge that the history of our brief time outside the EU has not been good; it has been bad. There have been failures all around, and it was precipitated by us leaving the EU. I look forward, not backward. I do not want to replay old arguments, but I hope that the reset will be bold and wide-ranging. It should challenge those in the Conservative Party—and, I guess, the Reform party too—to recognise the reality that we need a new deal with the EU and perhaps follow up the Carney speech.

There are four major claimed benefits of Brexit, as set out recently by the Conservative Party leader, particularly the freedom to negotiate our own trade deals.

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

Order. We have quite a tight time limit, and everybody wants to hear from my noble friend and for her to be able to respond, so if my noble friend could finish—

[Lord Monks (Lab)]

I finish with an appeal to the other side to open their minds and maybe open their hearts a little bit, recognise the situation we are now in, not the situation we were in, and take the country forward on that basis.

[Lord Lamont of Lerwick (Con)]

My Lords, it is a great pleasure for me on behalf of these Benches, this side of the House, to congratulate the noble Baroness, Lady Gill, on her admirable maiden speech. She referred to feeling a little intimidated coming here and to the experience and depth of knowledge in this House, but from her speech, it was perfectly clear that she is going to add considerably both to the experience and the depth of knowledge, and we strongly welcome her for that. She has huge experience in the European Parliament—as she said, she spent 16 years there. That is one area of expertise, but she also has expertise on housing, because she was the chief executive of a housing association. Her maiden speech was both eloquent and moving. She referred to her love of jewellery, and I am sure she will be a jewel in your Lordships’ House for a long time to come.

As was said in the noble Baroness’s excellent maiden speech, and by the noble Lord, Lord Newby, of course, it is a good idea that Britain should seek to improve its relations with the EU. But a customs union is emphatically not the way, and quite rightly, the Prime Minister has said that a customs union is a red line. We just hope that it is one of these red lines that he does not actually cross.

Brexit can be, has been and was blamed by the noble Lord, Lord Newby, for almost everything. Ministers refer to the OBR, which said that Brexit has already caused a 4% decline in GDP. But, as the noble Lord, Lord Newby, admitted, the statistic actually was that the 4% decline would happen over 15 years. Some 4% over 15 years is, on an annualised basis, a very small amount, difficult to measure accurately, especially when the effects of Brexit, as the OBR has admitted, can hardly be distinguished from those of Covid, energy prices or the war in Ukraine.

The noble Lord, Lord Newby, pointed out that goods exports to the EU remain below pre-pandemic Brexit levels. In 2024, as he said, they were 18% below the 2019 level. However, goods exports to non-EU countries over the same period were also down by 14%. So what do we conclude from this—that Brexit has caused damage to exports outside the EU? That seems rather improbable.

Over the same period, the UK’s performance in services was much better and well above its pre-epidemic levels. The fact remains that since Brexit, the British economy has moved largely in line with the larger EU economies. Italy and Germany have performed worse than Britain, France slightly better. Germany and Italy did not leave the EU and yet have performed worse than us.

A customs union is not the answer. If the question is growth, there must be a different way, and a customs union could do great harm. There would be very little gain from lower tariffs, because most UK-EU goods trade is already tariff-free. If we joined a customs union, we would have to accept tariff-free imports from those countries that the EU had negotiated trade agreements with, but we would not have the reciprocal benefit of being able to export tariff-free to those countries.

Our ability to do independent trade deals would end. We would have to renegotiate or cancel trade deals done since Brexit. The loss of the US agreement would be significant. It is actually our largest single trading partner. The pharmaceutical industry sells 25% of its exports to, and enjoys free access to, the US, while EU pharmaceuticals pay a tariff of 15%. Are we going to put this hugely important industry in danger through leaving that agreement or having to renegotiate it?

Alignment, a favourite subject of noble Lords, of regulations makes sense where individual sectors actually want it, provided that it is repealable and changeable if conditions change. Dynamic alignment, where we permanently hand over control of our laws, is a step too far and unnecessary.

It is interesting to recall how the financial services sector, which we were told after Brexit must align with the EU to survive, is now, according to recent reports in the FT—

[Lord Katz (Lab)]

Order.

[Lord Lamont of Lerwick (Con)]

I am just finishing—is now pleading for exclusion from any steps towards alignment. The Liberals claim a customs union would boost government revenues. They have suddenly become followers of Donald Trump, believing that “tariff” is the most beautiful word in the English language, but a customs union would mean that we would be obliged to share our customs revenues with the EU.

A customs union does not make any sense. The Prime Minister is quite right. It ought to be a red line. Gladstone would have been horrified at the stance of the Liberal party. He would have called what it is putting forward the road to servitude. It makes no sense.

[Lord Katz (Lab)]

My Lords, before we come to the next speaker, I just remind your Lordships’ House that this is a time-limited debate, and we also have a number of maiden speeches, which will obviously go a little over the speaking limit. We want to leave enough time for the Minister to respond to the many questions that your Lordships will have. We ask speakers to please stick to the four-minute speaking time.

--- Later in debate ---

[Lord Stephen (LD)]

My Lords, I draw attention to my offshore wind interests as declared in the register. I add my congratulations to those offered to the excellent and entertaining maiden speakers that we have already had. Perhaps I may ask for the discretion of the House in mentioning a maiden speech still to come, from the noble Lord, Lord Pitt-Watson. I remember, as a young Liberal in Aberdeen, attending many hours of meetings with Helen Pitt-Watson, which brings back very fond memories to me. I very much look forward to the noble Lord’s speech.

I also welcome the co-operation that was announced on Monday this week by the UK and EU nations in relation to offshore wind and North Sea interconnectors. The headline from the so-called Hamburg declaration was the joint development—the co-operative development—of 100 gigawatts of new projects based around a shared, Europe-wide grid system. Much more co-operation of this kind is surely sensible and badly needed—a significant step, perhaps, on our way to a new single market and customs union.

My friend the late Eddie O’Connor was a very big figure in offshore wind who founded Airtricity and then Mainstream Renewable Power. He championed the idea of a European supergrid with huge energy and passion. The challenge is simple: to create and deliver a renewable energy network across the UK and Europe that is fit for the 21st century and beyond. With determination and drive, I am certain that we can make it happen.

It is also great to see plans announced across several EU countries to adopt contracts for difference to underpin and anchor their own offshore wind developments. These so-called CfDs were first introduced in the United Kingdom in 2012 by then Secretary of State for Energy Sir Ed Davey. They have saved the UK electricity consumer billions compared to the previous ROCs system. Despite one serious and, sadly, completely avoidable misstep in relation to CfDs back in 2023 with AR5, contracts for difference have continued to be a big success in the UK, and AR7, announced on 14 January, just completed with 8.3 gigawatts of new capacity awarded—the biggest ever.

In contrast, Germany, Denmark and the Netherlands have recently struggled with their own power auctions. This is not good for the climate emergency, and Governments together must do better. Nations can learn from each other; they can work together. They can—we can—get better at all of this.

In the UK, it is not perfect, but it is generally positive. All the mainstream UK parties have supported the energy transition, net-zero targets and the importance of real and rapid progress. The only party to stand out is Reform UK. Its policies are strident, negative and hostile. In July last year, the party’s deputy leader, Richard Tice MP, wrote to the chief executives of all the major offshore wind developers threatening to strike down all contracts for difference signed under auction round 7 if the party ever won power—an astonishing, aggressive, anti-business move threatening to break binding commercial and legal agreements being entered into right now.

Such a move is in stark contrast to the words of the noble Lord, Lord Offord, Reform’s new Scottish leader, when he gave his maiden speech in this place in January 2022. He spoke warmly about his attendance at COP 26 and the tremendous achievement of the UK presidency in increasing commitments to net zero from 30% to 90% of world emissions. It will be interesting to learn whether Reform UK has—

[Lord Katz (Lab)]

I ask the noble Lord to conclude. He is getting over the time limit, and it is a time-limited debate. I keep on having to stress that.

[Lord Stephen (LD)]

I apologise. It was my reference at the beginning to some personal matters that have taken me over. Across the UK and the EU, all this is very important, yes, for the economic benefit for our nations, but, more importantly, for the future of our planet.

[Lord Katz (Lab)]

My Lords, for those immediately following those giving a maiden or valedictory speech, an allowance is made for the tributes being paid and the clock does not start until their remarks start. For others speaking in the debate, the time starts when they stand up, and that needs to be no more than four minutes.