[00:00] Prof Anand Menon: The European Union can't force a country to join its currency, but it does strike me that the European Union would very much like us to be in the euro simply because it would make it next to impossible to leave again. You know, if we thought Brexit was messy, Brexit plus the euro would be a nightmare. And I'm sure there are some people in Brussels who will be pondering whether you can make the terms slightly more onerous on us to join the euro than for a normal member state for that reason.

[00:27] Tim Leunig: The next most coherent approach to that actually was the Liz Truss approach, which was to go a long way from the EU, to become "Singapore-upon-Thames", to become, in her words, a "roaring, freedom-loving nation". Patrick Minford put forward the same view with more economic rigour, so in his view we would see manufacturing fall to 5, 6, 7% of GDP, so half of manufacturing firms would go bust. We would become a service sector, because there are many areas where countries don't put on tariffs—no country has ever charged a person who studied abroad for the fact they're technically importing education.

[01:07] Joe Owen: Hi, welcome to Policy Fix by Nesta, the Research and Innovation Foundation. I'm Joe Owen. Every episode, we take a policy problem and identify how to fix it. If you enjoy this episode, please do like, share and subscribe wherever you get your podcasts.

An embattled Prime Minister facing a leadership challenge, and various would-be contenders promising they want a different relationship with Europe sounds like it could be 2016, or 2017, or 2018, or even 2019. But it is in fact 2026. And this time it is different. This time we have got people arguing that we need to fundamentally rethink Brexit and consider rejoining the European Union. Keir Starmer's government has promised a reset in relationships with the European Union, but both Andy Burnham and Wes Streeting have said that they think the UK's future should be inside the European Union and would consider rejoining at some point, even if it is unclear yet as to when.

The polling, at least as it stands now, seems to suggest that the public are not satisfied with Brexit, and the economic analysis suggests that it is costing us dearly. So what could a settled position look like? Joining me to discuss that, we have got Anand Menon, Director of UK in a Changing Europe and a Director at Public First, and Tim Leunig, Chief Economist here at Nesta. Anand, Tim, welcome.

[02:26] Prof Anand Menon: Thank you for having me.

[02:28] Joe Owen: So Anand, what is the UK's current relationship with the European Union?

[02:28] Prof Anand Menon: It's a third country. I mean, and all that that implies. So diplomatic relations are warm, they're close with the EU and with member states, but the UK is outside the bloc. And I say that because actually I'm not sure it's something we've necessarily internalised as yet. We are treated like a third country like any other, which means our security relationship with them is based on a document that looks very, very much like the one the Norwegians have. Which means that they don't do us favours around the negotiating table. Which means that they reserve the right to sort of keep our companies out of their market in certain areas. And that is just what being a third country means, and we've had it for what, five years or so. It's been in place as the predominant relationship.

[03:14] Joe Owen: How well do you think it's working for us? What would you score it out of 10?

[03:20] Prof Anand Menon: I mean, like anything to do with Brexit, that depends on where you stand on the various trade-offs. If you were scoring it on our ability to control our immigration policy, you'd give it a 10. If you were scoring it on our trade openness, you'd probably give it a two or a three.

[03:41] Joe Owen: And the economy, Tim, how would you score it?

[03:46] Tim Leunig: Well, for the economy, it's straightforward bad news compared to being in the EU. The best academic paper that's been written suggests it's 6, 7, 8% of GDP. If we take 6%, that's £180 billion a year—that's half a billion a week. I mean, in the election campaign, people talked about £350 million a week. We're talking about more than that a day that we're losing. So yeah, it's terrible news.

[04:09] Joe Owen: And what about the EU? Because we're going to get into the options about what other relationships could work better for the UK, but obviously all of this depends on the EU being up for changing the relationship, too. What do you think they think of the current setup?

[04:28] Prof Anand Menon: I think some member states would like to see a closer security relationship and would be willing to give us stuff on the economy in return. But the bulk of the EU is perfectly happy with the functioning of the Trade and Cooperation Agreement. Remember, we never really imposed that full gamut of checks at the border that they did, so there was always that slight asymmetry anyway, which is bizarre given the balance-of-trade arguments that Brexiteers used during the referendum campaign, that we should end up here. So I think on balance, the EU are perfectly happy. With the negotiations, what we're finding is the EU—with the economic negotiations at least—is saying, "Give us a reason to want to negotiate with you, because actually the status quo is absolutely fine as far as we're concerned."

[05:13] Joe Owen: I sort of want us to spend quite a lot of time on what are the different models and options for deeper relationships, given that seems to be, whether it's the current Prime Minister or various people vying for his job, tends to be the direction of travel, allegedly.

[05:28] Prof Anand Menon: Allegedly! Allegedly.

[05:30] Joe Owen: And so we should start with the government's planned, quote-unquote, "reset", which I think it is fair to say is: we have voluntarily aligned to a lot of EU rules, not all of them, and then are seeking a series of sectoral arrangements to gain preferential access to the EU, including in some areas where we have already voluntarily aligned to their rules. The big one that's ongoing and is due to conclude next year, is it right, on agri-food?

I guess I'm interested first in your view on how valuable are some of these sectoral deals to us when the Chancellor talks about them as part of her big growth reset? Are they that valuable?

[06:21] Prof Anand Menon: This is a really weird situation we're in at the moment, because the Chancellor—I mean, Tim's mentioned the academic paper that says 6 to 8%—the Chancellor has taken to citing that 8% figure as the cost of Brexit, which I think is strange because I think that's very much on the high end and I'm not wholly convinced by it. But anyway, that's what she's doing. At the same time, the government's own estimates of the benefits of what they're negotiating is about 0.3% of GDP over a decade. That strikes me as an unsustainable position: saying on the one hand this has cost us 8%, but don't worry, I've sorted out 0.3%. So that's a bit strange.

On agri-food, I mean on the reset as a whole actually, at the moment it's far from certain we're even going to get that, because the impression you get is that the talks are bogged down. There are lots of detailed things on the agricultural deal, not least the fact that we want exemptions from dynamic alignment in some areas and the EU aren't keen. And of course, the one thing the EU really wants for reasons we can maybe get into—because it's a bit odd—is youth mobility, youth experience. Those negotiations have stalled, and I think for some on the EU side, if they don't get that, why would they give us the agriculture, the emissions trading, and the stuff that we want?

[07:29] Tim Leunig: It's worth adding that food is always one of the hardest things to negotiate. Farmers are vocal, they have very clear views, they have a lot of public sympathy. It's not obvious that this is the easy one to start with, especially dealing with the EU if you're dealing with genetically modified foods, because there is that almost visceral suspicion of GMOs in the EU. One of the areas where initially we were thinking we could get a carve-out from dynamic alignment was in this area because we see this as a Brexit opportunity, rightly or wrongly. A friend of mine who works in the European Commission said to me a couple of weeks ago, "Why would we risk your five-legged cows trotting over the intra-Irish border?" I mean, if we're going to align and you want us to remove checks, you need to play by our rules across the board, which I think some on the EU side feel, and that makes it quite hard for us.

[08:24] Joe Owen: Yeah, I want to come back on the youth mobility one, because it seems like a good microcosm of where, as we want to do more and more in terms of sectoral agreements, we are going to start bumping up against the big red lines, one of which is obviously freedom of movement. But even in this negotiation, we are talking about youth mobility—sort of much more popular, based on all of the polling, with voters in the UK, but it's a stumbling block. Why do you think it's such a stumbling block?

[09:04] Prof Anand Menon: I mean, firstly, just in the interest of clarity, it is absolutely nothing to do with freedom of movement—it's a visa scheme. It's totally and utterly different, so the two shouldn't appear in the same sentence together.

It is a stumbling block because, one, we don't particularly want it, despite the warm words the Prime Minister had for youth mobility in his supposed reset speech. The British government has dragged its feet on this, and of course in opposition Labour said, "We have no intention of negotiating any deal like this." Why? The Home Office, for a start, said we don't want anything that increases the net migration figures.

Secondly, the EU has introduced into this negotiation the idea that European students should be able to pay domestic fees at UK universities. Given the financial status of some of our universities at the moment, that is something that makes the government very, very nervous indeed.

I should also add that one of the reasons why this negotiation is proving so difficult is because the EU has overreached on a lot of things connected with youth mobility. The EU doesn't have competence. The reason the EU is negotiating this is because under the Conservatives, we started negotiating bilateral deals with some member states—the ones we liked and whose young people we'd like to welcome here. Some of the other member states at this point said, "Hang on a sec, this isn't fair, why aren't we included?" They complained to the European Commission. The European Commission took over the negotiation, so we now have the strange sight of the European Commission negotiating some aspects of a deal over which it has no formal competence, which makes the whole thing not just difficult because there are significant areas of disagreement, but also really clunky because of competence issues on their side.

[10:38] Tim Leunig: Can I add: I was Director of the Department for Education's international unit at the time of Brexit, and so I regularly met my opposite numbers from across Europe, and they were all deeply committed to what was then the status quo continuing. That is, Romanians, Czechs, Swedes, etc., would be able to study in our universities at the lower fees and have access to student loans from the British government. So this isn't a new demand from Europe—they are saying, "Well, if you want some of the benefits of being sort of in, we want the benefits that we had back then." So the British government can't really be surprised.

I've always been surprised around youth mobility in the sort of migration debate as not being more attractive, because actually one of the things that is tricky for us now that we have left the European Union is lower-skilled migration, or migration in which it is not tied to an employer. Under our current scheme, you have to have a job offer from an employer who is a sponsor. There are large parts of the economy for which having a single employer for a multi-year period doesn't work—construction, hospitality is another. Those are the areas in which we used to rely heavily on freedom of movement, and they're also areas in which the workforce tends to be younger. So a youth mobility scheme could be quite positive for some of the growth agenda, but it just seems to have been caught, possibly then because of the financials, as you say.

[12:09] Prof Anand Menon: And since when has our immigration debate been linked to rational economic considerations? They don't interact!

[12:17] Joe Owen: That's fair!

[12:17] Tim Leunig: But let's look at it the other way as well. Britain has a rising number of young people who are not in work and not in training, and so on and so forth. So I think those who oppose immigration would have the right to turn around and say, "Actually, what we need is a real outreach effort to these young people. We need an outreach effort to business to say: stop carping on about getting foreigners in to do these jobs, start training up these young people, start working with schools, start running careers fairs, because sooner or later these young people will get into work. The evidence is they don't remain NEET for life—go and work with them, get them into work." Though there is a little hint of a lump-of-labour fallacy around the edges of that, isn't there?

[12:58] Prof Anand Menon: Yes, there is!

[13:00] Joe Owen: I want to move us on to other options. What I am taking from this is: the current reset is small and partial and stalled. Apart from that, it's great!

[13:14] Prof Anand Menon: But other than that, it sounds brilliant!

[13:16] Joe Owen: So what are the other options? We are having various leadership contenders that certainly aren't leadership contenders, at least not yet, talking about their visions for new relationships with Europe in vague and non-specific terms. We have had a speech from the Prime Minister that talked probably more ambitiously than the reset agenda currently looks in terms of a future relationship with Europe. What are their options?

[13:45] Prof Anand Menon: I mean, in terms of the current debate, I think it's worth saying that this is what young people call "vibes" rather than policy! And there's a good reason for that. If you want to be Labour leader, you need the votes of massively, unrepresentatively pro-European people called Labour members. So the sweet spot in this debate is to sound as pro-European as you possibly can, whilst committing to as little as possible. It strikes me that Wes Streeting has done that admirably to date!

The problem is that a lot of our debate is completely removed from the reality of what the EU might be interested in negotiating with us. I sometimes think that Labour is in danger of doing a reverse Malthouse Compromise. For those of us with memories of the Brexit days, there was that famous occasion when Parliament had voted down Theresa May's deal, and the Conservatives sort of went into a room together and said, "Why don't we have a situation in which we just remove the need for border checks in Northern Ireland, we use technology, that would be fine, it would square all the circles?" And the Conservative Party got really excited because they agreed, and no one in the room seemed to have considered for a moment the fact that anything they agreed had to be acceptable to the EU! And of course they went to the EU—absolutely no way whatsoever.

So there is a danger that Labour performs the same trick—that is to say, a Labour candidate comes out and says, "I know, we'll kickstart our economy by dynamically aligning with the EU in the areas we want to, while not having freedom of movement, not paying them any money," and the EU will laugh us out of court.

And that's the problem—the options are becoming more limited over time. Barnier did that "staircase" where you could have a Swiss model, you could have a Norwegian model, and there are a couple of things going on at the moment around those options. Firstly, member states have to be in favour. You're hearing mutterings from Brussels already that if it came to a Swiss model, i.e., single market for goods, some member states are doing rather well out of us being outside the single market for goods. That is to say, if you look at the Republic [of Ireland], they're doing quite well in terms of manufacturing exports because we've got trade diversion going on after Brexit. The Irish government might love us dearly, but they're a government—they have to be elected, they have economic interests, and they might think, "Actually, we're going to have to extract a massive pound of flesh if we're going to sacrifice the gains we've made after Brexit."

The second thing that's going on, I think, is inside the Labour Party. We might well say this is 10 years too late, but people are starting to think through what these options mean. You increasingly get Labour MPs going, "Hang on a sec, if we did single market, does that make us a rule-taker across the board, and freedom of movement?"

So on the one hand, the list of options that the EU would make available to us is getting more restricted. On the other hand, the options there short of Rejoin, which we can come on to, are starting to look less attractive than perhaps they do on the surface. So I'm not convinced that we have this sort of range of options to choose from at the moment.

[16:44] Tim Leunig: The longer this goes on, of course, the greater these problems are, because more people then have a vested interest in the status quo, because they've built a business either in Britain, or in Ireland, France, Germany, or wherever, that is taking advantage of the problems that have been introduced by Brexit. As we know, losers always shout louder than winners. So when we were in the EU, the EU bought almost all of its seed potatoes from a company in Britain. That company can't export, so no doubt the potatoes are being bought from someone else, and that someone else will have a local MP, they'll have a government that will want to defend the line that seed potatoes should only come from the EU and not from other countries with whom the EU makes an agreement.

[17:25] Joe Owen: What do you think, though, about—I recognise all of these—one of the things that has changed, particularly in the last year, is the sort of geopolitics and the refocus on defence, the more isolated US, the greater questions about how Europeans defend themselves. Do you think that has changed the dynamic? Would that change the dynamic when you got into a room to discuss these models that are primarily economic models? So people who say, "Yes, those might all be stumbling blocks, but the world is changing and therefore it will be easier." Or do you not buy that?

[18:10] Prof Anand Menon: I don't buy it, and I don't buy it for three reasons. And if I stop at two, I'll go back and say I don't buy it for two reasons because I might not remember all three!

The first is, yes, there are some member states, the further east you go, who are desperate to see more British involvement in European defence and might be willing to make economic sacrifices or economic concessions to get it, but not to the point where they'll burn their political capital in Brussels over this debate. They've got bigger fish to fry—they've got the Multi-annual Financial Framework to waste their capital on, so no one quite cares enough to burn their capital on it.

Two, if you're talking about defence, you're not really talking about the European Union, because the European Union is pretty rubbish as a defence institution. So a lot of the conversations around defence are in the Joint Expeditionary Force, coalitions of the willing, and bilaterally between the UK and individual member states with whom we've signed a whole host of defence understandings since Brexit. So it's not the purview of the European Union anyway, particularly.

And thirdly, even where it is, member states seem quite capable of saying on the one hand, "Oh, we really want you to work with us," but at the same time saying, "But actually we also want to develop EU industry, so we're going to be a little bit protectionist around the edges." I think that's what happened with SAFE, the EU procurement fund which the UK was essentially priced out of.

So for all those reasons, I think that whilst member states talk a good game on this and "we're all together, European solidarity", when it comes to actually making concessions in economic negotiations with the European Union, there's going to be precious little progress.

[19:41] Tim Leunig: And the urgency isn't there, either. Putin is bogged down in Ukraine; he's unlikely to open a second front. He's not as scary as perhaps we thought he was three or four years ago.

[19:54] Prof Anand Menon: I'm not sure anyone from the Baltic states would agree with that!

[19:58] Tim Leunig: No, the Baltic states wouldn't agree with me on that, and I can understand why they wouldn't, but I think geopolitically we have not seen Putin as a successful aggressor in the way that when he first invaded Ukraine we might have thought likely.

Actually, a really good comparison in terms of the sort of jeopardy that Tim was talking about there is Canada. Because since Trump 2.0, one of the things that the Canadians have done is they've ripped down interprovincial barriers to trade. The Canadians have set about creating their single market because they want intra-Canadian trade to act as some sort of counterweight to their previous dependence on the United States. In Europe, they've hardly started implementing Draghi, and if there was a real sense of jeopardy in Europe, that's the first thing they'd do. Because in order to pay for defence equipment, you need to be prosperous, you need to have growth, and Draghi laid out a roadmap to growth that no one seems to be following at the moment. Why? Because that sense of profound jeopardy simply isn't there that would make you take on the vested interests.

[20:56] Joe Owen: Before we move on—I do want us to move on to what would Rejoin look like, seeing as that seems to be a topic of interest at the moment—before we do, can we crystallise: what do you think, you talked Anand about the narrowing set of options that exist for a different type of relationship with the EU, what are they?

[21:13] Prof Anand Menon: I mean, in principle, they're the "staircase" ones, so there's a Swiss model, there's a Norwegian model. What I don't think is on offer is what the Chancellor talked about in her Mais Lecture. I was amazed by that Mais Lecture for two reasons:

One, because the Chancellor didn't seem to understand the difference between voluntary alignment and dynamic alignment. That's to say, we're following EU rules, well, that's great, it makes life easier for business, it doesn't give you any market access unless there's a formal agreement with the European Union whereby you commit to following rules now and in the future under eventually the jurisdiction of the European Court of Justice. However much you dress it up, ultimately that court will decide if you're following rules properly or not. So that was the first thing that surprised me.

The second thing was she came out with this line: "Well, we want sort of divergence to be the exception, not the rule, so in most sectors we want to align." So this is a vision of selective alignment, which the EU has repeatedly ruled out, because on the EU side, if you want bits of the Single Market, you take on obligations. So either you pay a load of money or you get to the point where you have to accept freedom of movement. Because remember, from the EU side, they have to make it absolutely clear to their own populists that there are real benefits to membership that you don't get if you're on the outside. The last thing the French with the Rassemblement National or the Germans with the AfD want to do is make non-membership look really attractive. So it gives them an incentive, if you like, to say with rights come obligations, and you have to have the obligations if you want the rights.

That doesn't mean, by the way, that voluntary alignment is worthless. It would be sensible for Britain to voluntarily align to be a complete rule-taker, for example in chemicals. Many countries around the world follow EU chemical agreements and standards, and that's good for international trade. It means the big chemical producers only have to manufacture to one standard. That simply lowers the price of chemicals in Britain—that would be useful to do. It won't buy us any market access, but it would lower the cost of living here.

[23:11] Joe Owen: Well, there's the argument, right, that you sort of have to choose which of the big three markets you're going to cater for: the US, China, or Europe. And you pick the market and then you just align your standards to them if you are a business looking to trade.

[23:26] Prof Anand Menon: Yes, because otherwise running two lines is just not worth it. So there is a reality... I'm going to forget the terminology... the trade gravity model! Yes, exactly, the trade gravity model. I mean, yes, when you make those decisions, you should look at a map. You're closer to Brussels than China!

So I would say, at the margins, this is where it gets interesting, isn't it? At the margins, if you're basically going to align voluntarily and not have market access, what the hell's the point? Because I can sort of see the point of doing a "full fat" Brexit: "We're going to go our own way, we're going to..." What was remarkable about the Conservative Party was in all those years post-referendum in government, they never came up with a vision of Brexit opportunities that was in the least bit...

[24:13] Joe Owen: I want to ask Tim about this, because before we move on to what could Rejoin look like, I want to know from a pure economic perspective, if growth was the main objective for the government, which it says it is, and various governments have said that it is, what would you do outside of the European Union? What is the sort of growth model outside of the European Union if you wanted to really take advantage of the Brexit freedoms? What would you do?

[24:42] Tim Leunig: So first of all, if you phrase it like that, what you are throwing away is the right to rejoin the EU soon, and that's a very big cost. Because as we've said, the cost of having left is 4, 5, 6, 7, 8% of GDP. There's no plausible growth strategy outside the EU that would allow us to recover that. So the best growth strategy is to rejoin the EU, make no mistake about that.

The next most coherent approach to that actually was the Liz Truss approach, which was to go a long way from the EU, to become "Singapore-upon-Thames", to become, in her words, a "roaring, freedom-loving nation". Patrick Minford put forward the same view with more economic rigour, so in his view we would see manufacturing fall to 5, 6, 7% of GDP, so half of manufacturing firms would go bust. We would become a service sector, because there are many areas where countries don't put on tariffs—no country has ever charged a person who studied abroad for the fact they're technically importing education. So it would have been that sort of specialised nation approach, but there was no evidence the British people ever wanted that!

[25:50] Prof Anand Menon: I mean, that's the key thing, isn't it? And there's a real political paradox to Brexit, because I remember in the referendum campaign, Vote Leave were very quick to take Patrick Minford off the airwaves when he started being too honest, you know! He said, "Yeah, we won't have any agriculture, we probably won't have much manufacturing." And at that point it was like, "Okay, I think you should just stay home and not go in the studios anymore!"

Because one of the many paradoxes of Brexit was to—you know, I'm old enough to remember the original Tory eurosceptics, and it was all about regulation. It was about the Working Time Directive, it was the Fresh Start Group, it was "If we left, we can tear down all those regulations." Okay, that was the sort of initial intellectual core of euroscepticism. But to get us out of the European Union, those people had to create a political alliance with people who like regulation, who quite like the welfare state—you know, all those Red Wall voters we've become so fond of talking about, okay. So they formed that coalition, they got Brexit, then all of a sudden they started to realise, actually, you can't scrap employee protections because that's what these people like. You can't slash the welfare state because these people are dependent on the welfare state. You can't cut manufacturing because the Red Wall constituencies are disproportionately reliant on manufacturing. So to get the Brexit you needed to implement your ideological vision, you had to create a political coalition with people who absolutely did not share that ideological vision, which created something of a problem.

And that was really noticeable. I remember meeting Economists for Brexit and they told me they wanted to scrap every single piece of labour market legislation in Britain. And I said, "Really? So a boss should be able to fire someone because they don't like the colour of their skin?" And they said, "Well, not that regulation." And I ran through about 20 regulations, and they didn't actually want to scrap any of them. And I said, "Well, which regulations do you want to scrap?" And they said, "Well, all the others." And I said, "Can you name them?" They said, "No, just all the others."

And that really did disappoint me, because with the exception of Patrick Minford, who did give me honest and useful and sensible answers, none of the rest of the team really had a cogent plan that you could say, "I can see how this would work." Not for every person in Britain, because losing manufacturing and getting rid of much of agriculture clearly doesn't work for lots of people, but you could see some semblance of coherence, intellectual honesty, and for some people a brighter future. But the rest of them, frankly, were talking fantasy land!

[28:19] Joe Owen: There's a slight "What have the Romans ever done for us?" aspect to that! But anyway, we want to talk about what now is the scenario in which the UK decides it's made a mistake and it goes back in. What would rejoining the European Union look like? But before we do the practicalities of how, and why, and whether, do you actually think politics has shifted and public opinion has shifted on this?

[28:42] Prof Anand Menon: Politics is... I mean, the politics of the Labour Party is shifting for a variety of reasons. One, the unsustainability of where they are now on the reset that I spoke about before. Two, because they're racking their brains thinking of what they call "progressive causes" to rally the progressive side of politics behind something, and they think Europe might be that thing. Thirdly, because of President Trump and the world that is changing. I think the world changing is a massive thing for us, because actually being outside the European Union now feels a lot more lonely than anyone would have expected in 2016, because globalisation has gone into retreat, both the EU and the US have become protectionist, and you've got President Trump and the doubts about the security guarantee, all of which makes Brexit much harder than it would have been back in the world of 2016. So for a variety of reasons, thinking in the Labour Party has changed, and you can now hear MPs—indeed Cabinet ministers have said to me, "I'm really thinking we should have Rejoin in the next manifesto."

Now, let me get on to the public opinion of that. Yes, public opinion has shifted. Yes, there is now a significant margin by which people who think Brexit was the wrong decision outnumber people who think it was the right decision. But I think you've got to take this with a pinch of salt for two reasons.

First, very little polling confronts people with trade-offs. "Would you like to rejoin the European Union?" You get a majority. I wonder whether, "Would you like to rejoin the European Union if it means paying loads of money, joining the euro, joining..." You know, if you put the trade-offs in there, you'll get different answers. That's the first thing.

The second thing is salience, okay? I think 2% of people now think Brexit's the most important issue facing the country, okay? Actually, probably a disproportionate number of those are Labour Party members, in reference back to what I said before, but that's very, very small. So actually, if you want to do it, you need to be able to replicate the very successful trick that Nigel Farage pulled off in 2015-2016, which was to take an issue no one cared about—Europe—and link it to an issue loads of people cared about: immigration. That's the only way to do this. And the obvious thing is cost of living.

I think that'd be quite hard to do, actually. I remember one of the most interesting things I've heard recently was in a focus group about two months ago, and we were talking about Brexit and the cost of Brexit, and someone said, "Well, Brexit is still a weigh on our economy." And this woman said, "Don't be so ridiculous, we left in 2016, how can it be Brexit now?" And again, you know, the wisdom of crowds, you sort of listened to that and you thought, on the one hand that's ridiculous because obviously that's not true, but on the other hand you think, well, that's intuitively quite a compelling argument!

[31:16] Joe Owen: And presumably, to get to your politics point, one of the other reasons is domestic politics has shifted, in that it looks like the parties will be looking at the next election, and it is less like previous elections in which it's how much can you take some voters that previously voted for the other team, and is now how effective are you going to be at cohering your side of the fence. One of the few issues, probably along with electoral reform, that would be as good for the left to cohere its side of the bloc is probably Europe. Though you imagine a young voter who's left Labour over Gaza and is voting Green, I can't quite compute why that person would go back to Labour because Labour is now saying what the Greens are already saying!

[32:04] Prof Anand Menon: Yeah, and that's the problematic bit for me.

[32:10] Tim Leunig: Here, I think the more interesting question is not the Labour Party, it's the Conservative Party. Because the Conservative Party was much more united in favour of Europe in the 70s than the Labour Party ever was. And I think we will see a time—you can already see Andy Street talking about this with Prosper UK along with Ruth Davidson in Scotland—trying to build a more moderate, traditional Conservative Party. The Conservatives have lost a lot of their Brexiteers to Reform, and at some point surely they will want to distinguish themselves from Nigel Farage, particularly if Farage becomes Prime Minister and things don't improve. And there's nothing to suggest they will improve with Farage as leader, unless you have a particular set of objectives for a government.

John Curtice said something really interesting to me the other day after the local elections. He said Conservative voters are no longer majority pro-Leave, which I thought was fascinating, and it is utterly at odds with where the party is in terms of its policies.

[33:08] Joe Owen: Just the practicalities you mentioned there, and about the trade-offs of what Rejoin would mean, what do you think is a non-negotiable? For example, rejoining of course means freedom of movement, of course means ECJ. Is there a question over what it means for the euro, for Schengen, for some of the things that we used to have carve-outs for? Because it seems to me implausible that anyone could say, "We're going to go back in and rejoin, but with a load of carve-outs on the things that we didn't like," in addition to what we previously had. What I'm not clear about is whether it's credible to say, "We are going to rejoin and we will seek to negotiate on that on the basis of the carve-outs that we did already have." Is that plausible?

[33:56] Prof Anand Menon: No. I think the first obvious advantage of Rejoin, unlike some of the other options, is the European Union has to negotiate it. It can't turn around and say, "This country doesn't like it." They are constitutionally bound under their treaties: if you are a European state with European values, whatever the hell that means, they have to consider your application.

So once you've applied, there is a process. There's no getting around that process. The end of the process, funnily enough, might end with a French referendum, which would be so much fun! But anyway, leave that to one side for the moment.

There is no way they'll give us the carve-outs from before, okay, particularly in terms of budget rebate—Fontainebleau, Margaret Thatcher, 1984, that's not happening again. We will pay the full whack.

Schengen I think we might get away with, because the Republic of Ireland isn't particularly interested in Schengen, and our island status makes us a specific case with the Common Travel Area.

The euro I think is fascinating. We obviously won't get an opt-out, which the Danes are the only member state that have that opt-out now. Everyone else is obliged by the treaties to join the euro when they have met the convergence criteria. There are countries inside the European Union like Sweden and Poland who should be in the euro, but aren't, and no one's doing anything about it.

The other slight thought I had is whether—I mean, the European Union can't force a country to join its currency, but it does strike me that the European Union would very much like us to be in the euro simply because it would make it next to impossible to leave again. You know, if we thought Brexit was messy, Brexit plus the euro would be a nightmare. And I'm sure there are some people in Brussels who will be pondering whether you can make the terms slightly more onerous on us to join the euro than for a normal member state for that reason. But as I said, there are member states in there who should be in the euro and aren't, so you can get away with that.

[35:46] Joe Owen: And you mentioned that there were Cabinet ministers who were interested in the idea that Rejoin should be in the manifesto at the next election. Let's assume Labour wins, Rejoin is in the manifesto, and they seek to rejoin the European Union in the next parliament. In that—looking at current polling, quite generous—scenario, it is hard to see how the Leader of the Opposition is not Nigel Farage at that time. Do you think the European Union would do a deal with the UK to rejoin the EU while Nigel Farage is the Leader of the Opposition?

[36:21] Prof Anand Menon: I think they'd negotiate. I'm personally sceptical about whether you would get through the whole process in one parliamentary term anyway, so you might have to go through another election utterly dominated by Europe. I mean, this is the problem: the opportunity cost of this is that this would suck the oxygen out of our politics and would be the only issue. We've been there before—we weren't governed at all between 2016 and 2020 because we were obsessed with this. Whether you're willing to take that risk is something for politicians to decide, but it will be damaging in that sense.

But the EU would have to negotiate with us. If we've applied to join, they would have to negotiate with us. They might start to hedge, you know, they might start thinking about: "How do we, in the event that this country joins, how do we make sure they don't mess us about again? What additional strictures can we think of?" It'd be within their rights to do that, but they would have to negotiate.

[37:07] Joe Owen: There's a question of whether or not it would require another referendum, which of course is just a choice for us domestically, right? There is no rule anywhere that says you can only make decisions with regards to the European Union through the mode of a referendum. But do you think it would be seen as a necessary precondition from Europe, because they would want to know that there was, as you said, majority support, and that this wasn't going to get unwound again?

[37:38] Prof Anand Menon: I don't think most people in continental Europe see 52/48 as a decisive result, to be honest. And I think they were slightly perplexed by the fact that we sort of did. So no, I don't think a referendum which Rejoin squeaks over the line is going to make them any more comfortable about it. In fact, it might just exacerbate the divisions. And I think this is the danger: in an era of populism and an era of anti-politics, that slogan that apparently Dominic Cummings has already come up with, which is "Tell them again", could really resonate.

[38:15] Joe Owen: And Tim, on the economy, would we get an immediate bounce if we rejoined, or if we even just made the commitment to rejoin?

[38:22] Tim Leunig: No. A commitment to rejoin without clearly accepted terms is just a negotiating ploy. It might come, it might go. We would have negotiations for maybe 10 years; we might get a government that pulled out of the negotiations halfway. So no, just announcing it isn't going to achieve you that much, unless you had just won an election and you and other parties that were in favour of rejoining had three-quarters of the vote, or something like that. So if Reform crash and burn, and other parties of their ilk crash and burn, then you're in a different position where you can see that the negotiations are going to be relatively quick, where Britain is willing to do a host of things the EU would want of it. Then you could imagine firms saying, "This is clearly going to happen," and therefore the investment follows. But not otherwise.

[39:11] Joe Owen: So I'm going to end by putting you both on the spot, and asking you what you think is the right model for the UK in the medium term? Is it Rejoin? Is it a Swiss-style deal? Is it—I can't remember how you described Liz Truss's vision, other than "Singapore-upon-Thames"—is it that? What is the right model? Tim, I'm going to come to you first and then Anand.

[39:31] Tim Leunig: So economically, the right model is to rejoin the EU. Not on any terms—the EU, obviously, if they wanted £50 billion a year, that wouldn't be worth it. But joining up in the way that almost every other country is part of, that economically is the strongest option. Whether the British people think that's worth the sovereignty price, which is real in terms of controlling our borders, well, on that, I as an economist have no special expertise to comment. But thankfully, we can now turn to Anand!

[40:05] Prof Anand Menon: As you know all too well, Joe, I can't say what I would like! What Brexit is about is trade-offs. Brexit has always been about trade-offs. So let me say a couple of things:

First, it is perfectly legitimate to say, "I want to be in control of my laws and immigration policy, and I'm willing to pay an economic price for it." There is an economic price—let's be honest about that. That was the dishonesty of some on the Leave side, to say you could have it all. You can't.

If you look at interim models, the problem for me is I just can't see the United Kingdom sustaining a position of being a large-scale rule-taker. I don't think our politics is made for it. I think even now in the limited circumstances of the reset, I think both the Express and the Mail have gone off on one about marmalade! Because of course the EU's rules on marmalade have changed, and now you can't call it marmalade, and if we align, this is the end of the world as we know it! Imagine if it was something serious! And it would be something serious if you want to be Norway—you're allowing the European Union to regulate the City of London. I think the Bank of England would hate that, apart from anyone else.

So I just do not think the middle ground is that sustainable between where we are now and rejoining. I just think that would collapse pretty quickly. Which way you go, whether you stay where we are now or whether you go in, depends on where you stand on those trade-offs—with the caveat that where we are now on some level doesn't make much sense, because we're accepting all the costs of having left without taking advantage of any of the potential putative benefits, because we've decided to be out and aligned, which strikes me as a strange place for us to have.

[41:44] Joe Owen: We're in purgatory, in a way.

[41:51] Prof Anand Menon: Yeah.

[41:51] Joe Owen: That feels like a very... note to end on, but we're going to do it anyway! Tim, Anand, thank you very much.

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[00:00] Prof Anand Menon: The European Union can't force a country to join its currency, but it does strike me that the European Union would very much like us to be in the euro simply because it would make it next to impossible to leave again. You know, if we thought Brexit was messy, Brexit plus the euro would be a nightmare. And I'm sure there are some people in Brussels who will be pondering whether you can make the terms slightly more onerous on us to join the euro than for a normal member state for that reason.

[00:27] Tim Leunig: The next most coherent approach to that actually was the Liz Truss approach, which was to go a long way from the EU, to become "Singapore-upon-Thames", to become, in her words, a "roaring, freedom-loving nation". Patrick Minford put forward the same view with more economic rigour, so in his view we would see manufacturing fall to 5, 6, 7% of GDP, so half of manufacturing firms would go bust. We would become a service sector, because there are many areas where countries don't put on tariffs—no country has ever charged a person who studied abroad for the fact they're technically importing education.

[01:07] Joe Owen: Hi, welcome to Policy Fix by Nesta, the Research and Innovation Foundation. I'm Joe Owen. Every episode, we take a policy problem and identify how to fix it. If you enjoy this episode, please do like, share and subscribe wherever you get your podcasts.

An embattled Prime Minister facing a leadership challenge, and various would-be contenders promising they want a different relationship with Europe sounds like it could be 2016, or 2017, or 2018, or even 2019. But it is in fact 2026. And this time it is different. This time we have got people arguing that we need to fundamentally rethink Brexit and consider rejoining the European Union. Keir Starmer's government has promised a reset in relationships with the European Union, but both Andy Burnham and Wes Streeting have said that they think the UK's future should be inside the European Union and would consider rejoining at some point, even if it is unclear yet as to when.

The polling, at least as it stands now, seems to suggest that the public are not satisfied with Brexit, and the economic analysis suggests that it is costing us dearly. So what could a settled position look like? Joining me to discuss that, we have got Anand Menon, Director of UK in a Changing Europe and a Director at Public First, and Tim Leunig, Chief Economist here at Nesta. Anand, Tim, welcome.

[02:26] Prof Anand Menon: Thank you for having me.

[02:28] Joe Owen: So Anand, what is the UK's current relationship with the European Union?

[02:28] Prof Anand Menon: It's a third country. I mean, and all that that implies. So diplomatic relations are warm, they're close with the EU and with member states, but the UK is outside the bloc. And I say that because actually I'm not sure it's something we've necessarily internalised as yet. We are treated like a third country like any other, which means our security relationship with them is based on a document that looks very, very much like the one the Norwegians have. Which means that they don't do us favours around the negotiating table. Which means that they reserve the right to sort of keep our companies out of their market in certain areas. And that is just what being a third country means, and we've had it for what, five years or so. It's been in place as the predominant relationship.

[03:14] Joe Owen: How well do you think it's working for us? What would you score it out of 10?

[03:20] Prof Anand Menon: I mean, like anything to do with Brexit, that depends on where you stand on the various trade-offs. If you were scoring it on our ability to control our immigration policy, you'd give it a 10. If you were scoring it on our trade openness, you'd probably give it a two or a three.

[03:41] Joe Owen: And the economy, Tim, how would you score it?

[03:46] Tim Leunig: Well, for the economy, it's straightforward bad news compared to being in the EU. The best academic paper that's been written suggests it's 6, 7, 8% of GDP. If we take 6%, that's £180 billion a year—that's half a billion a week. I mean, in the election campaign, people talked about £350 million a week. We're talking about more than that a day that we're losing. So yeah, it's terrible news.

[04:09] Joe Owen: And what about the EU? Because we're going to get into the options about what other relationships could work better for the UK, but obviously all of this depends on the EU being up for changing the relationship, too. What do you think they think of the current setup?

[04:28] Prof Anand Menon: I think some member states would like to see a closer security relationship and would be willing to give us stuff on the economy in return. But the bulk of the EU is perfectly happy with the functioning of the Trade and Cooperation Agreement. Remember, we never really imposed that full gamut of checks at the border that they did, so there was always that slight asymmetry anyway, which is bizarre given the balance-of-trade arguments that Brexiteers used during the referendum campaign, that we should end up here. So I think on balance, the EU are perfectly happy. With the negotiations, what we're finding is the EU—with the economic negotiations at least—is saying, "Give us a reason to want to negotiate with you, because actually the status quo is absolutely fine as far as we're concerned."

[05:13] Joe Owen: I sort of want us to spend quite a lot of time on what are the different models and options for deeper relationships, given that seems to be, whether it's the current Prime Minister or various people vying for his job, tends to be the direction of travel, allegedly.

[05:28] Prof Anand Menon: Allegedly! Allegedly.

[05:30] Joe Owen: And so we should start with the government's planned, quote-unquote, "reset", which I think it is fair to say is: we have voluntarily aligned to a lot of EU rules, not all of them, and then are seeking a series of sectoral arrangements to gain preferential access to the EU, including in some areas where we have already voluntarily aligned to their rules. The big one that's ongoing and is due to conclude next year, is it right, on agri-food?

I guess I'm interested first in your view on how valuable are some of these sectoral deals to us when the Chancellor talks about them as part of her big growth reset? Are they that valuable?

[06:21] Prof Anand Menon: This is a really weird situation we're in at the moment, because the Chancellor—I mean, Tim's mentioned the academic paper that says 6 to 8%—the Chancellor has taken to citing that 8% figure as the cost of Brexit, which I think is strange because I think that's very much on the high end and I'm not wholly convinced by it. But anyway, that's what she's doing. At the same time, the government's own estimates of the benefits of what they're negotiating is about 0.3% of GDP over a decade. That strikes me as an unsustainable position: saying on the one hand this has cost us 8%, but don't worry, I've sorted out 0.3%. So that's a bit strange.

On agri-food, I mean on the reset as a whole actually, at the moment it's far from certain we're even going to get that, because the impression you get is that the talks are bogged down. There are lots of detailed things on the agricultural deal, not least the fact that we want exemptions from dynamic alignment in some areas and the EU aren't keen. And of course, the one thing the EU really wants for reasons we can maybe get into—because it's a bit odd—is youth mobility, youth experience. Those negotiations have stalled, and I think for some on the EU side, if they don't get that, why would they give us the agriculture, the emissions trading, and the stuff that we want?

[07:29] Tim Leunig: It's worth adding that food is always one of the hardest things to negotiate. Farmers are vocal, they have very clear views, they have a lot of public sympathy. It's not obvious that this is the easy one to start with, especially dealing with the EU if you're dealing with genetically modified foods, because there is that almost visceral suspicion of GMOs in the EU. One of the areas where initially we were thinking we could get a carve-out from dynamic alignment was in this area because we see this as a Brexit opportunity, rightly or wrongly. A friend of mine who works in the European Commission said to me a couple of weeks ago, "Why would we risk your five-legged cows trotting over the intra-Irish border?" I mean, if we're going to align and you want us to remove checks, you need to play by our rules across the board, which I think some on the EU side feel, and that makes it quite hard for us.

[08:24] Joe Owen: Yeah, I want to come back on the youth mobility one, because it seems like a good microcosm of where, as we want to do more and more in terms of sectoral agreements, we are going to start bumping up against the big red lines, one of which is obviously freedom of movement. But even in this negotiation, we are talking about youth mobility—sort of much more popular, based on all of the polling, with voters in the UK, but it's a stumbling block. Why do you think it's such a stumbling block?

[09:04] Prof Anand Menon: I mean, firstly, just in the interest of clarity, it is absolutely nothing to do with freedom of movement—it's a visa scheme. It's totally and utterly different, so the two shouldn't appear in the same sentence together.

It is a stumbling block because, one, we don't particularly want it, despite the warm words the Prime Minister had for youth mobility in his supposed reset speech. The British government has dragged its feet on this, and of course in opposition Labour said, "We have no intention of negotiating any deal like this." Why? The Home Office, for a start, said we don't want anything that increases the net migration figures.

Secondly, the EU has introduced into this negotiation the idea that European students should be able to pay domestic fees at UK universities. Given the financial status of some of our universities at the moment, that is something that makes the government very, very nervous indeed.

I should also add that one of the reasons why this negotiation is proving so difficult is because the EU has overreached on a lot of things connected with youth mobility. The EU doesn't have competence. The reason the EU is negotiating this is because under the Conservatives, we started negotiating bilateral deals with some member states—the ones we liked and whose young people we'd like to welcome here. Some of the other member states at this point said, "Hang on a sec, this isn't fair, why aren't we included?" They complained to the European Commission. The European Commission took over the negotiation, so we now have the strange sight of the European Commission negotiating some aspects of a deal over which it has no formal competence, which makes the whole thing not just difficult because there are significant areas of disagreement, but also really clunky because of competence issues on their side.

[10:38] Tim Leunig: Can I add: I was Director of the Department for Education's international unit at the time of Brexit, and so I regularly met my opposite numbers from across Europe, and they were all deeply committed to what was then the status quo continuing. That is, Romanians, Czechs, Swedes, etc., would be able to study in our universities at the lower fees and have access to student loans from the British government. So this isn't a new demand from Europe—they are saying, "Well, if you want some of the benefits of being sort of in, we want the benefits that we had back then." So the British government can't really be surprised.

I've always been surprised around youth mobility in the sort of migration debate as not being more attractive, because actually one of the things that is tricky for us now that we have left the European Union is lower-skilled migration, or migration in which it is not tied to an employer. Under our current scheme, you have to have a job offer from an employer who is a sponsor. There are large parts of the economy for which having a single employer for a multi-year period doesn't work—construction, hospitality is another. Those are the areas in which we used to rely heavily on freedom of movement, and they're also areas in which the workforce tends to be younger. So a youth mobility scheme could be quite positive for some of the growth agenda, but it just seems to have been caught, possibly then because of the financials, as you say.

[12:09] Prof Anand Menon: And since when has our immigration debate been linked to rational economic considerations? They don't interact!

[12:17] Joe Owen: That's fair!

[12:17] Tim Leunig: But let's look at it the other way as well. Britain has a rising number of young people who are not in work and not in training, and so on and so forth. So I think those who oppose immigration would have the right to turn around and say, "Actually, what we need is a real outreach effort to these young people. We need an outreach effort to business to say: stop carping on about getting foreigners in to do these jobs, start training up these young people, start working with schools, start running careers fairs, because sooner or later these young people will get into work. The evidence is they don't remain NEET for life—go and work with them, get them into work." Though there is a little hint of a lump-of-labour fallacy around the edges of that, isn't there?

[12:58] Prof Anand Menon: Yes, there is!

[13:00] Joe Owen: I want to move us on to other options. What I am taking from this is: the current reset is small and partial and stalled. Apart from that, it's great!

[13:14] Prof Anand Menon: But other than that, it sounds brilliant!

[13:16] Joe Owen: So what are the other options? We are having various leadership contenders that certainly aren't leadership contenders, at least not yet, talking about their visions for new relationships with Europe in vague and non-specific terms. We have had a speech from the Prime Minister that talked probably more ambitiously than the reset agenda currently looks in terms of a future relationship with Europe. What are their options?

[13:45] Prof Anand Menon: I mean, in terms of the current debate, I think it's worth saying that this is what young people call "vibes" rather than policy! And there's a good reason for that. If you want to be Labour leader, you need the votes of massively, unrepresentatively pro-European people called Labour members. So the sweet spot in this debate is to sound as pro-European as you possibly can, whilst committing to as little as possible. It strikes me that Wes Streeting has done that admirably to date!

The problem is that a lot of our debate is completely removed from the reality of what the EU might be interested in negotiating with us. I sometimes think that Labour is in danger of doing a reverse Malthouse Compromise. For those of us with memories of the Brexit days, there was that famous occasion when Parliament had voted down Theresa May's deal, and the Conservatives sort of went into a room together and said, "Why don't we have a situation in which we just remove the need for border checks in Northern Ireland, we use technology, that would be fine, it would square all the circles?" And the Conservative Party got really excited because they agreed, and no one in the room seemed to have considered for a moment the fact that anything they agreed had to be acceptable to the EU! And of course they went to the EU—absolutely no way whatsoever.

So there is a danger that Labour performs the same trick—that is to say, a Labour candidate comes out and says, "I know, we'll kickstart our economy by dynamically aligning with the EU in the areas we want to, while not having freedom of movement, not paying them any money," and the EU will laugh us out of court.

And that's the problem—the options are becoming more limited over time. Barnier did that "staircase" where you could have a Swiss model, you could have a Norwegian model, and there are a couple of things going on at the moment around those options. Firstly, member states have to be in favour. You're hearing mutterings from Brussels already that if it came to a Swiss model, i.e., single market for goods, some member states are doing rather well out of us being outside the single market for goods. That is to say, if you look at the Republic [of Ireland], they're doing quite well in terms of manufacturing exports because we've got trade diversion going on after Brexit. The Irish government might love us dearly, but they're a government—they have to be elected, they have economic interests, and they might think, "Actually, we're going to have to extract a massive pound of flesh if we're going to sacrifice the gains we've made after Brexit."

The second thing that's going on, I think, is inside the Labour Party. We might well say this is 10 years too late, but people are starting to think through what these options mean. You increasingly get Labour MPs going, "Hang on a sec, if we did single market, does that make us a rule-taker across the board, and freedom of movement?"

So on the one hand, the list of options that the EU would make available to us is getting more restricted. On the other hand, the options there short of Rejoin, which we can come on to, are starting to look less attractive than perhaps they do on the surface. So I'm not convinced that we have this sort of range of options to choose from at the moment.

[16:44] Tim Leunig: The longer this goes on, of course, the greater these problems are, because more people then have a vested interest in the status quo, because they've built a business either in Britain, or in Ireland, France, Germany, or wherever, that is taking advantage of the problems that have been introduced by Brexit. As we know, losers always shout louder than winners. So when we were in the EU, the EU bought almost all of its seed potatoes from a company in Britain. That company can't export, so no doubt the potatoes are being bought from someone else, and that someone else will have a local MP, they'll have a government that will want to defend the line that seed potatoes should only come from the EU and not from other countries with whom the EU makes an agreement.

[17:25] Joe Owen: What do you think, though, about—I recognise all of these—one of the things that has changed, particularly in the last year, is the sort of geopolitics and the refocus on defence, the more isolated US, the greater questions about how Europeans defend themselves. Do you think that has changed the dynamic? Would that change the dynamic when you got into a room to discuss these models that are primarily economic models? So people who say, "Yes, those might all be stumbling blocks, but the world is changing and therefore it will be easier." Or do you not buy that?

[18:10] Prof Anand Menon: I don't buy it, and I don't buy it for three reasons. And if I stop at two, I'll go back and say I don't buy it for two reasons because I might not remember all three!

The first is, yes, there are some member states, the further east you go, who are desperate to see more British involvement in European defence and might be willing to make economic sacrifices or economic concessions to get it, but not to the point where they'll burn their political capital in Brussels over this debate. They've got bigger fish to fry—they've got the Multi-annual Financial Framework to waste their capital on, so no one quite cares enough to burn their capital on it.

Two, if you're talking about defence, you're not really talking about the European Union, because the European Union is pretty rubbish as a defence institution. So a lot of the conversations around defence are in the Joint Expeditionary Force, coalitions of the willing, and bilaterally between the UK and individual member states with whom we've signed a whole host of defence understandings since Brexit. So it's not the purview of the European Union anyway, particularly.

And thirdly, even where it is, member states seem quite capable of saying on the one hand, "Oh, we really want you to work with us," but at the same time saying, "But actually we also want to develop EU industry, so we're going to be a little bit protectionist around the edges." I think that's what happened with SAFE, the EU procurement fund which the UK was essentially priced out of.

So for all those reasons, I think that whilst member states talk a good game on this and "we're all together, European solidarity", when it comes to actually making concessions in economic negotiations with the European Union, there's going to be precious little progress.

[19:41] Tim Leunig: And the urgency isn't there, either. Putin is bogged down in Ukraine; he's unlikely to open a second front. He's not as scary as perhaps we thought he was three or four years ago.

[19:54] Prof Anand Menon: I'm not sure anyone from the Baltic states would agree with that!

[19:58] Tim Leunig: No, the Baltic states wouldn't agree with me on that, and I can understand why they wouldn't, but I think geopolitically we have not seen Putin as a successful aggressor in the way that when he first invaded Ukraine we might have thought likely.

Actually, a really good comparison in terms of the sort of jeopardy that Tim was talking about there is Canada. Because since Trump 2.0, one of the things that the Canadians have done is they've ripped down interprovincial barriers to trade. The Canadians have set about creating their single market because they want intra-Canadian trade to act as some sort of counterweight to their previous dependence on the United States. In Europe, they've hardly started implementing Draghi, and if there was a real sense of jeopardy in Europe, that's the first thing they'd do. Because in order to pay for defence equipment, you need to be prosperous, you need to have growth, and Draghi laid out a roadmap to growth that no one seems to be following at the moment. Why? Because that sense of profound jeopardy simply isn't there that would make you take on the vested interests.

[20:56] Joe Owen: Before we move on—I do want us to move on to what would Rejoin look like, seeing as that seems to be a topic of interest at the moment—before we do, can we crystallise: what do you think, you talked Anand about the narrowing set of options that exist for a different type of relationship with the EU, what are they?

[21:13] Prof Anand Menon: I mean, in principle, they're the "staircase" ones, so there's a Swiss model, there's a Norwegian model. What I don't think is on offer is what the Chancellor talked about in her Mais Lecture. I was amazed by that Mais Lecture for two reasons:

One, because the Chancellor didn't seem to understand the difference between voluntary alignment and dynamic alignment. That's to say, we're following EU rules, well, that's great, it makes life easier for business, it doesn't give you any market access unless there's a formal agreement with the European Union whereby you commit to following rules now and in the future under eventually the jurisdiction of the European Court of Justice. However much you dress it up, ultimately that court will decide if you're following rules properly or not. So that was the first thing that surprised me.

The second thing was she came out with this line: "Well, we want sort of divergence to be the exception, not the rule, so in most sectors we want to align." So this is a vision of selective alignment, which the EU has repeatedly ruled out, because on the EU side, if you want bits of the Single Market, you take on obligations. So either you pay a load of money or you get to the point where you have to accept freedom of movement. Because remember, from the EU side, they have to make it absolutely clear to their own populists that there are real benefits to membership that you don't get if you're on the outside. The last thing the French with the Rassemblement National or the Germans with the AfD want to do is make non-membership look really attractive. So it gives them an incentive, if you like, to say with rights come obligations, and you have to have the obligations if you want the rights.

That doesn't mean, by the way, that voluntary alignment is worthless. It would be sensible for Britain to voluntarily align to be a complete rule-taker, for example in chemicals. Many countries around the world follow EU chemical agreements and standards, and that's good for international trade. It means the big chemical producers only have to manufacture to one standard. That simply lowers the price of chemicals in Britain—that would be useful to do. It won't buy us any market access, but it would lower the cost of living here.

[23:11] Joe Owen: Well, there's the argument, right, that you sort of have to choose which of the big three markets you're going to cater for: the US, China, or Europe. And you pick the market and then you just align your standards to them if you are a business looking to trade.

[23:26] Prof Anand Menon: Yes, because otherwise running two lines is just not worth it. So there is a reality... I'm going to forget the terminology... the trade gravity model! Yes, exactly, the trade gravity model. I mean, yes, when you make those decisions, you should look at a map. You're closer to Brussels than China!

So I would say, at the margins, this is where it gets interesting, isn't it? At the margins, if you're basically going to align voluntarily and not have market access, what the hell's the point? Because I can sort of see the point of doing a "full fat" Brexit: "We're going to go our own way, we're going to..." What was remarkable about the Conservative Party was in all those years post-referendum in government, they never came up with a vision of Brexit opportunities that was in the least bit...

[24:13] Joe Owen: I want to ask Tim about this, because before we move on to what could Rejoin look like, I want to know from a pure economic perspective, if growth was the main objective for the government, which it says it is, and various governments have said that it is, what would you do outside of the European Union? What is the sort of growth model outside of the European Union if you wanted to really take advantage of the Brexit freedoms? What would you do?

[24:42] Tim Leunig: So first of all, if you phrase it like that, what you are throwing away is the right to rejoin the EU soon, and that's a very big cost. Because as we've said, the cost of having left is 4, 5, 6, 7, 8% of GDP. There's no plausible growth strategy outside the EU that would allow us to recover that. So the best growth strategy is to rejoin the EU, make no mistake about that.

The next most coherent approach to that actually was the Liz Truss approach, which was to go a long way from the EU, to become "Singapore-upon-Thames", to become, in her words, a "roaring, freedom-loving nation". Patrick Minford put forward the same view with more economic rigour, so in his view we would see manufacturing fall to 5, 6, 7% of GDP, so half of manufacturing firms would go bust. We would become a service sector, because there are many areas where countries don't put on tariffs—no country has ever charged a person who studied abroad for the fact they're technically importing education. So it would have been that sort of specialised nation approach, but there was no evidence the British people ever wanted that!

[25:50] Prof Anand Menon: I mean, that's the key thing, isn't it? And there's a real political paradox to Brexit, because I remember in the referendum campaign, Vote Leave were very quick to take Patrick Minford off the airwaves when he started being too honest, you know! He said, "Yeah, we won't have any agriculture, we probably won't have much manufacturing." And at that point it was like, "Okay, I think you should just stay home and not go in the studios anymore!"

Because one of the many paradoxes of Brexit was to—you know, I'm old enough to remember the original Tory eurosceptics, and it was all about regulation. It was about the Working Time Directive, it was the Fresh Start Group, it was "If we left, we can tear down all those regulations." Okay, that was the sort of initial intellectual core of euroscepticism. But to get us out of the European Union, those people had to create a political alliance with people who like regulation, who quite like the welfare state—you know, all those Red Wall voters we've become so fond of talking about, okay. So they formed that coalition, they got Brexit, then all of a sudden they started to realise, actually, you can't scrap employee protections because that's what these people like. You can't slash the welfare state because these people are dependent on the welfare state. You can't cut manufacturing because the Red Wall constituencies are disproportionately reliant on manufacturing. So to get the Brexit you needed to implement your ideological vision, you had to create a political coalition with people who absolutely did not share that ideological vision, which created something of a problem.

And that was really noticeable. I remember meeting Economists for Brexit and they told me they wanted to scrap every single piece of labour market legislation in Britain. And I said, "Really? So a boss should be able to fire someone because they don't like the colour of their skin?" And they said, "Well, not that regulation." And I ran through about 20 regulations, and they didn't actually want to scrap any of them. And I said, "Well, which regulations do you want to scrap?" And they said, "Well, all the others." And I said, "Can you name them?" They said, "No, just all the others."

And that really did disappoint me, because with the exception of Patrick Minford, who did give me honest and useful and sensible answers, none of the rest of the team really had a cogent plan that you could say, "I can see how this would work." Not for every person in Britain, because losing manufacturing and getting rid of much of agriculture clearly doesn't work for lots of people, but you could see some semblance of coherence, intellectual honesty, and for some people a brighter future. But the rest of them, frankly, were talking fantasy land!

[28:19] Joe Owen: There's a slight "What have the Romans ever done for us?" aspect to that! But anyway, we want to talk about what now is the scenario in which the UK decides it's made a mistake and it goes back in. What would rejoining the European Union look like? But before we do the practicalities of how, and why, and whether, do you actually think politics has shifted and public opinion has shifted on this?

[28:42] Prof Anand Menon: Politics is... I mean, the politics of the Labour Party is shifting for a variety of reasons. One, the unsustainability of where they are now on the reset that I spoke about before. Two, because they're racking their brains thinking of what they call "progressive causes" to rally the progressive side of politics behind something, and they think Europe might be that thing. Thirdly, because of President Trump and the world that is changing. I think the world changing is a massive thing for us, because actually being outside the European Union now feels a lot more lonely than anyone would have expected in 2016, because globalisation has gone into retreat, both the EU and the US have become protectionist, and you've got President Trump and the doubts about the security guarantee, all of which makes Brexit much harder than it would have been back in the world of 2016. So for a variety of reasons, thinking in the Labour Party has changed, and you can now hear MPs—indeed Cabinet ministers have said to me, "I'm really thinking we should have Rejoin in the next manifesto."

Now, let me get on to the public opinion of that. Yes, public opinion has shifted. Yes, there is now a significant margin by which people who think Brexit was the wrong decision outnumber people who think it was the right decision. But I think you've got to take this with a pinch of salt for two reasons.

First, very little polling confronts people with trade-offs. "Would you like to rejoin the European Union?" You get a majority. I wonder whether, "Would you like to rejoin the European Union if it means paying loads of money, joining the euro, joining..." You know, if you put the trade-offs in there, you'll get different answers. That's the first thing.

The second thing is salience, okay? I think 2% of people now think Brexit's the most important issue facing the country, okay? Actually, probably a disproportionate number of those are Labour Party members, in reference back to what I said before, but that's very, very small. So actually, if you want to do it, you need to be able to replicate the very successful trick that Nigel Farage pulled off in 2015-2016, which was to take an issue no one cared about—Europe—and link it to an issue loads of people cared about: immigration. That's the only way to do this. And the obvious thing is cost of living.

I think that'd be quite hard to do, actually. I remember one of the most interesting things I've heard recently was in a focus group about two months ago, and we were talking about Brexit and the cost of Brexit, and someone said, "Well, Brexit is still a weigh on our economy." And this woman said, "Don't be so ridiculous, we left in 2016, how can it be Brexit now?" And again, you know, the wisdom of crowds, you sort of listened to that and you thought, on the one hand that's ridiculous because obviously that's not true, but on the other hand you think, well, that's intuitively quite a compelling argument!

[31:16] Joe Owen: And presumably, to get to your politics point, one of the other reasons is domestic politics has shifted, in that it looks like the parties will be looking at the next election, and it is less like previous elections in which it's how much can you take some voters that previously voted for the other team, and is now how effective are you going to be at cohering your side of the fence. One of the few issues, probably along with electoral reform, that would be as good for the left to cohere its side of the bloc is probably Europe. Though you imagine a young voter who's left Labour over Gaza and is voting Green, I can't quite compute why that person would go back to Labour because Labour is now saying what the Greens are already saying!

[32:04] Prof Anand Menon: Yeah, and that's the problematic bit for me.

[32:10] Tim Leunig: Here, I think the more interesting question is not the Labour Party, it's the Conservative Party. Because the Conservative Party was much more united in favour of Europe in the 70s than the Labour Party ever was. And I think we will see a time—you can already see Andy Street talking about this with Prosper UK along with Ruth Davidson in Scotland—trying to build a more moderate, traditional Conservative Party. The Conservatives have lost a lot of their Brexiteers to Reform, and at some point surely they will want to distinguish themselves from Nigel Farage, particularly if Farage becomes Prime Minister and things don't improve. And there's nothing to suggest they will improve with Farage as leader, unless you have a particular set of objectives for a government.

John Curtice said something really interesting to me the other day after the local elections. He said Conservative voters are no longer majority pro-Leave, which I thought was fascinating, and it is utterly at odds with where the party is in terms of its policies.

[33:08] Joe Owen: Just the practicalities you mentioned there, and about the trade-offs of what Rejoin would mean, what do you think is a non-negotiable? For example, rejoining of course means freedom of movement, of course means ECJ. Is there a question over what it means for the euro, for Schengen, for some of the things that we used to have carve-outs for? Because it seems to me implausible that anyone could say, "We're going to go back in and rejoin, but with a load of carve-outs on the things that we didn't like," in addition to what we previously had. What I'm not clear about is whether it's credible to say, "We are going to rejoin and we will seek to negotiate on that on the basis of the carve-outs that we did already have." Is that plausible?

[33:56] Prof Anand Menon: No. I think the first obvious advantage of Rejoin, unlike some of the other options, is the European Union has to negotiate it. It can't turn around and say, "This country doesn't like it." They are constitutionally bound under their treaties: if you are a European state with European values, whatever the hell that means, they have to consider your application.

So once you've applied, there is a process. There's no getting around that process. The end of the process, funnily enough, might end with a French referendum, which would be so much fun! But anyway, leave that to one side for the moment.

There is no way they'll give us the carve-outs from before, okay, particularly in terms of budget rebate—Fontainebleau, Margaret Thatcher, 1984, that's not happening again. We will pay the full whack.

Schengen I think we might get away with, because the Republic of Ireland isn't particularly interested in Schengen, and our island status makes us a specific case with the Common Travel Area.

The euro I think is fascinating. We obviously won't get an opt-out, which the Danes are the only member state that have that opt-out now. Everyone else is obliged by the treaties to join the euro when they have met the convergence criteria. There are countries inside the European Union like Sweden and Poland who should be in the euro, but aren't, and no one's doing anything about it.

The other slight thought I had is whether—I mean, the European Union can't force a country to join its currency, but it does strike me that the European Union would very much like us to be in the euro simply because it would make it next to impossible to leave again. You know, if we thought Brexit was messy, Brexit plus the euro would be a nightmare. And I'm sure there are some people in Brussels who will be pondering whether you can make the terms slightly more onerous on us to join the euro than for a normal member state for that reason. But as I said, there are member states in there who should be in the euro and aren't, so you can get away with that.

[35:46] Joe Owen: And you mentioned that there were Cabinet ministers who were interested in the idea that Rejoin should be in the manifesto at the next election. Let's assume Labour wins, Rejoin is in the manifesto, and they seek to rejoin the European Union in the next parliament. In that—looking at current polling, quite generous—scenario, it is hard to see how the Leader of the Opposition is not Nigel Farage at that time. Do you think the European Union would do a deal with the UK to rejoin the EU while Nigel Farage is the Leader of the Opposition?

[36:21] Prof Anand Menon: I think they'd negotiate. I'm personally sceptical about whether you would get through the whole process in one parliamentary term anyway, so you might have to go through another election utterly dominated by Europe. I mean, this is the problem: the opportunity cost of this is that this would suck the oxygen out of our politics and would be the only issue. We've been there before—we weren't governed at all between 2016 and 2020 because we were obsessed with this. Whether you're willing to take that risk is something for politicians to decide, but it will be damaging in that sense.

But the EU would have to negotiate with us. If we've applied to join, they would have to negotiate with us. They might start to hedge, you know, they might start thinking about: "How do we, in the event that this country joins, how do we make sure they don't mess us about again? What additional strictures can we think of?" It'd be within their rights to do that, but they would have to negotiate.

[37:07] Joe Owen: There's a question of whether or not it would require another referendum, which of course is just a choice for us domestically, right? There is no rule anywhere that says you can only make decisions with regards to the European Union through the mode of a referendum. But do you think it would be seen as a necessary precondition from Europe, because they would want to know that there was, as you said, majority support, and that this wasn't going to get unwound again?

[37:38] Prof Anand Menon: I don't think most people in continental Europe see 52/48 as a decisive result, to be honest. And I think they were slightly perplexed by the fact that we sort of did. So no, I don't think a referendum which Rejoin squeaks over the line is going to make them any more comfortable about it. In fact, it might just exacerbate the divisions. And I think this is the danger: in an era of populism and an era of anti-politics, that slogan that apparently Dominic Cummings has already come up with, which is "Tell them again", could really resonate.

[38:15] Joe Owen: And Tim, on the economy, would we get an immediate bounce if we rejoined, or if we even just made the commitment to rejoin?

[38:22] Tim Leunig: No. A commitment to rejoin without clearly accepted terms is just a negotiating ploy. It might come, it might go. We would have negotiations for maybe 10 years; we might get a government that pulled out of the negotiations halfway. So no, just announcing it isn't going to achieve you that much, unless you had just won an election and you and other parties that were in favour of rejoining had three-quarters of the vote, or something like that. So if Reform crash and burn, and other parties of their ilk crash and burn, then you're in a different position where you can see that the negotiations are going to be relatively quick, where Britain is willing to do a host of things the EU would want of it. Then you could imagine firms saying, "This is clearly going to happen," and therefore the investment follows. But not otherwise.

[39:11] Joe Owen: So I'm going to end by putting you both on the spot, and asking you what you think is the right model for the UK in the medium term? Is it Rejoin? Is it a Swiss-style deal? Is it—I can't remember how you described Liz Truss's vision, other than "Singapore-upon-Thames"—is it that? What is the right model? Tim, I'm going to come to you first and then Anand.

[39:31] Tim Leunig: So economically, the right model is to rejoin the EU. Not on any terms—the EU, obviously, if they wanted £50 billion a year, that wouldn't be worth it. But joining up in the way that almost every other country is part of, that economically is the strongest option. Whether the British people think that's worth the sovereignty price, which is real in terms of controlling our borders, well, on that, I as an economist have no special expertise to comment. But thankfully, we can now turn to Anand!

[40:05] Prof Anand Menon: As you know all too well, Joe, I can't say what I would like! What Brexit is about is trade-offs. Brexit has always been about trade-offs. So let me say a couple of things:

First, it is perfectly legitimate to say, "I want to be in control of my laws and immigration policy, and I'm willing to pay an economic price for it." There is an economic price—let's be honest about that. That was the dishonesty of some on the Leave side, to say you could have it all. You can't.

If you look at interim models, the problem for me is I just can't see the United Kingdom sustaining a position of being a large-scale rule-taker. I don't think our politics is made for it. I think even now in the limited circumstances of the reset, I think both the Express and the Mail have gone off on one about marmalade! Because of course the EU's rules on marmalade have changed, and now you can't call it marmalade, and if we align, this is the end of the world as we know it! Imagine if it was something serious! And it would be something serious if you want to be Norway—you're allowing the European Union to regulate the City of London. I think the Bank of England would hate that, apart from anyone else.

So I just do not think the middle ground is that sustainable between where we are now and rejoining. I just think that would collapse pretty quickly. Which way you go, whether you stay where we are now or whether you go in, depends on where you stand on those trade-offs—with the caveat that where we are now on some level doesn't make much sense, because we're accepting all the costs of having left without taking advantage of any of the potential putative benefits, because we've decided to be out and aligned, which strikes me as a strange place for us to have.

[41:44] Joe Owen: We're in purgatory, in a way.

[41:51] Prof Anand Menon: Yeah.

[41:51] Joe Owen: That feels like a very... note to end on, but we're going to do it anyway! Tim, Anand, thank you very much.

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