05 July 2018 L. Alan Winters CB is Professor of Economics and Director of the Observatory. Two years in and the Cabinet is still squabbling over the UK’s trade relationship with Europe. Among the options most discussed, if not most likely to occur, are The Jersey option – arrangements to provide conditions equivalent to the customs union and the Single Market in goods; Mrs May’s ‘third way’ customs partnership – where the UK collects EU-level tariffs at the border and rebates them only if UK tariffs are lower and firms can prove that the goods did not leave the UK. Until the UK can convince the EU that the technology to do the latter will actually prevent the leakage of lower-taxed goods into the EU, this is effectively the ‘customs union’; and Unilateral free trade – ‘no deal’ followed by the immediate abolition of all UK tariffs. This blog does not assess the relative merits of these arrangements, but notes that they share a common flaw: they ignore 80 percent of the British economy! The more successful 80 percent, in fact – the services sectors, in which the UK has a manifest comparative advantage (see below). The advocates of these [...]