The EU Single Market: the future

The EU, taken as a whole, is the UK’s largest trading partner, accounting for 45% of UK exports, and 53% of UK imports, of goods and services in 2014. Successive Governments have calculated that over 3 million jobs are linked to exports to the rest of the EU. Of course, if the UK left the EU, a trading relationship would continue in some form so it is not possible to estimate how many UK jobs depend on EU membership. UK exports to the rest of the EU in 2014 were worth £230 billion (compared with £283 billion for UK exports to the rest of the world). Exports to the United States were worth £88 billion. Exports to China were worth £18.7 billion, roughly the same as UK exports to the Republic of Ireland.

EU countries, in 2014, accounted for 48% of the total stock of foreign direct investment (FDI) in the UK. In 2014, the UK attracted more FDI than any other European country. In terms of UK investment abroad, the EU accounted for 40% of the total UK FDI stock in 2014[1].

A document on the EU single market published by the British Government in 2013 concluded that “further deepening of the Single Market would produce economic gains. Full liberalisation of all areas where there are significant non-tariff barriers could increase EU GDP by 14% and UK GDP by 7%”. But the document also concluded that such dramatic progress was unlikely. Instead, it focussed on what it saw as realisable goals. These were, in particular, the Digital Single Market, further liberalisation of services, and greater focus by the European Commission on ensuring enforcement of common rules. The document, unusually for something published by a cautious HMG, also speculated that pan-European enforcement of single market legislation by a single European institution would improve consistency of enforcement, compared with reliance, as now, on different national regulators and enforcement bodies. Not surprisingly, the document also thought that this idea “would certainly raise political difficulties in many Member States, not least the UK”.

Global competiveness depends on the EU responding to changing market conditions and opportunities. The British Government argues that the more this can be done by less and better legislation and by more emphasis on mutual recognition and by enforcement, the better.[2]

Much of this British agenda has been taken up by the European Commission that came into office at the end of 2014.[3] Its approach seeks to be comprehensive. A multi-billion euro investment plan was launched before the end of 2014. This was followed by proposals for a European Energy Union designed to secure business and consumer access to secure and affordable energy. Proposals for a Capital Markets Union, launched last autumn, are intended to make the financial system more stable, increase competition and improve access to lower cost borrowing and start-up finance.

The European Commission has also significantly cut the number of new legislative proposals coming to the Governments of the EU and the European Parliament. Instead, they are focussing on better implementation of the single market in services, the digital single market and help for small and medium enterprises (SMEs).

At the heart of the single market for services are the freedom to establish a company in another EU country and the freedom to provide or receive services. Particular problems – in the form of restrictive requirements such as shareholding requirements- are faced by architectural, engineering and accounting firms. A new services passport will enable companies to notify to host countries in just one place all the information to allow them to provide services cross border in that country.

Around 14% of EU GDP is spent each year by public authorities on the purchase of services, works and supplies. It is an area where national protectionism still applies. A new ex-ante mechanism for assessing infrastructure projects is one of a number of steps designed to ensure that the already strict procurement rules are actually complied with.

The Commission are proposing to tackle the principal complaints from SMEs about obstacles to trading beyond their local market. These are:

  • The complexity of VAT regulations;
  • Uncertainties over company law;
  • Understanding and complying with regulatory requirements;
  • A lack of access to finance;
  • The fear of punitive bankruptcy laws;
  • Barriers to innovation.

Finally, and this has been a top UK priority, the Commission has ambitious plans for the EU digital market. At present only 7% of British retailers sell online to consumers in the rest of the EU while 34% sell online within the UK. Only 18% of UK consumers buy online from other EU countries while 71% buy online in the UK.[4] The Commission have started by proposing two directives, one for digital content and another for goods. They will mean that businesses in the UK will be able to supply digital content and sell goods online to consumers throughout the EU based on the same set of contract law rules. Consumers will have a high level of protection when accessing digital content and buying goods on line. They will also have access to a wider range of products EU-wide and therefore to more competitive prices.


[1] House of Commons Library Briefing Paper Number 06091, 19 January 2016

[2] HM Government Review of the Balance of Competences between the UK and the EU: The Single Market, july 2013

[3] Communication from the European Commission COM (2015) 550 Final, 28.10.2015

[4] European Commission UK Factsheet, December 2015

Written By

Sir Stephen Wall