Lib Dems urge Labour MPs to back closer trade with EU which could raise £25 billion a year and avoid welfare cuts

EMBARGO: Immediate release

The Liberal Democrats have sent a letter to Labour MPs urging them to back closer trade ties with the EU to boost the public finances and avoid “savage” cuts to support for vulnerable families and pensioners.

It comes as House of Commons Library analysis, commissioned by the party, has estimated that if GDP was 2.2% higher, that could mean roughly £25 billion in extra tax revenues a year. The 2.2% figure is from independent analysis by Frontier Economics commissioned by Best for Britain and is for GDP in the long-run based on a new trade deal with the EU that secured deep alignment on goods and services.

This would easily be enough for the Government to U-turn on its cuts to winter fuel payments (£1.5 billion) and disability benefits (£5 billion), along with future cuts to public spending expected to be announced by the Chancellor in the Spending Review next month.

In the letter sent to Labour MPs, Liberal Democrat Foreign Affairs Spokesperson Calum Miller will say his party would be willing to work constructively on securing a new trade deal with Europe, providing the boost to public finances needed to reverse cuts to disability benefits and the winter fuel payment. The Liberal Democrats’ 72-strong group of MPs is the largest third party in 100 years. Over 100 Labour MPs have reportedly signed a letter calling on the Government to back down from the welfare cuts.

The Liberal Democrats are calling for a new trade deal with the EU including a new UK-EU customs union, which would significantly reduce red tape for British businesses exporting to the continent. Previous independent analysis has found that close alignment with the EU on goods and services could boost GDP by 2.2%. The House of Commons Library has estimated that if GDP was 2.2% higher, this could boost annual tax revenues by roughly £25 billion.

Liberal Democrat Foreign Affairs spokesperson, Calum Miller MP said:

“A far more ambitious trade deal with Europe, including a new UK-EU customs union, would be the single biggest thing ministers could do to boost growth and fix the public finances.

“The Liberal Democrats stand ready to work constructively with Labour MPs to boost trade with Europe and avoid savage cuts for vulnerable families and pensioners.

“The local elections showed the Government is facing a massive backlash for failing to deliver the change the country was promised. Ministers now face a stark choice: be bold enough to change course or continue with policies that are harming people and our economy.”

ENDS

Notes to Editor: 

• 2.2% higher in the long-term (based on Best for Britain’s projection of deep alignment on goods and services with the EU).

The Library has responded to a request by providing rough figures based on some broad assumptions. They are clear this is a rule of thumb. To produce a more robust estimate the Library would need further information about the composition of the growth in GDP and how other economic variables, such as inflation, are affected.

The £25 billion per year is not an estimate of the additional revenues that would be generated from deep alignment on goods and services with the EU. It is a rough estimate of the additional revenues from an economy that is 2.2% larger. To make a better specific estimate of the additional revenues generated from deep alignment on goods and services the Library are clear they  would need more information on the components of the additional growth.

In order to carry out the calculation, the Library has assumed that nominal GDP (which is important for tax revenues) increases by the same rate as the real GDP growth estimates produced by Best for Britain. The Library also assumes that the tax-to-GDP ratio doesn’t change.

Therefore, the Library is assuming that tax revenues increase by the same % as nominal GDP AND that this will increase by the same % as the real GDP estimate of the organisation. Following this approach:

• The Library estimates that annual tax revenues would be around £25 billion higher (in 2025/26 prices) if real GDP was 2.2% higher.

This provides a reasonable approximation of the scale of benefits but these estimates are only indicative and should be considered a rule of thumb. In reality, the amount of tax generated by higher GDP growth would depend on the composition of the growth. The composition of GDP is important because some components of GDP are more ‘tax rich’ than others, as the Office for Budget Responsibility (OBR) explains.

The data used to produce these estimates are from the OBR’s Public finances databank – April 2025.

The text of Calum Miller’s letter to backbench Labour MPs:

Dear colleagues,

I am writing to you today ahead of Monday’s UK-EU ‘reset’ talks given the critical opportunity this Summit presents to begin rebuilding the relationship between the UK and European Union.

Monday’s summit can deliver vital new opportunities for constituents across our country. That’s why Liberal Democrats have been calling on the Government and the European Commission to approach these talks with genuine ambition and bold ideas.

We’ve been encouraged by the Prime Minister’s willingness to engage with the EU in a substantive way, particularly when compared with the actively hostile and damaging approach taken by the previous Conservative governments.

Indeed, Conservative and Reform MPs have made clear this week that they have no interest in repairing our relationship with the UK’s largest trading partner.

This is despite the agreement amongst economists that an improved relationship with Europe could unlock a huge boost to the Treasury. New analysis suggests that the benefit could be as substantial as an estimated £25 billion.

This revenue could go toward protecting the most vulnerable in our society – including those who have lost their personal independence payments (PIP) due to higher barriers to accessing the benefit, or pensioners who have lost their winter fuel payments through the introduction of means-testing. These are issues about which I know colleagues care passionately.

Parliamentarians can work collectively to emphasise the importance of securing a better deal with Europe; one which secures the growth our country needs and would mean that we can reverse these damaging cuts at home. 

I know that it is not just Liberal Democrats who believe in the benefits which a stronger relationship with Europe would provide. While the Government will represent us in negotiations, there is an opportunity for Parliamentarians to make a strong case for the benefits of a genuine partnership with the EU.

That’s why we would welcome your support as we continue to identify the opportunities for closer UK-EU ties that will most benefit our constituents.

I look forward to hearing from you.

Yours sincerely,

Calum Miller MP