UK-EU Trade Deal set to support British businesses

Following extensive negotiations over the last six months, the agreement marks the third major deal struck by the Government in as many weeks following those with the US and India, which the Prime Minister says will overall be “good for jobs, good for bills and good for our borders.”

As part of the new deal announced yesterday (May 19, 2025), the UK and EU are set to increase cooperation on emissions through linking our respective Emissions Trading Systems. The Government said that this will improve the UK’s energy security and avoid businesses being hit by the EU’s carbon tax due to come in next year – which would have sent £800m directly to the EU’s budget.

A new Sanitary and Phytosanitary (SPS) agreement will make it easier for food and drink to be imported and exported by reducing the red tape that placed burdens on businesses and led to lengthy shipment times. This agreement will have no time limit, giving needed certainty to businesses going forward.

Some routine checks on animal and plant products will be removed completely, allowing goods to ‘flow freely again,’ the Government assured, including between Great Britain and Northern Ireland.

Combined, the SPS and Emissions Trading Systems linking measures alone are set to add nearly £9 billion to the UK economy by 2040.

Defence and Steel

British steel exports are now protected from new EU rules and restrictive tariffs, through a bespoke arrangement for the UK that is said will save UK steel £25m per year. 

Around 75 per cent of UK steel exports are destined for the EU, a market worth nearly £3 bn. The improved EU steel quotas will introduce the EU’s steel safeguards for UK businesses, which will ease export restrictions for steel angles and heavy industries.

Without linkage or the improved market access in place, UK producers faced the prospect of increased trade friction. EU importers would have had to pay Carbon Border Adjustment Mechanism (CBAM) tax and face tight safeguard quotas on UK steel products – costs that would likely be passed back to UK exporters or result in lost market share.

The deal also announced a new Security and Defence Partnership between the UK and EU, which will pave the way for the UK defence industry to participate in the EU’s proposed new £150bn Security Action for Europe (SAFE) defence fund – again supporting thousands of British jobs and boosting growth, while also formalising UK-EU co-operation on defence to ensure Europe’s safety and security, the Labour Government said.

“It’s time to look forward. To move on from the stale old debates and political fights to find common sense, practical solutions which get the best for the British people,” Prime Minister Keir Starmer said in a statement. “We’re ready to work with partners if it means we can improve people’s lives here at home.

“That’s what this deal is all about – facing out into the world once again, in the great tradition of this nation. Building the relationships we choose, with the partners we choose, and closing deals in the national interest. Because that is what independent, sovereign nations do.”

Industry response 

Many representatives from the manufacturing industry have publicly welcomed the new Trade Deal, particularly as the EU is still the UK’s largest trading partner despite Brexit.

“We welcome the Government’s energy and bravery in seeking to support British industry and jobs by taking this pragmatic approach to improving relations with the EU,” Stephen Phipson CBE, CEO of Make UK, said in a statement.

“The agreement that the UK and EU will link their carbon markets to avoid taxes on carbon-intensive goods like steel and cement travelling between the UK and EU is also welcome news as is the proposed Youth Mobility Scheme, which will allow young talent to flow between the UK and the EU once again.

“We urge Government to continue this good work and make this first UK-EU political summit of this new Government just the beginning in further refinements of future trading arrangements so trade and growth prospects can continue to be improved for companies on both sides of the Channel.”

Gareth Stace, Director General, UK Steel, added: “UK Steel welcomes the formalised plan to link the UK and EU Emissions Trading Schemes and new, improved market access. This will be a significant step in reducing trade frictions in steel with the EU, our biggest export market, by ensuring equivalent carbon costs and easier exports.

“Crucially, linking the schemes lowers costs for the sector and provides long-term security, particularly if UK ETS prices were to exceed those in the EU in the years ahead, making linkage all the more important for competitiveness.”

Despite the many positive changes, many from across the industry are calling for further action to address the more local, UK skills crisis.

“Yesterday’s announcement will no doubt help strengthen the UK and EU’s defence capabilities, which will be beneficial for all in the industry. However, the detail that has been published so far is lacking one key element: what steps will be taken to increase the volume of core skills to deliver against the growing demand. The STEM skills shortages facing defence employers are significant and will hinder any potential growth unless addressed quickly,” commented Chris Nelson, Associate Director at Engineering by Murray.

“The access we now have to the SAFE fund will certainly help, but only if this investment is channelled appropriately into the right type of skills. There’s a range of specialist engineering talent needed to deliver against the emerging demands of the industry and at the moment, these aren’t being developed on the scale needed.

“The UK announced just last week reforms to its immigration plans, which could make it more difficult for employers to bring talent into the country to fill resourcing gaps. There’s a wealth of opportunity in the industry, but plans cannot succeed without the people to deliver them – and at the moment, there’s no clear indication as to how this is going to be resolved.”