Brussels has warned Britain not to break their post-Brexit trade deal by slashing regulation in its new drive for economic growth.
Chancellor Kwasi Kwarteng announced plans to cut red tape to boost investment in the UK’s flagging economy as part of his sweeping tax-cutting mini-Budget on Friday.
As well as creating new low tax investment zones across the country, Mr Kwarteng also said he would announce an “ambitious deregulatory package” to repeal EU laws and cut City regulations. Green campaign groups meanwhile have expressed concerns over his plans to reduce “the burden of environmental assessments”.
As part of its trade deal with the EU, signed in December 2020, Britain and Brussels agree to limit divergence on areas such as labour or environmental standards to maintain a level playing field between the UK and the EU single market.
But a senior EU diplomat told the Standard on Monday that any major moves to slash red tape could lead to retaliatory action from Brussels.
“Regulation and taxation is of course a matter for the UK Government,” the diplomat said. “But under the terms of the Trade and Cooperation Agreement, there are clear rules on divergence and their impact on the trade conditions.
“It is still very early but we will be watching closely and if we think it is not compatible with the terms of the agreement, we will need to talk”.
The comments come with the two sides still at loggerheads over the UK’s plans to rewrite the Northern Ireland Protocol, the part of the Brexit Treaty which set trading conditions for the region.
Speaking at a Labour Party Conference fringe event on Sunday night, the EU’s Ambassador to the UK, Joao Vale de Almeida, said he was hoping the EU would be able to engage with new Prime Minister Liz Truss on a “more constructive basis”.