In his Labour Party Conference speech this week and a subsequent BBC interview, Prime Minister Andy Burnham said the UK should assess a range of options for its EU relationship – from the status quo, through a customs union or single market participation, to rejoining. Whilst nothing changes immediately, the future relationship of the UK with the EU is again moving to the centre of government and policy.
Businesses should distinguish between the political debate about the UK's long-term destination, the sectoral negotiations already under way, and the existing legal framework which governs the UK's relationship with the EU today.
The Prime Minister named four options – status quo, customs union, single market participation and rejoining – and indicated that these options would be set out in full at the next UK–EU summit. As yet, there is no published timetable or process for any of the options.
Current legal framework
The UK's relationship with the EU rests on the Withdrawal Agreement, the Windsor Framework in relation to specific Northern Ireland matters and the Trade and Cooperation Agreement (TCA).
The TCA was signed on 30 December 2020, was applied provisionally as of 1 January 2021 and entered into force on 1 May 2021. It defines the objectives and the key details of the cooperation between the EU and the UK after the expiry of the Transition Period.
The TCA is an international agreement and technically an Association Agreement under EU law – a type of agreement based on Article 217 of the Treaty on the Functioning of the EU.
Ongoing negotiations
Since 2025, the UK and EU have been in discussions to improve their cooperation – partially spurred on by the renewed focus on security cooperation. At the EU-UK summit in May 2025, the parties launched the "Common Understanding" setting out key elements of their future cooperation.
The UK Government is pursuing closer cooperation through negotiations on an agrifood agreement (SPS), linkage of its emission trading scheme (ETS) to the EU's ETS, UK participation in the EU internal electricity market, and a European Partnership Bill to give effect to the dynamic alignment those agreements require.
The Common Understanding notes the strategic recognition that deeper cooperation with the EU is essential to ensure stable electricity trading and enhance resilience in a rapidly changing energy environment. Initial outcomes (the "Initial Outcomes") of those discussions were published on 22 December 2025.
Four possible directions
The Prime Minister has outlined four possible options for the future relationship of the UK with the EU. The table below summarises the principal legal and business implications of each of the possible directions.
| Scenario | Possible features | Principal business implications |
|---|---|---|
| "Status quo plus" | TCA plus SPS, ETS and electricity agreements with dynamic alignment |
An SPS agreement would reduce certification and border-check requirements for agrifood exporters, lowering costs and delays at the border. ETS linkage would narrow the gap between UK and EU carbon prices and is expected to exempt UK exports from CBAM, benefiting carbon-intensive manufacturers. An electricity agreement would restore market coupling across interconnectors, improving price efficiency for energy market participants and customers. |
| Customs Union | Common external tariff; no tariffs or origin checks on UK–EU goods | A customs union would remove origin documentation and tariff friction for goods but would not address regulatory checks or barriers to services trade (ie financial services would likely not be in scope). It would also constrain the UK's ability to set independent tariff policy and could require renegotiation of existing free trade agreements concluded after Brexit. |
| Single market participation | Alignment with EU goods and (model-dependent) services rules; EU-led governance | Single market participation would deliver the largest reduction in barriers short of membership, including passporting-equivalent rights for services and the elimination of most regulatory border checks for goods for relevant sectors. However, it would require financial contributions to the EU budget, dynamic alignment with EU rules without a vote in EU institutions, and a role for the EU's Court of Justice or an EFTA-type surveillance authority in enforcement. The UK's ability to pursue independent regulatory or subsidy-control policies would be constrained. |
| Application to rejoin the EU | Article 49 TEU accession | Rejoining would restore full single market and customs union access together with voting rights in EU institutions. However, accession under Article 49 TEU would require a multi-year negotiation process and unanimous ratification by all Member States. There would be no guarantee that the UK's former opt-outs (including Schengen and the euro) or its budget rebate would be reinstated. Full application of EU law and jurisdiction of the Court of Justice would apply from accession. |
Key legal and commercial considerations
Regulatory alignment and governance
Dynamic alignment is a central feature of the envisaged closer relationship. It means that the UK will be committed to adopting defined elements of EU law into the UK legal framework.
For instance, in relation to the envisioned Electricity Agreement, dynamic alignment means ongoing alignment of UK electricity market rules with those of the EU, considering the UK's constitutional and parliamentary processes.
The Initial Outcomes have noted that the EU and the UK intend for the UK to be involved early and contribute appropriately to the decision-making process for EU legal acts related to dynamic alignment. The European Commission is expected to commit to consultations with the UK Government during policy development. However, these rights do not include participation in Council or related preparatory work for the relevant legislative acts.
Trade, supply chains and services
Each of the four options removes different legal frictions. A customs union removes tariffs and rules of origin but not regulatory checks or services barriers, and constrains independent trade policy. The SPS agreement removes most agrifood certification but not the EU's origin requirements. Whilst single market participation addresses services in addition to goods and would also substantially ease the bureaucratic burden associated with conformity assessment, regulatory checks and cross-border mobility, the governance arrangements are likely to be complex if the parties proceed on the basis of a number of sector-specific arrangements that stop short of EU membership.
Energy and climate
Energy is likely to be one of the earliest areas of deeper integration. The EU's mandate for electricity talks requires continuing UK alignment with EU electricity-market rules, affecting market coupling, interconnector revenues, network codes, offshore grid development and subsidy control. ETS linkage is expected to narrow the gap between UK and EU carbon prices and to exempt UK exports from the EU carbon border adjustment mechanism (CBAM).
The UK and the EU have reaffirmed their commitment to pursue a dedicated EU-UK Electricity Agreement. This future arrangement is intended to restore lost integration, reinforce resilience amid ongoing geopolitical uncertainties, and ensure stable and efficient electricity trading. While negotiations continue, interim arrangements preserve the status quo, providing continuity and predictability for market participants. The Common Understanding thus functions as both a strategic roadmap and a basis for more ambitious cooperation within the evolving European energy landscape.
Outlook for businesses
The UK's relationship with the EU is evolving, which may bring some uncertainty in the short term.
The date and agenda of the rescheduled UK–EU summit will likely signal the scope of any formal process. The conclusion of the SPS, ETS and electricity agreement negotiations will likely set the baseline for what closer integration looks like in practice. The introduction of the European Partnership Bill and its scrutiny model will reveal how dynamic alignment is to be given domestic legal effect. Responses from the Commission and Member States will determine whether the options the Prime Minister has described are negotiable.
Finally, whether a specific model becomes a manifesto commitment or whether any steps towards further integration will be taken ahead of the next general election will be an important indicator of the road ahead.
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