The EU rejected a UK proposal to set up a single market for the trade of goods because the UK refused to allow the freedom of movement.

Michael Ellam, Britain’s chief negotiator, proposed that the UK align with UK regulations to allow free trade with the bloc, but the idea was rebuffed by Brussels.

The rebuttal will be a blow to the Prime Minister’s attempts to kickstart the UK’s stagnant economy. Chancellor Rachel Reeves has described deeper integration with the EU as an “imperative” for “greater economic resilience”.

Brussels officials instead proposed that the UK joined the customs union or pursued economic alignment through the European Economic Area. 

But either route would be impossible under Keir Starmer’s red lines on Europe. In 2024, he ruled out rejoining the EU, the single market or a customs union in his lifetime.

UK rejected freedom of movement

The discussions, first reported by The Guardian, come ahead of a UK-EU summit which is set to take place in July. 

Negotiations over closer trade with the bloc come as the UK prepares to announce closer ties with the EU on youth mobility, trade in farm products and electricity and emissions trading.

Ellam’s proposals on a single market for goods were shown to a handful of EU member states who raised objections to the idea, the Financial Times has reported.

Two EU diplomats told the FT that the UK could not accept realignment on services or freedom of movement – two of the four major freedoms, alongside goods and capital, which underpin the single market.

But one of the officials said: “Member states told the Commission not to close the door. We welcome the ambitious thinking.”

The EU also raised concerns that existing member states might object to the UK being seen to be given preferential treatment, and push to wind down their payments to the bloc’s budget.

“If you start going back on those principles – leading to a non-member being treated better than an actual member – you certainly would trigger an internal debate on the fundamentals of [EU] cooperation,” one diplomat told The Guardian.

Leadership rivals clash over EU

This comes as a looming Labour leadership contest could uproot the government’s stance on the EU. 

Former health secretary Wes Streeting irked allies of potential rival Andy Burnham last week when he called for the UK to rejoin the EU entirely. 

“We need a new special relationship with the EU, because Britain’s future lies with Europe – and one day back in the European Union,” he told the Progress conference.

This prompted Manchester Mayor Burnham – who is fighting a by-election in Makerfield to return to parliament – to distance himself from rejoining the EU.

“[Streeting’s] comments … are counterproductive to Labour winning this by-election. It’s very transparent,” an ally of Burnham said.