The debate over the UK-EU reset 2026 has moved firmly from the margins to the centre of British political and economic life. Following the Labour government’s pledge to “reset” the relationship with the European Union after taking office in July 2024, a series of significant proposals have emerged around a potential customs union and deeper connections with the EU single market. For businesses operating across borders — or considering expansion into or through the United Kingdom — understanding these developments is essential.
Where Things Stand on the UK-EU Reset 2026
The UK government has been consistent on one point: there will be no return to the EU single market, the customs union, or freedom of movement. However, the reset process has produced tangible results. In May 2025, the first UK-EU leaders’ summit since Brexit took place in London, establishing new structures for regular dialogue at all levels — from heads of government down to senior officials — and committing both sides to an annual summit to track progress.
Furthermore, the summit produced concrete agreements. Access to fishing waters was extended reciprocally until June 2038, and energy cooperation under the Trade and Cooperation Agreement was made permanent, avoiding its scheduled expiry in mid-2026. These outcomes signal a relationship moving steadily towards greater stability, even if fundamental questions about market access remain unresolved.
The Customs Union Question
A customs union with the EU would mean the UK adopting a common external tariff, eliminating checks on goods crossing the UK-EU border, but simultaneously losing the ability to negotiate independent trade agreements with third countries. This trade-off is precisely why the government has resisted the proposal.
Moreover, Prime Minister Starmer has explicitly stated his preference for closer single market alignment over a customs union, arguing that the former preserves UK trade policy independence while still reducing barriers. The Liberal Democrats, however, support a new UK-EU customs union outright, reflecting a significant divide in British political opinion on the issue.
Reform UK, meanwhile, opposes any form of alignment, contending that dynamic rule-taking from Brussels would undermine democratic accountability and block free trade deals with partners such as the United States.
Single Market Alignment: Sector by Sector
Rather than a wholesale return to the single market, the government’s approach has been to pursue sector-specific alignment. Therefore, the key negotiations currently underway include a Sanitary and Phytosanitary (SPS) agreement — covering food safety and animal and plant health standards — and the linking of UK and EU carbon markets through their respective Emissions Trading Schemes.
Both agreements come with conditions. The EU has made clear that full dynamic alignment with its rules — and acceptance of the jurisdiction of the Court of Justice of the EU (CJEU) in interpreting those rules — is a prerequisite. This represents a significant political and constitutional step for any UK government.
Additionally, discussions are underway on UK participation in the EU’s internal electricity market, mutual recognition of professional qualifications, and improved arrangements for touring artists. An initial electricity cooperation agreement has already been formalised, with the two sides exploring deeper integration in the energy sector.
The Swiss Model: A Useful Reference Point
Switzerland offers a useful reference for understanding the kind of relationship the UK might be building. Like the UK, Switzerland is neither in the EU single market nor in its customs union. However, it has developed a substantial web of bilateral agreements that give it sector-specific access to the single market in exchange for regulatory alignment and financial contributions.
The recently renegotiated Swiss-EU bilateral agreement — finalised in early 2026 after years of negotiation — illustrates both the potential and the difficulty of this approach. On one hand, it provides Switzerland with significant market access and legal certainty. On the other, it requires dynamic alignment to EU rules and a degree of CJEU oversight, concessions that have proved politically contentious in Switzerland as well.
For the UK, the implication is clear: meaningful single market access comes at a price, and that price involves some degree of rule-taking rather than rule-making.
Economic Stakes
The economic arguments for closer UK-EU integration remain significant. The EU single market is the world’s largest, covering over 440 million consumers and representing a substantial share of global GDP. Trade between the UK and the EU continues to be substantial, despite the friction introduced by Brexit.
Current estimates suggest that existing reset commitments — the SPS deal, electricity market alignment, and other sector-specific measures — could add approximately 0.3% to UK GDP by 2040. However, deeper integration across a broader range of sectors would yield considerably greater economic benefits, albeit with proportionally greater political concessions required.
What This Means for International Businesses
For Italian and international businesses already operating in the UK, or considering using it as a gateway to European markets, the evolving UK-EU relationship carries direct practical implications. Regulatory divergence between the UK and EU remains a live issue, affecting everything from product standards and customs procedures to professional qualifications and financial services passporting. In this environment, staying informed and structurally prepared is no longer optional — it is a competitive necessity.
Kelmer assists companies in navigating UK regulatory and tax frameworks through compliance support, business structuring and cross-border advisory. You can explore more about our UK-focused support services here: kelmer.com/london