Cash for Access: Could the UK pay an annual fee to secure entry to the single market after Brexit?

The Italian referendum result on Sunday has handed the European Union yet another challenge. The future of the single currency is again a matter for legitimate speculation, if not an imminent crisis. The stakes have been raised for elections in The Netherlands, France (minus President Hollande) and Germany. As noted in BVCA Insight last week, this will have a serious impact on the Brexit dialogue.
The UK Government, meanwhile, has sought to convince the Supreme Court that it is not obliged to consult Parliament before it triggers Article 50 of the Lisbon Treaty as planned before 1 April 2017. There are not many in Whitehall circles who are confident of outright victory in this appeal (possibly no one), more hope is being vested in the Court offering ministers a ‘soft’ defeat (meaning, in this context, that the Government has to seek only an affirmative resolution from Parliament) and not a ‘hard’ defeat (hence a full Bill which would be a more complicated and time-consuming endeavour).
In a deft tactical move, ministers will today offer their own amendment to a Labour motion in the House of Commons calling on them to publish a Brexit plan in advance of enforcing Article 50 which makes the release of such a document (which could well be incredibly bland) contingent on Article 50 being brought in to effect before 31 March 2017.
Irrespective of all this, however, the Prime Minister and her colleagues still need to settle on an initial negotiating position for when Article 50 has been invoked (which it remains sensible to think will be just before the end of the first quarter of next year). Although this is proving an exceptionally complex task, there are signs of options being narrowed, if not an actual consensus upon strategy.
A potentially important and intriguing element to this came with the statement from David Davis, the Secretary of State for Exiting the European Union, in the House of Commons that he “would not rule out” the notion that the UK could pay an annual fee to secure absolute or partial access to the single market after it had left the EU. Unlike previous occasions when he has been characteristically frank in front of MPs, this time both Number 10 and the Treasury rushed to signal their support for him.
Is this a credible concept? There are really three separate questions here. The first is whether the Government and the parliamentary Conservative Party could unite around the suggestion. The second is whether the UK public would deem this to be an attractive model for leaving the EU. The third is whether those bargaining with the UK on behalf of the EU would consider it to be acceptable.
Could the Government and the Conservative Party unite behind a Cash for Access position?
The answer to this one is a conditional ‘yes’. The conditions concerned are three-fold. The first is that ownership of the idea has to be seen to be and ideally has actually to be with Mr Davis who, as a prominent advocate of Brexit in the 23 June referendum and an individual with a serious status among Conservative MPs and the Thatcherite section of wider Conservative Party, is better placed to be the salesman for such an idea than either Theresa May or Philip Hammond. If he concludes that the closest the UK can come to ‘having its cake and eating it’ is to contribute to the running costs of the bakery concerned, then a number of individuals who might otherwise be wary of the notion will ultimately swallow it. Second, the sum of money that the UK might agree to reimburse the EU has to be clearly smaller than it is today. If it is not, it would look far too close to an EU-lite understanding.
That also means, thirdly, that the UK would need to acquire the authority to conclude independent trade agreements with other countries and that means departing from the Customs Union. A deal which involved the UK paying a financial price to maintain its ties to the single market (which would logically necessitate accepting a large body of existing and future EU regulation in certain spheres) and remaining part of the Customs Union would almost certainly prompt the resignation of Liam Fox as Secretary of State for International Trade and ensure a meltdown within the parliamentary party.
Subject to those admittedly quite testing conditions, the formula is viable. It is one which all of 10 Downing Street, the Treasury, the Foreign Office, the Department for Business, the Department for Exiting the European Union, the Department for International Trade and the overwhelming majority of Conservative MPs could live with. So could most of the broader UK corporate community as well.
What about the wider UK electorate?
It would not be a straightforward political pitch but it is not an impossible one either. The single massive red line which the Government has no choice but to recognise is that Brexit must result in the UK not only ‘taking back control’ over immigration but that the system implemented once the UK has departed from the EU must make a tangible difference in practise to migration numbers. If any proposed blueprint on Brexit falls short on this count, it will be open to the charge of betrayal.
Beyond that, though, public opinion appears to be somewhat flexible. Voters, when asked, would prefer to have continued access to the single market and do not regard that outcome as one that is inconsistent with the spirit of the decision to leave the EU. The argument that a ‘Cash for Access’ approach would minimise the amount of economic disruption associated with Brexit would have a degree of leverage, especially if the Office of Budget Responsibility’s projections for slower growth in 2017 and 2018 than 2016 turn out to be correct. There is also a common sense assertion that if you do not wish to be a member of a club but want to use some of its facilities then paying a fee is fair.
It is also worth contemplating how the other political parties would respond to the proposition. UKIP would have to oppose it, but some within their ranks would be less hostile depending on the precise terms and if they are looking for an alibi for defecting to Mrs May before the next election then this could be it. The Liberal Democrats would retain their objection to Brexit in principle but this would not be the sort of hard Brexit against which they raised their voices with effect at the Richmond Park by-election last week. The SNP would be similarly sniffy but if it meant that Scotland remained in the single market (with the English largely responsible for paying the bill) then it might also not be easy for them to condemn the suggestion outright. The Labour Party too, while it would doubtless find reasons to criticise the package, might fall well short of throwing the kitchen sink at objecting to it (especially as Jeremy Corbyn clearly has many other policy issues about which he cares much more).
How would the EU respond?
This is the hard part, possibly very hard indeed. The notion that Mrs May might present this scheme and have it instantly received with universal acclaim is absolute fantasy. For a start, the provisions of Article 50 imply that the first order of business is to settle on the details of the UK’s ‘divorce’ from the EU and only when that is complete to turn to the question of the future relationship. This has led most observers to conclude that it will not be practical to reach a final settlement between the UK and the EU within the two-year timetable that Article 50 involves. This would mean that the UK would leave the EU in 2019 and either settle on an interim or transitional agreement while the permanent bargain was thrashed out or revert to World Trade Organisation rules and, therefore, into a ‘hard Brexit’ for an unspecified period of time (which could be five years or longer).
Even if the eventual accord that is struck is rooted in ‘Cash for Access’, it would take a considerable while to secure and would involve some hard negotiation about exactly how much cash would achieve exactly what level of access with some intense side-discussions about what the UK’s migration policy would be and how it intended to use its autonomy over international trade agreements thereafter. The political imperative for the EU to demonstrate that leaving the EU is never a painless or profitable exercise would not disappear. So ‘Cash for Access’ is not a ‘Get out of Jail Free’ card for the UK. But it might be a card worth holding.
Tim Hames, Director General, BVCA