Departure and divergence: phase 2 of Brexit is about to begin

It is only a matter of weeks into the new decade and already we have had a security crisis in the Gulf, a global health crisis originating in China, and a stand-off between the UK and the USA over Chinese participation in UK telecoms. Does anybody remember Brexit?
If this is what a return to normality looks like, there may be some who wish to give it a pass. But their bluff will soon be called. While the legislation to enact the EU Withdrawal Treaty passed without anybody outside Westminster noticing (a sharp contrast to the past year when many became unintentional experts on House of Commons procedure), ‘phase 2’ of Brexit will loom large on the news agenda after the UK has departed the European Union at 11pm on Friday 31 January.
So, what to expect? We have a few more weeks of shadow boxing before the official negotiations begin in March. But the Chancellor set out a clear opening position in an interview with the Financial Times where he stated: “There will not be alignment, we will not be a rule-taker, we will not be in the single market and we will not be in the customs union — and we will do this by the end of the year” (FT, 17 January 2020). To which he added, a week later in Davos: “That doesn’t mean that we will diverge on rules just for the sake of divergence. That would be a complete nonsense” (FT, 23 January 2020).
While this later comment was taken as a softening of his earlier remarks, it should probably be seen instead as a common sense qualification – and a reflection of the reality that the government has not firmed up the detail of its post-Brexit regulatory agenda. It certainly would not be wise to hope that the Prime Minister and other leading Brexiteers, having come this far and earned a significant majority in the December election along the way, will now turn their backs on what they see as hard-won freedom to determine the UK’s regulatory future, independent of EU constraints. Instead the ‘freedom to diverge’ philosophy will inform the UK negotiating position and the handling of the trade-offs which confront them week after week throughout 2020. And if the choice is ever reduced to fish versus financial services? Let’s just hope it isn’t.
For their part the EU have been rehearsing their lines, too. There are repeated warnings about divergence and ‘level playing fields’, and not-so-subtle suggestions that promoting the former or disrupting the latter will undermine the EU’s willingness to agree the equivalence of UK regulatory standards (thus risking the trading freedoms which that status would otherwise earn). Let’s set aside the 40 technical assessments of ‘equivalence’ in 17 different pieces of EU law, and what any failed assessments would mean for different parts of the financial services economy – the reality appears to be that the UK’s over-arching posture on divergence (never mind the Davos qualification) suggests a short cut to a world of restricted EU access.
Is there any prospect of changing this? Perhaps unexpectedly, an alternative strategy could come from the other side of the Atlantic; as one veteran UK official put it this week, the Americans have often been the best Europeans, pushing for common rules and level playing fields, confident in their own abilities and their scale to ensure success. That would certainly be a different approach. But most likely, like chlorinated chicken, this is a United States concept with which the government will not find any favour. At least for now?
Michael Moore
Director General, BVCA