Good to talk? Who will be saying what when the Cabinet starts to discuss the Brexit ‘end state’

Unless some unanticipated event intervenes, the EU Council will endorse the agreement struck between the UK and the European Commission last Friday at its meeting over the next two days. It will thus agree that ‘sufficient progress’ has been made to allow negotiations to move on to the implementation/transition period and, crucially, to the overall post-exit relationship. That new era will start in full only after a ‘standstill’ session of ‘about two years’ has been completed. During that phase, running from 29 March 2019 to (probably) 30 June 2021, the UK will not be a member of the European Union but will effectively shadow it in all other regards (although it can prepare for autonomy from it by, for example, starting discussions with other parties on free trade accords).

This implies a reasonably lengthy stretch before any final pact between the UK and EU is secured. In reality, because these agreements are rarely reached swiftly, the UK probably needs to have some idea of what it wants from that settlement in terms of broad principles by the time that it has signed off on the withdrawal document which the EU-27 and the European Parliament need to consider some months before the date of the departure has arrived. This in turn would suggest that over the next several months the Cabinet will debate what ‘model’ of a future relationship it considers to be the most desirable, giving the Government a position of some sort as its starting point for far more detailed talks by the time of the Conservative Party conference held in October next year.

The ‘Joint Report from the negotiators of the European Union on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the EU’ contains a crucial, but deliberately ambiguous, clause 49 that will be the starting point for the Cabinet argument to come. Clause 49 will become as familiar as Article 50 of the Lisbon Treaty has been ever since the referendum vote on 23 June2016. The crucial collection of sentences are: “The United Kingdom remains committed to protecting North-South co-operation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which now, or in the future, support North-South co-operation, the all-Ireland economy and the protection of the 1998 Agreement.” [i.e. the Good Friday/Belfast Agreement]. This paragraph has already been interpreted in a number of different ways depending on the stance of the commentator concerned. Those in the soft Brexit camp consider this formula to mean that the fall-back position for the UK if there is not a bespoke trade agreement with the EU would be to carry on shadowing the most central components of the EU beyond the transition and therefore on a permanent basis. This is because they are choosing to view the term ‘alignment’ to mean that the UK would have identical rules to the EU with regard to the Internal Market and the Customs Union.

Those in the hard Brexit contingent, by contrast, believe that this is a Plan B that will never need to see the light of day (because a different kind of EU-UK deal will emerge) and that even if it did the word ‘alignment’ can be seen in a much more flexible sense. From this perspective it means only that certain regulations affecting the Irish border and Northern Ireland’s own relationship with the UK would need to be consistent with one another but is well short of an obligation to have identical regulations.

In truth, these words can be interpreted in several different ways. At a minimum, they constitute a requirement to ‘do something’ about the Irish border but they do not compel a particular formula. The ‘end state’ is therefore not pre-determined. The Cabinet has a range of options to consider but all of them require the UK to be formally outside of the internal market and customs union. The fundamental question, therefore, is how far outside of these institutions the UK wishes to put itself. This in turn implies two models – ‘Switzada’ and ‘Canland’ - or a middle position between them.

The Cabinet discussion is likely to see three distinct schools of thought emerge almost instantly.

The Switzada lobby

There will be a significant body of Cabinet members, drawn from those who campaigned with the most enthusiasm for the United Kingdom to remain in the European Union, who will want the UK to be as closely aligned with the EU as possible after 2021.

In an ideal world, they might prefer to have Norway as their model but as UK membership of the European Economic Area involves not only full regulatory compliance but the free movement of people as well, this is not a realistic option. This makes a version closer to Switzerland, which is not a member of the EEA or the Customs Union but which seeks to co-operate intimately with the EU via a core free trade treaty and multiple (70 plus) agreements with the EU as a whole and its various agencies, the best alternative to it. It would be Switzada rather than Switzerland II because the UK is a much larger and more naturally global player than a small nation, landlocked and surrounded by EU members (plus Liechtenstein) and neutral.

This camp has the benefit of several heavyweight Cabinet supporters. These include the Chancellor, the Home Secretary and the First Secretary of State (assuming that he survives the continuing probe into alleged sexual misdemeanours). The Business Secretary would be expected to lend his support as well, although Greg Clark would be more open to a compromise here than Philip Hammond is. It will also be championed by much of the ‘Establishment’ within the civil service and by substantial outside lobbies such as the Confederation of British Industry.

It has the challenge, though, that it is weaker the further down within the Conservative Party one travels and is open to the charge that it is seeking to dilute the impact of the UK voting to withdraw from the EU to an unacceptable degree.

The Canland camp

All of the seven current Cabinet members who campaigned for the UK to leave the EU will start from the basis that a sweeping free trade agreement ideally covering both goods and services (so Canada Plus, hence ‘Canland’) that allows the UK maximum freedom to decide on its own regulations and to strike its own free trade deals with other parties is the ideal outcome. What is far less clear is if the EU would be minded to allow such a comprehensive arrangement on these terms to be framed.

This faction also has the support of several crucial Cabinet members including the Foreign Secretary, the Secretary of State for Exiting the European Union, the Secretary of State for International Trade and the Environment Secretary. Its challenge is the inverse of that faced by the Switzada fraternity. It is clearly a minority position in Cabinet but it is stronger among Conservative MPs, and strongest of all among Conservative Party activists and members. It has the liberty of deciding to take its case to the wider membership via the contest to become the next Conservative leader after Theresa May.

The Party pragmatists and loyalists

Sitting between these two contingents is a set of Cabinet ministers who were reluctant or reticent Remain supporters in the June 2016 campaign and who are closest to the Prime Minister personally.

The primary concern of this set – in effect led by the Prime Minister – will be to maintain the unity of the Conservative Party and to ensure the survival and political recovery of the Government (including the PM herself). They will be the ones searching for whether a middle position (called ‘Greenland’ in the BVCA Insight Special issued on Friday afternoon) can be located which would allow the whole of the UK economy to opt out completely from the single market but permit key sectors (automobiles, financial services, medicine and pharmaceuticals) to choose a version of regulatory alignment that would provide the maximum possible access to the single market.

While the concept is viable in theory, it is far from clear how it would operate in practice or whether the EU would embrace it. The notion has the big advantage that it could hold the whole of the Cabinet and the Conservative Party together rather than compel a divisive choice to be made between Switzada and Canland. Whether it can be made to work functionally and politically is about to be tested over the next few months.

Tim Hames
Director General, BVCA