New Order. The Brexit negotiations will prove far more important than the Queen’s Speech

The Queen’s Speech this year was advertised in advance as a “dressed down” occasion. The formal explanation for this is that with the traditional activities for Her Majesty’s Official Birthday having occurred on Saturday, another full-blown ceremonial event would have been excessive. As matters have transpired, however, the content of the address that has just been delivered as well as the pomp and circumstance was also “dressed down” in its character. It reflected the dominance of legislation determined by the Brexit decision, the minority nature of the administration elected on 8 June and the need to avoid measures which would be divisive in the parliamentary Conservative Party. It also speaks volumes about the exposed position of the Prime Minister at present, mostly because of the election outcome but hardly helped by the perception of a maladroit response to the Grenfell Tower disaster and aftermath. Theresa May, personally, desperately needs a period of calm.
So making the best of a bad situation, ministers have opted for a two-year programme that puts Brexit first and which they can be reasonably confident will be delivered. The package that has been set out is a rational one in that regard. As outlined in BVCA Insight last week, the arithmetic in the House of Commons is more favourable to the Conservative Party than might appear at first glance and that will be true even if there is a change at the top. A premature general election is unlikely.
All of which means that the Brexit process is the real show in town and almost everything else is secondary to it. As of Monday, the very long “phoney war” period which has lasted almost exactly a year since the referendum was held is over and substantive discussions will take place. This will be a drama transpires in three distinct acts: divorce, transition and settlement. What will they look like?
Divorce
The primary challenge of these “divorce” proceedings is to ensure that they do not become so bitter as to poison the atmosphere for the debate about the transition arrangements and the ultimate settlement. In the worse case scenario, if the divorce talks become entrenched then there will be no realistic option other than the UK leaving the EU without clearing its account and with no deal at all. That is not an outcome that David Davis, as Secretary of State, aspires to and his hand in this regard has been strengthened by the election outcome. The UK will obviously have contingency plans for a “no deal” conclusion, but there will be little political pressure on Mr Davis actively to engineer this.
His biggest challenge in achieving a benign divorce arrangement is not Downing Street, Conservative MPs or the electorate but, bluntly, the UK media, particularly certain newspapers. Sensationalism is to sections of what we still quaintly describe as “Fleet Street” what oxygen is to air. There will be endless speculative stories as to what Brussels is demanding of the UK and what an outrage this is. Appropriately enough allowing for the heat this week, Mr Davis has to be a human air conditioner.
This is a challenging task but not an impossible one if certain principles are accepted by both sides. The first is to keep the number of politicians involved in the process to a minimum (and ideally to limit those commenting on it as well). The more that this seen as a legal and technical deliberation the better. The second is to agree on the principles of assessing what are the respective assets and liabilities over the next six months, but not put absolutely hard numbers next to those principles for the moment. The third is to secure a consensus on who should adjudicate where there is a genuine disagreement on how agreed principles should be applied and what the numbers ultimately are. It would be a miracle if some sort of independent arbitration would not be required, but completely toxic if an institution deemed to be biased in favour of either the UK or the EU were to take on this role.
Transition
With goodwill and an element of good fortune, it should be possible to declare that “sufficient progress” has been made in the divorce talks to initiate a discussion about the future relationship before the end of 2017 or at the beginning of 2018. Not entirely uncoincidentally, this should also be the point when a new German Government has been formed in Berlin. With only ten months or so before the process of ratification of the divorce by national actors and the European Parliament has to start to meet the March 2019 deadline, it will be obvious to all concerned that it is completely unrealistic to expect that a final comprehensive settlement can be reached on this timetable. At most, therefore, some very high level deliberation over first principles for that eventual bargain can be initiated in 2018, but much of the energy will be expended on reaching a transitional accord.
That transition or “interim” understanding would buy time and offer a degree of reassurance to the business community. It would probably last for two or at most three years, so to March 2021 or to March 2022 (so allowing the exit to be complete before a May 2022 UK election). If the divorce talks do not end in tears, the transition is likely to involve taking a well-known model – the European Free Trade Association, which currently involves Iceland, Liechtenstein, Norway and Switzerland, is an obvious candidate – as a basic blueprint and tweaking it for the unusual circumstances of the UK.
Settlement
The real action will thus be witnessed in the two to three years after the UK has left the European Union not, perhaps ironically, in the two years before them. The number of Brexit options for the UK would, in these conditions have been reduced from the four that currently exist, namely No Brexit, Softer Brexit, Harder Brexit and Total Brexit, down to just two, namely Softer Brexit or Harder Brexit. What this in turn would be is an argument between one camp (softs) who will want the settlement to be as close to a continuation of the transitional arrangements as possible and another set (hards) who would want a cleaner break from the EU. This is the debate to come for the Conservative Party.
The dispute between the two sides is likely to be fought on three fronts, of which one will probably emerge as the most important. The first is how much money, if any at all, should the UK be prepared to contribute to EU coffers for a Free Trade Agreement that extends beyond the basic model which covers goods (minus agriculture) but a bare minimum (if anything) on services. The second is how much and which existing EU regulation the UK is willing to pledge that it will “voluntarily” retain in place (and indeed update) in order to obtain a Free Trade Agreement that goes beyond the standard issue to non-EU members. The third is whether or not the UK can in some fashion retain a link to the EU Customs Union without surrendering its capacity to strike independent free trade alliances.
The first of these might cause some fireworks but is not really a fundamental matter of principle. Most of the hards would concede territory to the softs here. The third is likely to be a debate ended by practicalities, there is no such half-way house on the Customs Union available to the UK overall (although Northern Ireland could be deemed a special case if Brussels wants to assist Dublin) so the softs will have little choice but to surrender to the hards on that one. It is the second, the amount of EU regulation and legislation (and with it the supervisory powers of the ECJ), that is surely destined to be the real battlefield inside the Government, Conservative Party and Parliament. It will decide whether the final UK settlement with the UK looks the closer to that of Switzerland or to Canada.
Tim Hames
Director General, BVCA