22 Sep 2017

Venice, not Florence. A blueprint that is probably enough to prevent the process from sinking

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Theresa May chose the city of Florence in which to make her major speech on Brexit. In retrospect, Venice might have been a more appropriate Italian location as her purpose was to find a means of preventing the negotiations themselves and the Conservative Party itself from sinking.

There are three main issues at stake in the Brexit dialogue. The first is the current set of deliberations around the three core issues of the divorce settlement, the rights of EU citizens in the UK (and their UK counterparts in the EU), and arrangements across the border between the Republic of Ireland and Northern Ireland. The second is the ‘implementation period’ (in May-speak) or ‘transition period’ (just about everyone else speak). The third is the long-term relationship between the UK and EU.

The current deliberations

The Prime Minister made two major concessions in this area today. The first was to make it clear that the UK would continue to make payments to the EU as if it were a member of the EU until December 2020 and, by implication (see next section), until the end of the transition period. It was also implied that other areas of compensation would be considered and that the UK might seek to make specific payments to be involved with certain EU agencies. While no one in Whitehall will put a number on what this means, a back of the envelope calculation might put the total cost of all that at around £40-45 billion. She also expanded the offer on EU citizenship so as to write the rules into a treaty (which would bind Parliament and the UK courts more than her previous suggestions here) and conceded that past and presumable future ECJ rulings would be taken into account in the UK.

Not much new was set out on the Irish border question but this is the area on which there has been most progress in the talks so far and it is the lowest priority of the three subjects to most of the EU. While the response from Michel Barnier was predictably muted, she has probably put enough on the table to allow the EU Council to determine that ‘sufficient progress’ has been made in order to move on to the discussions about a future free trade accord. But that is still more likely to occur in December than in October as there are mutual political reasons why this might prove to be a convenience.

The implementation/transition period

This is an intriguing compromise within the Cabinet. At one level, the ‘softer’ Brexit camp has won surprisingly clearly. The proposed arrangements are very much EEA-light. Indeed, they are all but the EEA itself. The UK would operate within the current rules, free movement would continue within those rules (with a registration scheme put in place) and would make payments much as today. It is less clear where we would stand on the customs union but the inference is that we would act as if part of the customs union but exercise the right to start negotiations on future trade deals with others outside of the EU, but not bring any such agreements into effect until the transition ended.

This ‘stand-still’ approach would mean that for most people in the business community, April 2019 with the UK out of the EU would not feel very different from March 2019 with the UK in it. However, the transition period is to be ‘about two years’ (probably ending around 30 June 2021) and not the three years (or even more) which was mooted.

That is why the ‘harder’ Brexit lobby can live with it. What about the EU? Unless in a particularly awkward mood, this should be a no-brainer. After all, if you or I said to a club with which we had been connected for some time, “I want to leave but for two years after I depart I intend to carry on paying the subscription rate, I will obey all the rules but I do not want any voting rights” it would be a strange club that did not think this was a bargain.

The future relationship

It was here that the Prime Minister was most ambiguous. The hints were, nonetheless, that the UK would then opt to diverge from the EU on matters of regulation (as David Davis was quoted as having told a private meeting of senior business people in the press today) and would strike out on its own in terms of trade deals. This is closer to the ‘Canland’ model than to ‘Switzada’.

The harder Brexit faction will take comfort in this and view the overall package as ‘Paradise Deferred’. The softer Brexit fraternity will hope that the evolution of events between now and 2021 will enable them to move the debate in their preferred direction and will alight on the suggestion that while the UK would be free to depart from EU regulation a ‘dispute resolution mechanism’ may be created.

And the winner is…

Mrs May will be hoping that she is. If she can hold this Cabinet settlement together through the Conservative Party conference and the Parliamentary session that will end in December, then she has a chance of lasting longer than currently anticipated. She has lost a lot of authority as a result of the June election outcome but appears to be seeking to reinvent herself as the essential arbiter of the internal Conservative Party debate over Brexit, an individual whose weakened status had oddly rendered her more of an honest broker between the warring tribes than any successor might prove.

If she makes it to January 2018 then the case for her continuing until Brexit occurs in March 2019 becomes stronger. If she gets that far, the argument that she should also oversee a relatively short implementation/transition period until the UK is absolutely fully out (mid-2021) is at least plausible. It may be convenient for all sides to have her at the helm during the Switzerland v Canada argument. After that, who knows? If she survives, it will be less as a ship’s captain than as a political gondolier.

Tim Hames
Director General, BVCA


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