The British Prime Minister Theresa May has been taking criticism, both at home and in EU circles, for being unable to answer precisely the question of what sort of relationship she wants the UK to have with the EU after it has ceased to be a member of the Union.
While there are different opinions around her Cabinet table on where the UK should end up, there is more consensus than many commentators would have you believe. All Cabinet members accept the fact that Brexit “means Brexit”: the UK is going to leave the Customs Union, it is going to leave the Single Market, and it is going to take back judicial power for the European Court. The debate inside the Cabinet and on the backbenches is about how long after its formal departure on March 31st 2019 will the UK remain party to these arrangements. The EU’s chief negotiator Michel Barnier has asked for the so-called “implementation” period to end in December 2020, and at the European Council in March, we should expect agreement to be reached on this timeline.
Mrs May knows what she wants: to get back the power to govern the country from Westminster, together with a comprehensive trade treaty with the EU covering both goods and services, as well as the right to strike new trade deals with other major economies of the world. But she cannot promise all this because it involves a difficult negotiation.
A lifetime in politics has taught her not to promise something she may not be able to deliver. It is better to lower expectations now than to be hoist on her own petard later on. Mrs May has seen the consequences of declaring “Game, Set and Match to Britain” as her predecessor John Major did after agreeing the Maastricht Treaty, only to find himself fighting a five year war against many of his own backbenchers.
Her task is to reach the best possible deal in the circumstances and to arrive at one which satisfies almost everyone in her party. She cannot give guarantees to any commercial or industrial sector of the economy at this stage. She may have to let the EU exclude of a sector or two of the economy from a future trade deal, as the price demanded by Brussels to show other Member States that it would not pay for them to leave the bloc. In sectors where no trade deal is done, the parties will revert to WTO terms. This does not mean automatic imposition of tariffs, but it is likely that the EU would strike first by imposing them and the UK would retaliate in kind.
British business would be wise to plan for possible tariffs up to the limited levels allowed by the WTO. But the price of access to EU markets is not the key determinant of the British economy’s future success.
A more important determinant of success if how well the Government runs the economy. The UK’s fiscal position is poor (we are running a budget deficit on a tax burden not seen since the 1970s) and monetary policy has been too loose (inflation off target at 3%). Equally as important is the confidence that overseas investors have in the UK. The lesson of the Brexit vote of 2016 is that – contrary to Treasury and Bank of England expectations – confidence did not shatter on the publication of the result.
Away from the headline news cameras, MPs in Westminster are taking seriously their job of preparing Britain for the post-Brexit era. Not only are a raft of Bills being enacted which will ensure British law aligns with EU law, but a series of inquiries and reports are being prepared by select committees which could help the country improve its economic prospects and gain the trust of overseas investors and trading partners that the UK remains a good place to do business.
Yvette Cooper’s Home Affairs select committee has just published a report urging the Government to clarify its intentions on immigration and improve its capacity to deliver immigration services once the UK leaves the European Union.
Meanwhile, Norman Lamb’s Science and Technology Select Committee is examining the complex issue of how algorithms are affecting public and business decision making, from how they are formulated, to how they might be wrong, to the impact they may have on individuals who need the ability to challenge the decision.
Nicky Morgan’s Treasury Select Committee is looking at the state of the market for SME finance in the wake of the FCA report into RBS’s Global Restructuring Group – the bad bank which like so many other High Street banks oversaw the enforced collapse of so many SMEs which had been mis-sold inappropriate hedging instruments. They may well recommend new powers for SMEs to obtain redress for losses from banks which acted in breach of their statutory codes.
Britain’s Parliament, independent judiciary and free media continue to do a good job of holding the Government to account. Confidence that these institutions can work properly – and that our regulations on business are appropriate to the modern world – will in the end be worth much more to British exports and inward investment than in which month of 2019 or 2020 British membership of the EU’s customs union will cease.
