Time’s running out. Consult your Brexit Compass to find out where things are headed…

24 April 2018

Garvan Walshe

Almost 21 months since the referendum, and we still don’t know what Brexit will look like. As a divided British government dithers, the European Union has methodically put the elements of its strategy in place.

Britain’s paralysis is the result of compound divisions. The Prime Minister only stays in office because the pressure from each side cancels itself out. She’s like the keystone in an arch. Without it the whole thing collapses. Worse, the country is as evenly divided as the government. Nobody in the Cabinet wants to take the risk of bringing the government down to side with “the majority”, because there isn’t one. And an election could end up putting Jeremy Corbyn in No. 10, something no Conservative would want to be remembered for causing.

Meanwhile the EU’s mill grinds out the options for the UK in ever-increasing detail.
Imagining the outcomes as countries can help us get a handle on the divisions. Half the cabinet want “Norway Plus” while the other half prefer “Canada” (and a faction of the Conservative Party, would like to see a Russian solution). The Labour opposition is little better organised. Most of the Labour Party in Parliament prefer Norway Plus, but the leadership see leaving the EU as a step towards an extreme left-wing government (Corbyn used to say he admired Venezuela).

Brexit Compass
To plan ahead you need a sort of “Brexit Compass”: where are we headed?

At a first glance, it looks like Canada.

Theresa May has ruled out freedom of movement (which is required for Norway), and membership of the customs union (which makes Turkey impossible too). The greatest level of economic integration compatible with those red lines is a Canada-style Free Trade Agreement.

But, the Government also has a third red line: avoiding a hard border on the island of Ireland. That requires the UK to be part of the Customs Union and, say the EU and the government in Dublin, significant parts of the single market (this is what that phrase “regulatory alignment” means). The way to avoid this contradiction is to allow Northern Ireland to stay inside the customs union, and in regulatory alignment with the EU, with the island of Britain diverging.

Norway-Minus for Northern Ireland, and Canada for the island of Great Britain.

But this may not be possible. The Conservative Government is depending on the support of the Democratic Unionist Party (DUP), which (currently) opposes the creation of greater regulatory barriers between Northern Ireland and Great Britain. The EU has however made no hard border in Ireland once of its red lines as well and threatening the UK with the “Deep Blue Sea” if it does not somehow face down or bribe the DUP into agreeing to divergence between Northern Ireland and Britain.

Theresa May has so far managed to postpone the day of reckoning. What happens when the crunch does come, depends on the relative strength of political factions at the time.
If moderate Labour and Conservatives are in the ascendant, we could have:

Norway-Plus through a cross-party parliamentary coalition.

But British parties are strong, so an election is more likely than a 19th-century style parliamentary reconfiguration. The swing voters at the election will be moderate ex-Tories. If they repeat what they did last year and vote Labour, expect Labour and Corbyn to emerge strengthened, even with a majority. The Labour leader has always been a strong supporter of Irish nationalism, so would have no trouble with giving Northern Ireland a special deal. He would also like Britain out of the “capitalist” world trade system.

Norway-Minus for Northern Ireland, and Russia for Great Britain.

But if they instead vote Liberal Democrat, to avoid a radical-left Labour government, a labour government dependent on the Scottish Nationalists and the Liberal Democrats for support would be likely. The Scottish Nationalists would demand at least Northern Ireland’s access to European markets. While Labour voting areas in England depend on manufacturing, which would be crippled by customs union membership. Yet England outside London would still be strongly anti-immigration. The equilibrium position in this case would be

Norway-Minus for Northern Ireland and Scotland, Turkey for England.

Complicated? You bet! That’s why at Brexit Analytics we have teamed up with macroeconomic consultancy BlondeMoney and are developing a real Brexit Compass: a quantitative tool to measure who has the upper hand now, and therefore where we are most likely to be headed.

Keep in touch on social

The SCC UK is looking to welcome three new interns for the spring of 2020. The internship lasts for six months; from January to June 2020. Application Deadline is 1 October 2019. Read more on our website: https://t.co/dDNi4OM0fe #SCC #SwedishChamber #London #UK #internship
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