The American baseball star Yogi Berra used to say that “predictions are difficult, especially about the future”. He would do well to add “the future of British politics.” Theresa May’s electoral gamble failed and she now finds herself without a parliamentary majority at all, and prisoner of a divided cabinet. It claims to be united behind the need for a “transition” to life outside the EU, but is in reality split into three factions, each of which has a different view of Britain’s negotiating position:
• Unrepentant brexiteers like Liam Fox who have begun to understand that making new customs arrangements and negotiating new trade agreements will take a good deal longer than he had imagined. This would require Britain to stay in the customs union until new systems can be built and some trade agreements concluded. But Fox and his allies insist on the need to leave the single market and regain control of “our money and borders” by March 2019.
• Advocates for a neverending transition. The more pro-European side of the cabinet, including Philip Hammond, the Chancellor, and Amber Rudd, the Home Secretary are using their newfound power to make the huge costs of leaving the single market and reducing immigration inform Britain’s position. They do not yet say it openly, but would not object if transition membership of the single market and customs union were to be extended.
• Canadian faction. The woman in the middle is the Prime Minister herself, who appears to be reconciled transforming a temporary membership of the customs union into a “deep and comprehensive Free Trade Agreement” that emulates the one Canada has secured with the European Union. She has too much political capital invested in leaving the jurisdiction of the European Court of Justice and in cutting immigration currently to contemplate even a temporary extension to single market membership.
The plan within the British government is to reset the UK’s negotiating position in a new speech from the Prime Minister in the third week of September - if a compromise can be reached.
This is of course only part of the story. The government does not have a majority in the House of Commons, and were the opposition to join Conservative rebels, it would be able to force the government to seek membership of the single market and customs union.
The leader of the opposition, an invigorated Jeremy Corbyn, has other plans. He wants the Tories to preside over a disastrous Brexit, Labour to win the subsequent election and implement an extreme left government programme free of interference from the European Court of Justice.
Out of this mess the UK need to come up with a coherent negotiating position about its future relationship. Even if it manages, it is far from clear its position will be acceptable to the EU. Though failure to reach an agreement through deliberate British intransigence can now probably be ruled out, it is still quite possible that the talks could collapse unintentionally, or that the agreement reached will be so minimal as to be indistinguishable from no deal at all.
How should business navigate this?
Bewildering though all this may appear, the last year has in fact brought some clarity to the future UK-EU relationship. It is likely to take one of three forms:
* Continued membership of the Single Market and the Customs Union
* A goods-focused Free Trade Agreement with limited services coverage (DCFTA)
* The UK and the EU having no specific trade agreement beyond those entailed by membership of the WTO (known as “WTO terms”)
Provided the UK remains open to foreign capital flows (a safe assumption unless Jeremy Corbyn wins an election) this means there are four areas for which all EU businesses in the UK need to plan:
• Goods. If we end up on “WTO terms”, what kind of tariffs and quotas will be imposed on your sales and purchases across borders?
• Services. What kind of ability will you have to provide services into the UK, or from the UK to the rest of the EU? Will you be protected from discriminatory regulations? Will you have to obtain specific permission or licences to trade or satisfy EU regulators that your UK operations comply with their demands?
• People. What kind of immigration system will the UK develop? What concessions will it make in order to reach a DCFTA with the EU? How much will it cost to regularise the situation of EU staff in the UK?
• Data. Though the UK has said it will implement the EU’s data protection regulations, whether this will be sufficient to meet the EU’s standards after Brexit is still uncertain. Will you need to make alternative plans for data processing after Brexit?
Brexit Analytics is developing technology to automatically deduce answers to these kinds of questions. To get a head start and take part in our beta programme, drop me an email at email@example.com.
Brexit is coming. There is no excuse not to be ready for it.