Agreed by a divided Cabinet, Theresa May’s 12-point plan for the UK’s exit from the EU has already led several ministers to resign.
It has sparked a new round of political intrigue and speculation, but there was a Brexit plan agreed on Friday at Chequers. What does it mean for the future of the UK?
Chequers, the prime minister’s country residence, has seen many a dramatic meeting – but rarely have they been as important to the economy’s future than the Cabinet summit held on Friday, 6 July.
Prime Minister Theresa May has finally got her key ministers (apart from her Brexit secretary, David Davis; minister Steve Baker; and foreign secretary Boris Johnson – as of the time of writing) to sign up for a deal. While it seems to have pleased very few in her party, there is plenty of cheer for those who have an eye on the UK’s economic future.
A new customs arrangement
In short, the UK will now go to Brussels proposing a “facilitated customs arrangement,” which does on the surface look a lot like the existing customs union. Alongside the proposal will be a new labour mobility framework that allows EU citizens to work and live in the UK – a necessary concession to skills-stretched businesses – and a common rulebook for UK-EU interactions.
While the UK press and various backbenchers are describing the deal as a ‘soft Brexit’, there is still no guarantee that Brussels will be amenable. Brexit negotiator Michel Barnier and others have warned that there is no ‘cherry picking’ of the single market. And John Rentoul, the Independent’s political commentator, called the plan “an attempt to put all the cherries in a lorry in broad daylight.”
But for now, it’s the plan – and it has been a long time since the government has put any flesh on the bones of its Brexit strategy.
Tariffs on imports
For goods, the new ‘customs arrangement’ will operate pretty much as now – avoiding the necessity for any hard border in Northern Ireland. So far, so simple. But while the UK would levy a UK-set tariff on imported goods, this would change if the goods are then transferred along to an EU member state. In that case, an EU tariff would apply and the revenues handed over to the EU in due course. That will require a whole new customs infrastructure, so it’s no wonder that even the document seems to suggest this is going to be a painful – and lengthy – process.
This is indeed a significant step forward, but not an end in itself, bearing in mind the degree of negotiations still required
This customs deal would include ‘agri-food’, meaning the UK and EU would have the same food standards. That might sound dull, but this does mean a goods trade deal with the United States in particular would become very problematic – Brussels’ aversion to genetically modified food and the predominant mode of farming in the US do not sit well together. This is one to watch; after all, who would have thought we would already have had a row about chlorinated chicken?
What it means for services is a slightly more complicated question to answer. The document is somewhat vague about the sector, which makes up 79 per cent of the country’s GDP. The crucial passage states that the new model will “provide regulatory flexibility where it matters most for the UK’s services-based economy, and where the potential trading opportunities outside of the EU are the largest, recognising that the UK and the EU will not have current levels of access to each other’s markets – with arrangements on financial services that preserve the mutual benefits of integrated markets and protect financial stability, noting that these could not replicate the EU’s passporting regimes.”
What this means in practice is difficult to immediately ascertain. It certainly paves the way for mutual recognition of standards with the EU, but it is clear that the government feels the flexibility it will need for trade with the rest of the world – which, according to the Cabinet’s Brexiteers, is the main economic rationale for leaving – must be written into any deal.
For financial services in particular, this means that the City might be able to breathe slightly more easily. It appears that the UK’s regulatory framework will keep markets working functionally together on a UK-EU basis, also giving them the space they need to innovate and match their genuine competitors in Hong Kong, China and New York. However, as Investec’s Chief Economist Phil Shaw observes:
“The government’s three-page document was very short on detail on its negotiating position on services, including the financial sector. A forthcoming white paper is expected to provide greater granularity.”
Of course, many are still questioning how new businesses and industries will be regulated. It’s all very well to copy and paste the rulebook on existing goods and services, but new industries will require new regulation. If that means bespoke agreements between the UK and the EU, there are going to be an awful lot of very busy civil servants in the years to come.
“This is indeed a significant step forward, but not an end in itself, bearing in mind the degree of negotiations still required,” Shaw cautions. “Mrs May faces not only resignations but hostility from some of her own hard-line anti-EU backbenchers and a possible leadership challenge. Moreover, Westminster now of course has to negotiate with the other 27 EU countries – and at this stage, it is not clear how far apart the two sides will be.”
Lysanne Currie writes about business, travel and luxury for a variety of magazines, including Tempus, Victor, Robb Report UK, The Ethicalist and Meet The Leader.
The opinions and views expressed in the above article are for general information purposes, they should not be construed as recommendations or advice for any individual nor should any action be taken on account of the information presented.