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The Brexit Approach of Mrs May


Theresa May’s speech to, amongst others, the Ambassadors of EU member states took place at Lancaster House, the centrepiece of UK diplomatic events. The setting was intended to mark a moment of genuine historic importance.

“The weather in several parts of the Continent has been such that in England we should rather rejoice at our exemption than complain of our sufferings”. The Gentleman’s Magazine, July 1816

“England in effect is insular, she is maritime, she is linked through her exchanges, her markets, her supply lines to the most diverse and often the most distant countries; she pursues essentially industrial and commercial activities, and only slight agricultural ones. She has in all her doings very marked and very original habits and traditions”. Charles de Gaulle, 1963

Theresa May’s speech to, amongst others, the Ambassadors of EU member states took place at Lancaster House, the centrepiece of UK diplomatic events. The setting was intended to mark a moment of genuine historic importance.

British policy is returning to traditional bases and attitudes. Like Pitt, Gladstone, Disraeli, Churchill and Attlee before her, Mrs May sees Britain as inextricably linked with Europe but not solely, or even primarily, defined as being part of it. She said Britain had “always looked beyond Europe to the wider world”. She said that voters had made a decision “with their eyes open” to make the UK “truly global” and “outward looking”. She was clear that the UK does not want the EU to unravel, will continue to be “reliable partners, willing allies and close friends” with the Union, but seeks a clear exit. She called for a “full and equal partnership” between the UK and the EU, but ruled out any “halfway house” forms of membership.

The UK’s participation in the EU, which started in what turned out to be a brief era when our trade with Europe became the majority of our sales overseas, is ending as Europe’s share of our exports has become a fast shrinking minority. If Mrs May succeeds in completing Brexit during her time in office, few at Westminster think it at all probable that the UK would ever seek to re-enter the EU (or, for that matter, that our partners would want us back). It is very possible that future historians will regard the forty five years after 1973 as the aberration, not the norm.

The content of the speech will not have been a surprise either to close observers of the current political scene – nor should it be thought that the thinking behind it is provisional or likely to be changed. For Mrs May’s style of government is starting to become familiar. Major decisions are taken by her and by her alone, and she takes her time to make up her mind. She will ask for detailed consideration, consultation and thought – and during this period those accustomed to the faster pace (or sometimes more off the cuff) approach of many of her predecessors may accuse her of “dithering”. She will listen to many, but none more than to her joint Chiefs of Staff, Nick Timothy and Fiona Hill. She likes to stick to her word – and once she has made a decision, she will stand by it even in the teeth of the most ferocious opposition.

She built today on earlier statements. Mrs May promised her Parliamentary colleagues during the Conservative leadership contest, unequivocally, that she would respect the outcome of the referendum, deliver Brexit, and specifically would prioritise the return to the UK of border and migration controls over membership of the Single Market. She appointed as her main speechwriter and key adviser Nick Timothy, a man whom she had trusted and valued for years, who has been widely reported to have supported Leave in the referendum. In her party conference speech last October she said very firmly that the UK would control its own borders and would not be subject to the European Court of Justice. Neither policy was compatible with Single Market membership, and the rest of the EU made it equally clear from the start that they would not compromise on Single Market membership requiring freedom of movement either.

She made it clear today that she would seek a “new, comprehensive, bold and wide-ranging” free trade relationship with the EU, but this “cannot mean membership of the Single Market” because that would involve retaining freedom of movement and ECJ supremacy. That new FTA “may take in elements of current Single Market arrangements in certain areas – on the export of cars and lorries for example, or the freedom to provide financial services across national borders”.

The Prime Minister said ten days ago, as she did today, that she is not interested in salvaging “bits” of our EU membership. This morning she ruled out being “half in and half out”, or following the model of other countries such as Switzerland, Norway or Turkey. She is determined to pursue a complete, clean exit from all existing institutions and obligations. She is, however, equally keen to see what fresh, new arrangements could be struck between an independent UK and the EU, on matters including security co-operation (of primary importance to her, with her Home Office experience).

It was therefore consistent and logical, therefore, to expect that the UK would now be on course to exit the Customs Union as well. Membership of that makes it unlawful for this country to pursue its own trade deals around the world – precisely the purpose of the Department for International Trade set up by Mrs May. It obliges the UK, a net food importer, to impose very high tariffs on food from non-EU countries. Continuing membership of the Customs Union would also mean turning away the explicit invitations from the President Elect of the United States and the Prime Minister of New Zealand, among others, to negotiate bilateral free trade agreements with the UK.

Mrs May therefore today ruled out membership of the “full Customs Union” including the common external tariff, and stressed that the UK will seek to regain its own separate membership of the WTO. It will pursue free trade agreements around the world. She did however say that the UK would seek to reach “ a customs agreement with the EU” and said this might involve retention of some elements of the current customs union relationship. This might seem, to some, to fall foul of her own warnings against a “halfway house” (albeit she would probably say that we should be out of the external facing parts of the customs union – to permit FTAs around the world – but stay within the internal facing bits, ie having no customs duties on trade with the EU).
What is driving the UK Government’s approach? Ten key factors stand out.
Of course, if we have all learned anything from the events of 2016, it is surely that the planned and predictable do not always occur. They certainly seemed to demonstrate that those who believe that “economic rationality” can only drive one outcome to a debate can be proven wrong.

But, for the time being, Mrs May appears to have set a clearer direction for her Government and her country. A global Britain, not (just, or any more) a European one. Many will have reservations, or worse, about setting off on this path. Fewer, after today, can argue that she does not have one in mind.
What is driving the UK Government’s approach? Ten key factors stand out.
1. Politics, not economics, will drive the negotiations, particularly the timescale. It is important for both sides that the UK should not participate in the elections to the European Parliament due in May 2019. It is imperative for Mrs May to be able to demonstrate that she has completed Brexit by the May 2020 scheduled date of the next UK General Election. Article 50 provides that the treaties cease to apply to the Member State 2 years after the notice of withdrawal has been given, even without an agreement. If negotiations are failing to make progress, it may be acceptable to both sides for such an exit (what former UKREP Sir Ivan Rogers called a “disorderly” exit) to occur – the EU would see that the UK had been “punished”, HMG would see that Brexit had been completed and independence secured.

2. “Transitional” arrangements, which might delay the completion of Brexit indefinitely or amount to a “permanent political purgatory”, were ruled out today by the Prime Minister. On the other hand, if an overall agreement can be reached within 2 years on the shape of the future relationship, she said, that would permit “implementation phases”, in which there would be interim steps from where we are now to an agreed final destination, sector by sector, thus avoiding “a disruptive cliff-edge”. She specifically cited immigration controls, customs systems and the future regulation of financial services as possible examples.

3. HMG believe that, contrary to some early speculation, they have a strong negotiating hand.

1. The EU initially indicated that they want any negotiations first to cover the terms of the divorce (assets, pension liabilities, paying for pre-approved programmes etc), would present the UK with a bill for £50 billion or so, and would want settlement of that before any discussion of trading arrangements even begins. HMG intend to rely on the provisions of Article 50 itself, which provides that “the Union shall negotiate and conclude an agreement with [a withdrawing] State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union”. Trade will be at the heart of the “framework for the future relationship” and must, the UK will insist, therefore be discussed from the start.

2. As the Governor of the Bank of England Mark Carney has stated explicitly, and as the EU’s chief negotiatior Michel Barnier has reportedly conceded privately, the EU and its financial system would be vulnerable if it cut itself off completely and immediately from the UK’s financial services sector. The increased cost of capital on its own might be enough to endanger the viability of major German and Italian banks.

3. The arrival of Donald Trump helps HMG, they believe, in two ways. For Eastern European countries, if the US commitment to NATO is less reliable, it makes it imperative not to alienate the possessor of Western Europe’s most potent armed forces. Mrs May specifically namechecked today some of those countries where the UK has deployed its troops. Meanwhile, for EU negotiators, suddenly the prospect of the UK doing free trade agreements with other major economies seems less like a long term fantasy and more like a genuine short term alternative option.

4. Ministers point out that, if the treaties lapse without any agreement in 2019, the EU will not get a penny piece from the UK thereafter. Strikingly, the UK contributes more to the EU budget than 26 of the 27 remaining member states put together (ie than everyone else combined bar Germany). Equally, a willingness to continue to pay something (albeit for specific projects) is something which Mrs May said today might be “appropriate” but “the days of Britain making vast contributions to the European Union every year will end”.

5. By declaring that the UK is not seeking to stay a member of the Single Market, Mrs May has deprived the EU of what it expected to be its trump card. The Union cannot extract a price for something which the UK says it does not want.

6. The EU’s share of the UK’s export trade is falling steadily. Indeed, HMG expected it to fall to 35% within a few years even before the Brexit vote. The less reliant the UK becomes on EU trade, the fewer the concessions it needs to make to preserve that trade.

7. The UK economy’s robust performance since June – outstripping the growth of almost all Eurozone countries in the final six months of 2016 – has confounded predictions on both sides of the Channel. Certainly the fact that the UK has not “nose-dived” since the referendum means that the EU is not in as strong a negotiating position as it might have expected.

4. Mrs May’s Government is determined to learn lessons from what it sees as the “failed” negotiations conducted by David Cameron. Many of the senior figures have read accounts of those efforts, which stress how the efforts to win concessions from our partners were undermined first by the assertion by many key officials that it was impractical to ask for anything significant and second by the knowledge among EU leaders that Mr Cameron was going to recommend continuing UK membership regardless. They will approach matters in a very different way. David Davis, himself now a trusted member of Mrs May’s inner circle, has told his officials that their first task is to “be brave” and “not to be afraid”. The “no can do” spirit is neither welcomed nor encouraged. Further, UK negotiators will be ready to walk away rather than to accept a bad deal. It is more than possible that the early months of the negotiations will feature at least one walk-out or breakdown of the talks.

5. As the negotiations start, the Government will prepare for hard bargaining. That will include taking public positions which are designed to bolster the hand of the UK’s negotiating team. Philip Hammond’s remarks to a German newspaper in recent days, setting out that the UK would not “roll over” if a trade deal cannot be done, and instead would pursue a vigorously low tax, low regulation alternative to out-compete the EU on its doorstep, is what some Ministers privately call “the Anglo Saxon option”. It is, nonetheless, very much Plan B. But HMG is determined not to be a supplicant to the EU. Mrs May said firmly that a “punitive” deal would not be accepted, and demanding it would “not be the act of a friend”. She said that “no deal is better than a bad deal”. So, if the Union acts as though its largest external trading partner should be on its knees toward it, the first phase of talks will not last long.

6. Ministers believe that there are currently few political obstacles to their preferred approach. Mr Corbyn has made it clear that the Labour Party will not seek to block the triggering of Article 50. Consequently, even if the Supreme Court next week requires Parliamentary approval for it, the withdrawal process is not likely to be blocked in the elected House of Commons. The unelected House of Lords might seek to impose conditions or delay matters but even their calmer voices are predicted to prevail by the upper chamber’s Speaker. For the time being, Mrs May and her party are riding high in the opinion polls. The number of potential dissident MPs in her party who would push their disagreement so far as to vote against the Government is tiny – the vast majority of former Conservative Remain MPs support her way forward, and the strong Leave majorities in the membership and among Conservative voters are happy.

7. The PM said it “is vital that we maintain our discipline” in keeping the full details of the UK negotiating position confidential. The Government will “not be pressured into saying more than I believe is in the national interest to say”. Equally, there is not – at least not yet – any indication of significant Cabinet opposition to the approach she set out today. The Cabinet were briefed in advance of the speech, and its most Europhile member (the Work and Pensions Secretary Damian Green) was put up to defend it line by line (which he did with no apparent reservations) outside Lancaster House.

8. Mrs May confirmed today that the final deal with the EU will be put to both Houses of Parliament – knowing, of course, that by that time the only alternative to that deal would be no deal at all. This pledge does not, therefore, significantly fetter Ministerial discretion in the negotiations.

9. The PM said that the “vast majority” of EU leaders want a “positive” outcome to the talks, and is clearly confident that a deal can and will be done – without surrendering, in any important respect, her determination to secure a genuinely full and clean Brexit. She regards a comprehensive FTA with the EU as likely because it would be the “economically rational” outcome.

10. It is in the nature of politics that the pendulum always swings, and it will again, but for the moment Ministers expect that they will have entrenched Brexit before their political position erodes.

Of course, if we have all learned anything from the events of 2016, it is surely that the planned and predictable do not always occur. They certainly seemed to demonstrate that those who believe that “economic rationality” can only drive one outcome to a debate can be proven wrong.
But, for the time being, Mrs May appears to have set a clearer direction for her Government and her country. A global Britain, not (just, or any more) a European one. Many will have reservations, or worse, about setting off on this path. Fewer, after today, can argue that she does not have one in mind.

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