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Revealed: Theresa May’s soft Brexit plan

3 July 2018

4:08 PM

3 July 2018

4:08 PM

This is one of the more important notes I’ve written recently, because it contains what well-placed sources tell me are the main elements of the Prime Minister’s Brexit plan – which will be put to her cabinet for approval on Friday. I would characterise the kernel of what she wants as the softest possible Brexit, subject to driving only the odd coach over her self-imposed red lines, as opposed to the full coach and horses. And I will start with my habitual apology: some of what follows is arcane, technical and – yes – a bit boring. But it matters.

Let’s start with the PM’s putative third way on a customs arrangement with the EU, which has been billed by her Downing Street officials as an amalgam of the best bits of the two precursor plans, the New Customs Partnership (NCP) and Maximum Facilitation (Max Fac).

Last night, I described this supposed third way as largely the NCP rebranded – which prompted howls of outrage from one Downing Street official. But I stand by what I said. Because the new proposal of the PM and her officials, led on this by Olly Robbins, retains the NCP’s most controversial element, namely that the UK would collect at its borders duties on imports at the rate of the European Union’s common customs tariff.

The UK would, in that sense, be the EU’s tax collector. And although the UK would have the right to negotiate trade agreements with third countries where tariffs could be different from the EU’s or zero, companies in the UK importing from those countries would have to claim back the difference from Her Majesty’s Revenue and Customs (HMRC), much in the way they currently claim or pay different VAT rates when trading with the EU.

The reason why, from a bureaucratic if not economic viewpoint, the UK would in effect remain in the EU’s customs union is that there is no other way of avoiding border checks between the Republic of Ireland and Northern Ireland. Or at least that is what the PM and her officials now believe. To be clear, this would be an asymmetric agreement with the EU: Theresa May may ask EU governments to collect customs duties on behalf of the UK from companies based in their respective countries, but she knows they will respond with a decisive no, nay, never. Which may seem unfair. But actually this would only be a problem if there were an imminent prospect of a future British government wanting to impose higher tariffs than EU ones. And certainly the political climate now – outside of Trumpian America – is for lower tariffs.

Just to be clear, there will be some of Max Fac in this new synthesised customs plan: IT and camera technology employed to reduce the bureaucracy and frictions of cross-border trade. But the True Brexiters won’t be wholly relaxed (ahem) by what they are likely to see as NCP by another name.

And there’s more, of course. Because frictionless trade and an open border between Northern Ireland and the Republic cannot just be achieved by aligning customs collection rates. It also requires alignment of product standards, for goods and agricultural products. Or at least that is what the PM will insist on with her Cabinet colleagues. And that alignment would in effect replicate membership of the single market for goods and agri-foods. Which would see European standards and law continuing, ad infinitum, to hold sway over British manufacturing and food production – though the ultimate court of appeal in commercial disputes would, in May’s and Robbins’s formulation, be an extra-territorial international court, like the European Free Trade Area’s EFTA court. Given that the ECJ would still have a locus below this final adjudicating tribunal, I assume the True Brexiters such as Jacob Rees-Mogg will be unamused. But maybe they would take comfort that a British parliament could always withdraw from the trading arrangement, if there were concerns that the rest of the EU was discriminating against the UK.

At this juncture you are saying, I am sure, “Oi! What about services?” – given that the UK is largely a service economy (80 per cent of our economic output, our GDP, is generated by service businesses). Well there is an aspiration to maximise access to the EU’s giant market for services by aligning professional and quality standards, for example. But equally there is a pragmatic recognition that maximising such access would require minimising restrictions on EU citizens moving to the UK to live and work; there is a calculation by Robbins and his officials that, among the EU’s so-called four freedoms, free movement of services and free movement of people are pragmatically connected. And since the PM has pledged to impose new controls on the free movement of people from the rest of the EU, she accepts that the EU will insist on some new restrictions on the sale of British services in its marketplace.

But May and her ministers are hopeful there is a deal to be done here, a trade-off: preferential rights offered to EU citizens to live and work in the UK, compared to the rights available to citizens from the rest of the world, for improved market access in Europe for British service companies. We’ll see.

In the round, you may conclude – as I have – that Theresa May wants a future commercial arrangement with the EU that is not as deep and intimate as Norway’s, but is not a million miles from Switzerland’s.

From which there follow two crucial if obvious questions. Will the EU – its chief negotiator Michel Barnier and the 27 government heads – bite or balk? If Barnier’s word was gospel on this, the plan would be dead at birth, because it does put a wedge between the four freedoms: May wants complete freedom of movement for goods (and capital), but restrictions on people. May’s bet is that his employers, the 27 prime ministers and presidents, will be less dogmatic.

But what about her own cabinet and parliamentary party? If they are in the True Brexit camp, like Davis, Johnson, Fox, and Gove, won’t they cry “infamy, infamy, etc”, threaten resignation and launch a coup to oust the PM? Well, what the PM will say to them is that her deal, she believes, is the only one around that stands even the faintest chance of being agreed in Brussels (though, to repeat, you would be right to be sceptical of that). Which carries a momentous implication – namely that if they reject her vision of Brexit, the default option of exiting the EU without a deal would become the sole option. And although many True Brexiters would say “hip hip for that”, if a no-deal Brexit were to become the only game in town, there would be a revolt of MPs and Lords against the executive, against the PM and her government. Parliament would – almost certainly – reject exiting the EU without a deal and could, probably would, vote for the UK to join the European Economic Area and remain in the EU’s single market. That would, for most True Brexiters, turn the UK into what they call a “vassal state”.

So come Friday, Johnson, Davis, Fox and Gove face an agonising choice: agree to a Brexit plan from May which will stick in their craws like a rotting mackerel head; or reject it and take the risk that what follows is almost their worst nightmare, not a clean no-deal Brexit, but the detested “Brino”, or Brexit in name only.

Of course there is always a chance that if they shout and scream loudly enough, May will buckle – and will allow the cabinet to agree on obfuscation for the White Paper on her Brexit negotiating position, to be published 12 July, rather than a clear and unambiguous plan to be put to the EU, of the sort I’ve described.

If that were to happen, her authority would be undermined, perhaps fatally. And the possibility of there being no deal with the EU, on divorce and future relationship, would become a serious, potentially catastrophic probability.

This post originally appeared on Robert Peston’s Facebook page


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