The latest GDP figures underline the negative impact that Brexit is already having on the economy. Despite slightly better than expected growth in the third quarter, 2017 as a whole now looks set to be the worst year for British growth since the financial crisis.
Amid these warning signs, it is clear leaving the single market and customs union in March 2019 would be profoundly damaging.
Nobody here or in Brussels genuinely believes a final deal, or a bespoke transition, can be completed and ratified before March 2019. So, given the government’s commitment to an eventual hard Brexit, a soft transition period – on the current terms – is now an economic necessity.
As the UK’s leading business groups warned yesterday, unless companies see an agreement on transitional arrangements by the start of 2018, many will begin moving staff overseas and halting investment decisions.
Theresa May’s Florence speech was supposed to address this. Finally, it was argued, she had stood up to the fantasists in her party and her Cabinet and committed to urgently seeking a status quo transition.
But this has not happened. The idea of an “implementation period”, first outlined in January and then expanded upon in Florence, was a fudge. It was not a “transition”, but it was. It would be purely for implementing, and yet some negotiating might take place too. It was crafted to allow people to project onto it what they wanted to hear. But now the fragile consensus she managed to build in support of it is rapidly unravelling, for two main reasons.
First and foremost, it is now clear that the Prime Minister has ignored wiser voices and caved in to her backbenchers’ demand that it must only be a means of “implementing” an already-agreed trade deal. The Florence speech was vague on this point, but last week the Brexit secretary David Davis made clear that “a transition phase would only be triggered once we have completed the deal itself. We cannot carry on negotiating through that”.
This is, of course, an reckless gamble to take with the economy. Negotiations on the future relationship will not begin until the end of the year at the earliest, leaving at best just ten months of negotiations before the agreement needs to be signed off and ratified by EU member states (including the UK) and the European Parliament. And yet on Tuesday, the Prime Minister appeared to row in behind Davis’s position, insisting there can be no transition period unless the UK has first settled its “future partnership” with the EU.
In other words, the urgent call from the Confederation of British Industry, the British Chambers of Commerce and the Federation of Small Businesses for a transition agreement to be reached by January 2018 may have been welcomed by the Treasury but it has fallen on deaf ears at No 10. The prospect of no deal will therefore continue to grow until at least this time next year, with all that that entails for business, investment and people’s jobs, not to mention EU nationals and the border in Northern Ireland.
Second, the Cabinet “consensus” on transition had already frayed because of disagreements over the terms of such an agreement. The Prime Minister was very clear in her Florence speech that she believed the framework for such a transition period should be “the existing structure of rules and regulations”. This, it seemed, left no room for ambiguity.
Yet just days later the Brexit secretary told the BBC that immediately after March 2019 the UK will be “outside the European law”. Brexit minister Robin Walker then told MPs that “After we leave the EU, Parliament or, where appropriate, the devolved legislatures, will be free to change the law.” Andrea Leadsom, the leader of the House of Commons, told a Conservative party conference fringe event that the “four freedoms end in 2019”. And Theresa May herself earlier this month said: “When we leave the European Union, we will be leaving the Common Fisheries Policy.”
None of these pronouncements is consistent with a commitment to retain the “existing structure of rules and regulations”. Cabinet ministers should be conscious that the more promises like this are made, the harder the climbdown will ultimately be if a transition is to be agreed.
The real attraction of transition – or implementation – for those who ultimately favour a hard Brexit is that it will allow the UK at least two years of plain sailing in which to negotiate its own free trade agreements.
But even here there is uncertainty. Under May’s own outline of the transition period, the UK will remain in the EU’s customs union (or “a” customs union) and presumably within the common commercial policy. Davis said on Wednesday morning that he wants Britain to “be able to negotiate and sign, but not enter into force, free trade treaty arrangements with other countries” during the transition.
But it is far from clear how relaxed the EU would be with an arrangement that allowed the UK, which will soon become a trade competitor, to negotiate and sign its own trade agreements in this period.
In any case, given that countries outside the EU will not know the terms of the future relationship between the UK and the EU until any future agreement is ratified, there is little prospect of them negotiating in any detail the terms of a free trade agreement with Britain.
As negotiations in Brussels develop, and these problems and complexities become more apparent, we can expect the clamour from hard-line Brexiters for unilateral free trade and a swift severing of ties with the EU to grow ever louder.
So, while the Prime Minister managed to please her supporters and her detractors alike with the transition she outlined in her Florence speech, the unity is already proving to be short-lived.
Increasingly she finds herself as trapped as ever between the realists in her own party, and the fantasists. She must know she urgently needs to secure agreement with the EU on transition, yet she cannot even utter the word for fear of a revolt.
There is of course another way. She could drop her red line on the European Court of Justice and her damaging net migration target, and concede that the best way to preserve and enhance free trade with Europe and around the world is to remain in the single market and customs union for the long term.
Francis Grove-White is the deputy director of Open Britain.
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