12 October 2016

Theresa May’s “hard Brexit” will be softer than it looks

The Prime Minister's first duty was to reassure Leavers. But compromises are to come.

On 19 April 2016, two months before the EU referendum, the Leave campaign made the decision that would ensure its victory. At Millbank Tower in central London, after weeks of equivocation, Michael Gove announced that his side favoured single-market withdrawal. Leave strategists knew that this pledge would diminish their economic credibility but they wagered that the promise of an end to the free movement of people and to EU jurisdiction would more than compensate.

Five days later, the Remain campaign unveiled a poster featuring the Albanian flag fluttering above Buckingham Palace, in reference to one of the non-EU countries that Gove had cited. “The Leave campaign wants us to quit the single market and be like Albania. Seriously,” it read. Gove avoided invoking the Balkan state again, but he and Vote Leave doubled down on their commitment.

At the time, Remainers and Leavers agreed that the UK was being offered what is now known as “hard Brexit”. A coalition of the former – George Osborne, Nicola Sturgeon, Ed Miliband, Nick Clegg – now vigorously asserts that this was not the case. The UK, it argues, merely voted to leave the EU. No negotiating terms were approved.

Theresa May disagrees. She has signalled that the UK will leave the single market in order to control free movement and to end the supremacy of the European Court of Justice. Britain is also expected to depart the customs union. As one Tory MP noted: “Liam Fox’s department would never have been set up otherwise.” Only by withdrawing from the arrangement will Britain be liberated to strike trade deals with other countries, it is said. MPs question whether Chancellor Philip Hammond’s backing for the customs union is merely an “act” to assure the business sector that someone is “fighting [its] corner”.

The government has so far denied parliament any say over its negotiating terms on account of the referendum. MPs are aggrieved by the failure to consult them. As Leavers are fond of noting in other circumstances, parliament is sovereign. Yet the insistence that MPs be consulted is distinct from the claim that there is no mandate for single-market withdrawal.

It would have been “masochistic”, a Conservative minister told me, for May to act otherwise. Had she suggested that free movement and EU legal supremacy could endure, she would have faced an immediate revolt from Tory MPs, activists and voters, 58 per cent of whom backed Leave. For the Prime Minister, who was elected by neither the party nor the country and supported Remain (albeit reluctantly), it would have been an invitation to insurrection.

Although May has rejected hard and soft Brexit as a “false dichotomy”, many believe that the dividing line favours her. Businesses and currency traders have revolted, but the Conservatives have been rewarded with a 17-point poll lead.

Were parliament to secure a vote, it is doubtful that MPs would support continued single-market membership. When combined with the Eurosceptic Democratic Unionist Party, the Conservatives have a working majority of 32. An increasing number of Tories are prepared to rebel (“They’d have to answer to their associations,” a Brexiteer growled), but they are negated by others in Labour who would not. Although only 52 per cent of voters supported Leave, 70 per cent of the opposition’s constituencies did. Those already fearful of losing their seats have no desire to be caught on the wrong side of their electorates. May’s vow that workers’ rights will be protected has also swayed some Labour Remainers.

The distinction between hard and soft Brexit is far from meaningless. Yet it obscures as much as it illuminates. Brexit is not a binary choice but a spectrum.

May swiftly rejected the “hardest” option: the immediate repeal of the European Communities Act 1972. Though advocated by some Brexiteers, this would have left the UK in legal breach of EU treaties and would have damaged its international standing. May will instead trigger Article 50 by the end of March 2017, imposing a two-year deadline for withdrawal.

Should Britain fail to negotiate a new trade agreement with the EU in this time frame (as Whitehall expects), it will be forced to revert to World Trade Organisation rules, imposing an average tariff of 5.3 per cent on exporters. It was this outcome that a leaked Treasury paper warned would deliver an annual £66bn hit to the economy. Hammond and his department have emerged as the soft Brexiteers’ greatest allies. However, No 10 pointedly refused to endorse the analysis, describing it as research from “some time ago”. Yet the government is exploring means of avoiding any shock. One option is to seek interim membership of the single market while a new trade agreement is negotiated. At the least, this would entail continued EU budget contributions – a concession that May has refused to rule out.

Optimistic Brexiteers contend that France and Germany have a mutual interest in avoiding a fraught UK exit. But with both facing their own Eurosceptic insurgencies (the Front National and Alternative für Deutschland), politics may trump economics. Diplomats warn that the UK’s net budget contribution of £8.5bn (£0.3bn per member state) is unlikely to prove sufficient.

Theresa May, albeit quietly, has already served notice of compromises to come. “It will require some give and take,” she warned of the negotiation in her first Conservative conference address. Rather than the vanquished Remainers, it is the Leavers, forever poised to cry “betrayal”, who pose the greatest threat to May. By embracing hard Brexit, she has bought valuable trust and goodwill. Only in time will her strategy become clear to all. May has gone out hard to better soften later.