Sunday, November 18, 2018
Britain does not need this new wave of Brexit uncertainty
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

It is easy these days to think that you have wandered into a strange nightmare from which there is no waking up. For many of our business leaders, Wednesday evening brought a call from Philip Hammond and Greg Clark, the business secretary, outlining the proposed withdrawal agreement from the EU and encouraging them to support it.

That was not too nightmarish but next morning ministers were falling like ninepins, letters were going into the Tory 1922 committee and Theresa May was being reassured by everybody that her agreement had a snowball’s chance in hell of getting through parliament. Even by the rollercoaster standards of Britain’s progress toward Brexit, this was an extraordinary lurch, though things have calmed down a little now.

Is it all just a bad dream? How comforting it would be to turn the clock back to February 2016, and the fork in the road then. By the time of the EU summit in Brussels that month, it was already clear that David Cameron’s negotiation over the terms of Britain’s membership had fallen short. Newspapers had already run “is that it, prime minister?” front pages.

Cameron could and should have said that the deal he was offered was not good enough, that he would tell the rest of the EU so, and that it was back to the negotiating table. His deadline for holding a referendum by the end of 2017 might have slipped, or even fallen by the wayside when the government woke up to the reality of dealing with a Trump presidency. But it did not, and like the American president recently, Brexit supporters were able to take advantage of a caravan on asylum-seekers fleeing wars and poverty and making its way across Europe, though not to Britain.

The clock cannot, however, be turned back. We voted, as I said here on June 26 2016, for a poorer and more uncertain future. That there would be so much political chaos at this stage, cementing Britain’s position as, to put it politely, very eccentric, is a surprise even to me. We are where we are. So where are we heading?

I still think there will be a deal on withdrawal, rather than no deal, and that it will be quite close to the lengthy document (586 pages) agreed by the cabinet – before the resignations – and discussed with business leaders,

There will thus be a transition period in which very little changes, lasting an initial 21 months after March next year, but extendable by mutual agreement. Britain will pay up roughly £39bn as the divorce settlement, more if the transition period is extended. If that does not happen, and there has not been enough time to negotiate a trade deal, the customs union backstop, the “single customs secretary” would kick in to prevent a hard border between Ireland and Northern Ireland. A deeper customs union, together with following the single market rulebook, would be the additional, “belt and braces” backstop in Northern Ireland.

Why do I think that, in the end, there will be a parliamentary deal on withdrawal, rather than the descent into chaos of a no-deal Brexit? Though this may be a heroic assumption, I think in the end common sense will prevail, though perhaps not first time and maybe only after parliament has stared into the abyss, but there is much less support for a no-deal Brexit than for something similar to the prime minister’s draft treaty.

The markets are with me on this. Sterling slumped by two cents to a little below $1.28 on Dominic Raab’s resignation as Brexit secretary. It would have fallen a lot more, to below $1.20, probably well below it, if the markets began to price in no deal.

The risk for the next few weeks is that the economy starts to react as if Britain is heading for a no-deal Brexit. Prospects for the current quarter were already looking downbeat, and surveys and hard data suggest that it has got off to a subdued start. The danger is that adding a new layer of uncertainty at this stage, if only temporarily, will compound that weakness. The economy may find itself limping, at best, towards the March 29, 2019 finishing line.

Does the draft treaty, or something like it, constitute a good deal? When it comes to Brexit, there are many who live in a fantasy world of the never-possible, and those who take a pragmatic approach. The prime minister’s aim has always been to hug the EU as close as possible economically, while delivering on leaving the union, ending free movement of people and exiting the EU’s common agricultural and fisheries policies.

Getting there has been as complicated as a game of three-dimensional chess and some said it could never be done. But it has been. The prime minister and her chief negotiator, Olly Robbins, have tried to make the best of the bad job of leaving the EU.Whether it is that deal, or a different deal under a different prime minister or a different government, it is unlikely to differ greatly from the draft published in the past few days.

EU officials say they have taken things pretty much as far as they can go. If there were to be another referendum, it would have to be under a different prime minister, as May has made clear, and while I understand the clamour for and appeal of a People’s Vote, the outcome would, perhaps surprisingly, be unpredictable. Remainers, to paraphrase Lady Bracknell, have to be wary: to lose one referendum is a misfortune, to lose both looks like carelessness. They should be happier with this deal than many of them appear to be.

What I would be more concerned about in the documents we have seen in recent days, as a business contemplating investing in Britain, either from inside or outside, was what the much shorter seven-page political declaration which accompanied the massive draft withdrawal agreement.

There is work to be done on this, which is just as well. As things stand, the outline political declaration talks of “creating a free trade area combining deep regulatory and customs cooperation, underpinned by provisions ensuring a level playing field”, which sounds fine. But it also says that the “extent of the United Kingdom’s commitments on customs and regulatory cooperation, including with regard to alignment of rules, to be taken into account in the application of checks and controls at the border”.

There is nothing yet in that which guarantees the frictionless trade that businesses with integrated EU supply chains regard as essential to ensure that their operations in Britain remain viable. They will be looking for much more detail, and reassurance, before pressing the button on new investment. The risk for the government is that such detail will open up a new can of worms for the Brexit hardliners. Expect many more lurches on the road to Brexit.