Theresa May has announced that she will serve the Article 50 notice on 29th March. This means that the UK will leave the EU two years later, in March 2019. As a strong Remain supporter, I continue to hope that ‘events’ will bring about a change of policy at some time during the next two years and we will not leave the EU after all. However, at present it appears that we will indeed leave.
It is therefore important to consider what will be the ultimate results of the negotiations between the UK and the EU27. I have set out my own predictions below; it will be interesting in two years’ time to compare these with the actual results.
The UK’s key strengths going into the Brexit negotiations
I start from the premise that the UK has the following key strengths going into the negotiations:
- there is massive trade in goods and services between the UK and the EU27, and British manufacturing industry is closely integrated in EU supply chains;
- there are around three million EU nationals currently living in the UK, and more than a million UK nationals living elsewhere in the EU, whose rights need to be determined and guaranteed for the future;
- the UK’s financial services industry is critically important for the whole of Europe
The EU27’s long term goals
The key aim of the EU27 will be to ensure that the UK has a worse trade deal after it leaves the EU than it has at present. In the medium to long term, this will result in new foreign investment being diverted from the UK to the EU27 in areas such as car manufacturing, aerospace and pharmaceuticals. This will be a massive long-term prize, and a huge long-term loss to the UK. The EU27 will also wish to attract finance business from the UK, but I expect they will regard this as a long-term issue. Given these long-term goals, it is unlikely the EU27 will wish to bring existing trade to a crashing halt, as that would damage them as well as the UK.
The UK government’s long-term goals (and conflicts)
As for the UK, I believe that the Ministers who currently control Brexit policy (i.e., David Davis, Boris Johnson and Liam Fox), firmly believe the UK will be able to forge a prosperous future on the back of trade deals with the US, Commonwealth countries and China. They also appear to be committed to a Singapore type, low tax and low regulation economy. I believe that Theresa May and Philip Hammond disagree with them, but are not able to say so at present. It appears they want to maintain a close trading relationship with the EU27 without changing the basic shape of the UK economy, and they would likely be prepared seriously to compromise their opposition to freedom of movement in order to secure this. When it becomes clear in the course of the Brexit negotiations that the Brexit Ministers like the Emperor ‘have no clothes’, this conflict at the heart of the Tory government will explode and could even bring down the government. Because of this, any predictions at this stage need to be very provisional.
The likely outcome of the Brexit negotiations
If we combine the UK’s strengths going into the negotiations with the likely aim of the EU27 to ensure that foreign investment will move from the UK to the continent in the medium to long term, that suggests there will ultimately be a compromise along the following lines:
- a post March 2019 transitional period lasting three to five years will be agreed, to avoid ‘cliff edge’ type disruption to UK manufacturing industry and trade between the UK and the EU27
- the UK and the EU will by March 2019 agree a basic framework for a ‘goods only’ trade deal (similar to the current deal between the EU and Turkey) that will then be negotiated and (hopefully) concluded during the transition period
- a separate agreement will be agreed in relation to UK financial services which will enable UK firms to carry on EU business under an ‘equivalence regime’ for a period of up to 10 years
- as for EU nationals now living in the UK and UK nationals now living elsewhere in the EU, a ‘cut-off date’ will be agreed, whether 23 June 2016, 29 March 2017 or 29 March 2019 – EU and UK nationals in place before the cut-off date will continue to enjoy the same residence and medical care rights after Brexit as before (with possible ongoing payments from the UK to Spain to cover the medical costs of the mainly elderly UK nationals resident there)
- the UK will continue to participate in existing security arrangements and EU air travel agreements, even if this means accepting ongoing supervision by the European Court of Justice in relation to those agreements (there will be a ‘fudge’ of some kind)
- the UK will agree to make ongoing payments to cover pensions of UK nationals employed by the EU and commitments agreed before its departure from the EU, but these will also be fudged so that it appears to all but ‘economic experts’ the payments are not being made
- as for Ireland, the likely agreement on a transitional period and a future ‘goods only’ UK/EU27 trade agreement, should make it possible to avoid the imposition of a ‘hard border’ (I discuss below how the problem of controlling the entry of EU nationals to the UK across an unpatrolled border between Northern Ireland and the Republic can be avoided)
I do not believe that there will be ‘no deal’. It is in the interests of the EU27 to keep British industry alive and well in the short term, so that it can attract the best bits of our industry to the continent over the medium to long term. It is also in the interests of the UK to be secure an agreement on a ‘framework trade agreement’, even if that will ultimately be a poor replacement for the terms on which we currently trade as a member of the EU. Whatever the detailed terms of such an agreement may be, Theresa May will be able to say she secured ‘a free trade agreement with the EU’ despite Brexit.
While I believe the above will be the key points of the UK’s departure agreement, there will be many details to be worked out. For example, it will probably take years to sort out the social security and pension rights of UK and EU nationals who have worked and lived in different EU countries/the UK during the periods before and after Brexit. This will keep British and European civil servants busy for a very long time.
How to distinguish between EU nationals who have the right to live in the UK after Brexit and those who do not (plus the likely need for all UK residents to carry identity cards)
I believe the most difficult issue post March 2019 will be how to distinguish between EU nationals who have a right to remain in the UK (because they were living here at the agreed cut-off date) and those who do not have a right to do so. For one thing, it will be necessary to implement a much more straightforward way for EU nationals with residence rights in the UK to document those rights than we have at present. For better or worse, it will be necessary to implement a ‘rough and ready’ system which gives EU nationals who can establish any period of residence or work in the UK pre-Brexit to stay. This may enable a small percentage of individuals to obtain residence rights who should not have them (horror of horrors!), but it will be essential. What I see as a more serious problem is the likely need for all individuals with UK residence rights (whether or not they are UK nationals) to acquire identity cards or passports, that they would be required to carry with them. Otherwise, how will employers, landlords and officials be able to distinguish between EU nationals who have a right to live and work in the UK and those who do not? I have always strenuously objected to our being required to carry identity documents in the UK, and I believe most people in the UK agree with me. However, I do not see how this can be avoided post-Brexit. It will certainly be ironic if Brexit leads to that most un-British of things, a requirement to carry identity cards.
One advantage of identity cards in the Northern Ireland context is that they would make border identity checks unnecessary. If all residents are required to carry identity cards, checking can be done at any location. Believe me it works. I was recently travelling in a local bus in France near the border with Spain. A police car suddenly pulled in front of the bus and required it to stop. Two police officers came onto the bus and asked us all for our passports or identity cards. Everyone produced a document except for one hapless fellow, who was taken off the bus and driven away in the police car. I am sure this would go down a treat in Northern Ireland, but it would definitely work.
Why we will eventually rejoin the EU
As for the long-term results of Brexit, I believe that the British economy will gradually decline relative to the EU27 and many Leave voters will suffer as the UK government has to cut back on benefits they took for granted because of reduced tax income. Key manufacturing sectors such as car manufacturing, pharmaceuticals and aerospace will gradually relocate to the continent. Our financial services industry may survive on the basis of ‘global’ business and tax cuts, but at the expense of increasing our vulnerability to financial shocks. While I believe that a Singapore type solution could work in the UK, it would primarily benefit the wealthy and would be unacceptable to most British people.
In the end I believe that the results of Brexit will be so negative that there will be a successful movement to rejoin the EU, Euro and all.