May’s transition won’t quite do trick, even if she gets one

by Hugo Dixon | 17.10.2017

The prime minister dashed to Brussels last night because she’s desperate for a transitional deal to stop the economy falling off a cliff in 2019. She wanted this week’s summit of EU leaders to give the green light for talks, but she’s not going to get it.

Her dinner with Jean-Claude Juncker hasn’t broken the deadlock. True, both sides say they want to “accelerate” the Brexit talks. But Theresa May knows that she’s going to have to put more money on the table to get to the next stage of negotiations, where she can talk about a transition. She’ll probably have to double the £18 billion she dangled in her Florence speech.

Philip Hammond is willing to do this, according to the Sunday Times. Brexit extremists in the Tory party will probably scream blue murder. Nevertheless, the prime minister herself may come round to the same conclusion in time to get a green light for talks on a transition at December’s summit.

The snag is that, even if May achieves this, a deal will be too short and too uncertain to stop companies shifting activities across the English Channel or Irish Sea to keep full access to the EU’s vast market.

Many firms, especially banks, need to know where they are no later than March. This is why Hammond is keen to move fast. He’s rightly worried about losing tax revenue if they relocate big chunks of their business.

It’s possible that May can agree a transitional deal by then. After all, in Florence and since, she made a long string of concessions about how the transition would operate. We’ll pay into the budget, accept the EU’s rules including perhaps new ones that we don’t even have a hand in crafting, keep free movement and follow the European Court of Justice’s jurisdiction. Why wouldn’t the EU say “snap”?

The problem is that any deal on transition would initially only be a political agreement. It would only become legally watertight if and when the whole negotiations were wrapped up. And that won’t be until late 2018 or early 2019. If, in the meantime, the talks break down – as is possible given the endless baying by Brexit extremists for us to crash out with no deal at all – there won’t be any transition.

What’s more, May says she only wants a transition of “around two years”. But that will merely push the cliff edge two years down the road. There’s next to no chance of nailing down our final long-term trade deal with the EU by March 2021.

So even if the prime minister gets a political deal on transition, firms will face lots of uncertainty. The logical conclusion will then be to shift some of their activities abroad.

A transitional deal would still be worth having. Fewer companies would disinvest. We would have time to prepare for a host of other issues such as introducing customs checks. And we’d make some progress on a final deal, even if we couldn’t nail it down. But it wouldn’t do everything May wants.

Some of the damage of Brexit is already irreversible.

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    Edited by Luke Lythgoe

    One Response to “May’s transition won’t quite do trick, even if she gets one”

    • While a transitional deal is better than nothing, it’s still a situation which leaves business with a great deal of uncertainty. Realistically, we need at least a four year transition deal, but that’s four years during which there will be no major investment in the UK, and hence no chance to address our dismal productivity problems.

      As ever, the best thing for this country is to cancel Brexit and cancel it now. Every day brings more irreversible damage.