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A sensible transition is better than a cliff edge

by Sam Ashworth-Hayes | 10.07.2017

The prospect of waking up on March 29, 2019 – ‘Brexit day’ – and finding a yawning chasm between Britain and the EU is causing the latest rift in the heart of the UK government.

On Friday, the Confederation of British Industry (CBI), backed by a phalanx of business leaders, made the pitch for a prolonged transitional deal to Brexit minister David Davis at Chevening House. Chancellor Philip Hammond welcomed the intervention. Davis and his fellow Brexiter, Trade Minister Liam Fox, did not.

The thrust of CBI director general Carolyn Fairbairn’s speech was simple: “Instead of a cliff edge, the UK needs a bridge to the new EU deal”. As any post-Brexit trade agreement will not be ready in 2019, this means transitional arrangements. The best deal would be the status quo, inside the customs union and the single market, until a full agreement was ready.

The EU has already made its position on such an arrangement clear: Britain would need to obey single market rules including free movement, accept European Court of Justice rulings, and pay a continued contribution to the EU budget. Unsurprisingly, this appals the Brexiters.

Liam Fox ruled out a “perpetual transitional period” as “undermining the concept of Brexit itself”, while the FT reports that Davis believes there would be a political backlash if a transitional deal looked like Britain had “not really left”. Hammond’s stance is more nuanced. While he would prefer to be outside the customs union and the single market during any transition, he wants to replicate “as much as possible of the existing arrangements”.

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A time-limited variation on the existing arrangement would neatly answer the ‘Hotel California’ critique of any open-ended transition. Far from being up in arms, Fox and Davis should welcome such a plan.

The lack of clarity about immediate post-Brexit arrangements is already starting to weigh on the business sector. Banks, investors, and manufacturing industry must all work on long timeframes. The Bank of England has already asked financial firms to present plans for dealing with all possible outcomes of negotiations. Manufacturers are approaching a ‘tipping point’, where uncertainty will cause investment to fall. The Financial Conduct Authority warns that uncertainty means firms could be forced into taking early decisions about moving jobs from Britain.

If Brexiters really wish to achieve a deep disentanglement from the EU, they will need the time and space to do it properly. Otherwise, the economic turmoil induced by the prospect of a sudden break might scupper Brexit permanently.

Davis protests that a transitional deal could weaken his negotiating hand. It is hard to claim a willingness to walk away with no deal when asking for transitional arrangements. However, the Engineering Employers Federation points out that it is exactly this sort of brinkmanship that “risks causing serious economic damage”. If Davis truly wished to engage in bluffing that “puts a premium in nerve”, he probably shouldn’t have written a book detailing his tactics.

The case for a transitional deal is overwhelming in economic terms. There is another strong argument for it. Such an arrangement would give the government much needed time to work on a solution to prevent the creation of a “hard” Northern Irish border with the Republic.

There is also a party political interest in a smooth exit. It has taken the Labour party more than 7 years to begin recovering credibility on economic issues, following a global crisis not of its own making. What would happen to the Conservatives – a party whose principal appeal is sound economic stewardship – if they crashed us out of the EU in economic turmoil?

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Edited by Quentin Peel

One Response to “A sensible transition is better than a cliff edge”

  • What would happen to the Tories if they crash us out of the EU and wreck the economy? I would hope that this toxic Party of privileged and irresponsible public schoolboys and girls crashes and burns, never to be in government again. The tragedy is that there is not a viable alternative as long as we cling to FPTP.