23 June 2017
A sensible Brexit that minimizes damage to the economy requires a soft transition – with the UK remaining temporarily in the single market and customs union – through to the inevitable hard outcome.
Robin Niblett

Dr Robin Niblett CMG

Director, Chatham House


David Davis and Michel Barnier shake hands as Brexit negotiations begin in Brussels. Photo: Getty Images.
David Davis and Michel Barnier shake hands as Brexit negotiations begin in Brussels. Photo: Getty Images.


Theresa May’s failure to secure a stable majority on 8 June has deepened uncertainties around the sort of Brexit she will negotiate.

But - like it or not - 8 June 2017 did not invalidate 23 June 2016. The Conservatives campaigned to deliver Brexit and increased their share of the vote. Labour increased its share by an even larger margin, also with a commitment to follow through on Brexit. Part of the reason so many UKIP voters broke in Labour’s favour was because Jeremy Corbyn neutralized the Brexit question, allowing them to support his anti-austerity platform.

The claim that voters rejected May’s hard Brexit in favour of a soft option grossly over-interprets the vote while continuing to sow confusion about what leaving the EU actually means.

Barring a dramatic collapse in the British economy, leading to popular and parliamentary demand to revisit the referendum result, or a major security crisis in Europe in the next 18 months, Britain will leave the EU on or around 29 March 2019.

The only question now is on what terms.

Hard, soft, open or red, white and blue, it’s time to clarify once and for all the Brexit lexicon and get to grips with what is politically feasible and economically desirable. Failure to do so will make it impossible to complete negotiations on time, leading to the worst of all outcomes – falling off the cliff-edge into WTO status without any transitional arrangements.

Leaving the EU has one inescapable result. The UK will no longer be a member of the single market. It may be able to negotiate access to the market even on identical terms. But, as a non-EU member, the UK will lose its seat at the EU table and, with it, the right to help set the rules for that access. Here the soft versus hard debate is meaningless. It is about being in or out: it is what Brexit means.

As an alternative, becoming a member of the European Economic Area – the Norway model – would give the UK full, barrier-free access to the single market. But still it would be unable to design the rules of entry, and the government would have to accept the EU rulebook wholesale within the UK, as well as the free movement of labour. As Philip Hammond argued during the Brexit referendum, this option would represent an unacceptable loss of parliamentary sovereignty.

The UK could choose to remain in the customs union, retaining tariff-free trade and avoiding border controls with its EU neighbours. But the EU27 would then negotiate large parts of Britain’s trade policy without Britain being party to those talks. Deals would reflect the interests of the individual EU member states, not the UK. Norway has not chosen this option.

So, the British negotiating position is constrained. Theresa May’s 29 March letter to President Tusk, triggering Article 50, laid out the only politically as well as economically credible long-term option. The UK will no longer be a member of the single market, but will maintain tight regulatory convergence to ensure good access. It will be outside the customs union, but seek low or zero tariffs and frictionless customs arrangements. In addition, the UK will likely agree a fair Brexit bill, and seek to retain access to some EU programmes by sustaining payments after Brexit. There will be no free movement of labour, but preferential rights for EU citizens to work in the UK.

Entirely missing in all of this from the British side, however, has been the frank public recognition of the complexity and risk of what the UK is embarking upon. Pledging to 'make a success of Brexit' is misleading. The UK may well remain one of the world’s largest and strongest economies, but, if so, it will be despite Brexit, not thanks to it. Outside the single market and customs union, the burdens for British companies and foreign investors exporting to the EU will rise – they will concentrate more of their operations within the EU.

The crucial question is whether EU states will be willing to let the UK pay the cost of Brexit this way or try to extract additional costs during negotiations. The signs are more promising than a month ago. Emmanuel Macron is in the Elysée, and growth rates have picked up across the EU: member governments can afford to be magnanimous and to pursue their long-term self-interest. After all, arriving at a constructive relationship with the UK can only enhance the EU’s future economic prospects.

The task now is to ensure a predictable transition from the withdrawal agreement to the new arrangement between the UK and the EU. By this measure, a sensible Brexit that minimizes damage to the British economy requires a soft transition – with the UK remaining temporarily in the single market and customs union, under EU jurisdiction – through to the inevitable hard outcome.

This article was originally published by The Times.

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