Brexit: How boldly will the UK go?

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Brexit: Constructive compromise or deeper divisions?

Update regarding the Brexit negotiation process

As Westminster heads off for summer recess after a frenetic few weeks, our feet can finally touch the ground as we consider the Brexit developments since the European Council summit at the end of June.

25 July 2018

n our last blog, we were reflecting on the lack of progress in negotiations and looking ahead to the pivotal Cabinet meeting at Chequers and the Brexit White Paper. Since then, a lot has happened but not a great deal has yet changed, and for fear of repeating myself, we still do not have a great deal of clarity on where we may end up.

The Prime Minister put forward a White Paper proposing a ‘soft’ Brexit which garnered a strong reaction from pro-leave MPs at the ongoing close ties with the EU it suggested. Before the proposal was even off the blocks, MPs forced amendments to the Trade Bill that required the Prime Minster to revise one of the central tenets of her proposal on customs. In a counter move from pro-EU MPs, further amendments were tabled in a move to attempt to bring the option of establishing a customs union back on the table. This second challenge was narrowly defeated and as parliament heads off for the summer, Cabinet is more divided than ever.

The ongoing political tensions in the UK mean that really no one can call what might happen between now and 29th March next year with a General Election, a Tory leadership challenge and a second referendum all being mooted as possibilities. Our view is that none of those would solve the problem; a General Election might prompt the EU to grant an extension to the Article 50 process but beyond that, it’s hard to see how any of those alternatives would provide the certainty craved by business in the short term.

One thing that recent developments have done however is give us a greater steer on the potential scenarios and their likelihood in the run up to March next year, which can help organisations to refine and test their risk assessments and contingency plans. On the one hand, we have the Brexit vision put forward in the White Paper – with free trade on goods, mutual market access but with some divergence on services and enhanced equivalence (but notably not mutual recognition) on Financial Services – and on the other we have the prospect of a ‘no deal’ scenario. Whilst some commentators have suggested that the version of Brexit put forward in the White Paper may be a tactical and a pragmatic starting point for a successful negotiation, both the EU and the UK have also openly stepped up their preparations for no deal. Our view is that the chances of no deal have almost certainly risen so we are encouraging our clients to increase their own preparations for that scenario.

We must of course remember that the UK’s position is only one side of the coin, and the EU response to the proposals will ultimately be the deciding factor in the kind of Brexit we end up with. The proposals do require some substantial compromises on the EU’s part – asking them to offer concessions on previously stated firm lines. The initial response from the EU has been muted, with Michel Barnier questioning whether the proposals protect the integrity of the union as well as the practicality of implementing parts of them and early indications would suggest that there remains a long way to go before a workable deal is reached.

Last week in discussion with European colleagues, we considered whether there were incentives to the EU to help the Prime Minister reach a deal as ‘no deal’ is not a good outcome for anyone and the uncertainty this would create would be damaging for both sides. There is an imperative for the EU for continued close cooperation on security for example, where the UK bring much to the table in terms of military and intelligence strength. However perhaps most compelling is the EU’s wish for consistent political leadership through to the conclusion of the Brexit negotiations, seeing a change of Conservative leader or a General Election as an additional challenge that would jeopardize not only the timing but also the nature of the deal. Therefore, we may see some flex on the EU side to avoid an even more difficult situation materializing, but how much remains to be seen.

We can expect negotiations to continue over the summer ahead of the next EU summit in October, but the EU have other priorities with the migrant crisis topping the agenda. With talks on the withdrawal terms still on going before the future relationship takes centre stage in the Brexit negotiations, we don’t think we can anticipate a significant breakthrough and the much desired certainty to materialise for some time yet.

More information on Brexit?

Do you want to know more on Brexit? Please contact Roger Brands at +31 (0)88 288 1097 or send an e-mail to: brexit@deloitte.nl.

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