Towards a “Soft Brexit”
Philip, Hammond, the Chancellor of the Exchequer in Teresa May’s government, has started to make some suggestions about how to manage Brexit. The Telegraph has this: “Philip Hammond calls for ‘soft Brexit’ taking four years” and the Guardian has this: “Philip Hammond says post-Brexit transitional deal will be needed – Deal after negotiations end in March 2019 will be needed to avoid serious risks to businesses and financial stability, says chancellor”. See also this in the Daily Mail: “Brexit could take more than FOUR years to deliver: Philip Hammond widens Cabinet split by warning we WILL need a transitional deal with the EU as he takes a swipe at David Davis”.
The Governor of the Bank of England, Mark Carney, was advocating the need for such a transition in November. See this BBC Report: “Mark Carney plan for Brexit gets cool response from Gove“. And this was what the Independent wrote at the time: “What would a ‘transitional’ Brexit deal for the UK be? Such a deal is widely presumed to involve Britain leaving the EU, as planned, in 2019 but immediately entering a close trading relationship with the rest of the bloc as part of the European Economic Area“.
Since then, the House of Lords EU External Affairs Sub-Committee has been taking evidence on the issues raised by Brexit. See this BBC Report: “Clear plan’ for interim Brexit deal needed, say peers” and, importantly, the full text of the Sub-Committee’s 5th Report: “Brexit: the options for trade” which has a good discussion of the alternatives.
The Telegraph has quite a good explanation of the pros and cons of a transitional deal: “Brexit Q&A: What kind of deal will the UK actually get: ‘transitional’ or ‘off a cliff’ – and what are the risks?” and the Guardian has this: “UK naive to expect easy ride in Brexit trade talks, says Lords report. Lords Brexit reports: Cross-party peers accuse ministers of misunderstanding nature of free trade and overestimating negotiating position”
The suggestion of a transitional deal may not accord with the views of Teresa May’s Brexit Trio: David Davis, Liam Fox and Clown Boris. But, as Chancellor, Hammond has to pay attention to the economic impact of Brexit.
If, as seems likely, there will have to be legislation to trigger Article 50, then Parliament may wish to be careful about what kind of Brexit strategy may be acceptable: This was made clear by Keith Starmer, Labour’s Shadow Brexit Secretary. See this report in the Guardian: “Labour must fight ‘battle of our times’ over hard Brexit, says Keir Starmer – Shadow Brexit secretary defends decision to back article 50 timetable but says Labour is not writing ‘blank cheque’ for ministers“.
A transitional arrangement will have to be negotiated. The EU Parliament’s chief negotiator, Guy Verhofstadt, not unreasonably , says that any such arrangement must have limits. See this BBC Report: “Brexit: Guy Verhofstadt warns against ‘eternal’ interim deal“.
This profile of Guy Verhofstadt in the Independent: “Guy Verhofstadt: Who is the diehard Europhile who has been appointed as EU’s chief Brexit negotiator?” is worth a look. He is certainly an Europhile and he has had any number of confrontations with Nigel Farage in the European Parliament. As far as this blog is concerned, that is greatly to his credit.
Guy Verhofstadt has also taken up the concept of “Associate EU citizenship”. See this BBC report: “Brexit: UK ‘associate EU citizenship’ to be fast-tracked” and this similar report in the Guardian: “Brexit talks to include plan for UK nationals to keep EU citizenship – European parliament’s chief negotiator says associate citizenship would be ‘on the table’ for talks over Britain’s withdrawal from EU“. As someone who wants to be able to continue to exercise my EU rights within the EU, that is an attractive proposition.
The UK Financial Sector in Peril
See this report in the Guardian: “Urgent Brexit deal needed to avert banking job losses, peers to warn – Exclusive: Lords Brexit committee to highlight need for financial institutions to make strategic decisions before EU negotiations are finished” and also this in the Telegraph: “‘Brexit could cost 200,000 City jobs without transitional deal’, warn peers as David Davis set for grilling from MPs today“.
It is worth looking at a House of Commons Library Briefing Paper from 2015 “Financial Services: contribution to the UK economy”. The Paper can be found here on the Parliament Web Site and the full report can be downloaded as a PDF.
The summary reads: “In 2014, financial and insurance services contributed £126.9 billion in gross value added (GVA) to the UK economy, 8.0% of the UK’s total GVA. London accounted for 50.5% of the total financial and insurance sector GVA in the UK in 2012. The sector’s contribution to UK jobs is around 3.4%. Trade in financial services makes up a substantial proportion of the UK’s trade surplus in services. In 2013/14, the banking sector alone contributed £21.4 billion to UK tax receipts in corporation tax, income tax, national insurance and through the bank levy.
See also this Report by Price Waterhouse Cooper for the Corporation of the City of London. No sane Chancellor of the Exchequer or Trade Secretary could possibly wish to see this activity being removed from the UK and relocated in another country – but this may very well be a consequence of Brexit.
Other EU Member States see the UK Brexit vote as an opportunity to bolster their own financial services sectors. See this report of 8th December 2016 in the Independent: “Brexit: Banks in ‘advanced talks’ over mass move to Paris, says French regulator – Regulator says companies have already conducted due diligence to move operations to the French capital“.
Other EU capitals, including, Amsterdam, Dublin, Frankfurt & Luxembourg, are also bidding for financial services planning to move from the UK. See this in the Irish Times about Admiral, among others, planning to relocate: “Admiral may move insurance business to Dublin over Brexit” and this in the Guardian: “Hundreds of UK lawyers register in Ireland in Brexit insurance move – Solicitors rush to register with Law Society of Ireland as only those based in EU states can appear at the European court of justice“.
It will be interesting to see what, if anything, Secretary David Davis (“Mr Brexit”) has to say about all this when he appears before the House of Commons Brexit Committee this afternoon.
As Matthew Paris put it in the Times in October: “We are heading for the biggest crisis since Suez – It is horribly apparent that, four months after the referendum, the Brexiteers have no idea where they’re leading us“.
Well, the Brexit Lemmings seem to be taking us over the cliff.