Back on track on the road to Brexit

Metaphorical white smoke was billowing around the Buckinghamshire countryside late last night as the Brexit conclave at Chequers reached an agreement on the Government’s vision for a future relationship with Europe.

The plan is to pursue a system of “managed divergence,” where the UK assumes its own control over rules and regulations, but then chooses to maintain the equivalent high goods and service standards of the EU in many areas to protect trade. Don’t be fooled into thinking this is a new solution or a masterstroke, it is the type of fudge we have become accustomed to as the Prime Minister seeks to satisfy both the Hard Brexiteers on her own benches and the Soft Brexit majority in Parliament. In effect Ministers have agreed a position spelt out long ago – first by the Prime Minister in her Florence speech where she spoke of a “three basket” approach.

We should of course welcome that the Brexit “War Cabinet” has decided a vision – the delay is something that has baffled the EU since the terms of the divorce negotiations began – and the noises coming out from Chequers are that all sides are happy and on the same page. However cynics may argue that all parties happy usually indicates a compromise.

The challenge of course is this agreement making contact with European negotiators and the signs are not good. The “basket approach” clashes with the EU’s long-held view that the UK cannot “cherry-pick” its way through Brexit. Speculation is growing though that in her speech next Friday, Theresa May will firm up a position more acceptable to the EU meaning an end to “having-cake-and eating it” with the hard Brexit European Reform Group likely to be disappointed.

Red Brexit

It’s increasingly apparent that Jeremy Corbyn will confirm a divergence with the Government’s policy on Brexit in a speech in Coventry on Monday.  It is widely tipped that he will signal that Labour is prepared to back the UK staying in a Customs Union with the EU. The Labour leadership has sensibly remained vague on their positon – but Labour MPs and members have been agitating the party to take a more distinctive position.

This “constructive ambiguity” seems to be coming to an end however, and there is political capital to be gained from it. A commitment to the Customs Union looks a smart move for Labour, whose vison for an end-state has been “evolving” according to Shadow Chancellor John McDonnell. In one fell swoop this commitment would remove the need for any hard border in Ireland and would ensure goods can continue to travel freely across EU borders but without a commitment to the free movement of people. The downside of remaining in the Customs Union outside of EU membership is the inability to influence either EU trade policy, or the ability to negotiate independent trade agreements with third countries. On the face of it, this seems a gamble worth taking, as Labour MPs, the Labour membership and the general public do not fetishise independent trade deals in the way Tory Brexiteers do. We now have the odd situation of Jeremy Corbyn’s Labour as the voice of Brexit pragmatism, agreeing to the solution craved by business. It could serve them well.

In practical terms, the real intrigue here is Tory arch-remainer Anna Soubry – she has tabled an amendment to the Government’s Trade Bill, calling on the Government to remain in a Customs Union. Soubry claims to have the support of dozens of Tory MPs for this. Whilst the Bill will not return to Parliament until after Easter, if Labour MPs are whipped to support the amendment, with support from the SNP and Liberal Democrats, the potential for a highly-damaging defeat for May is very real. David Lidington, the PM’s de facto number two and Chief Whip, Julian Smith will be under extreme pressure to demonstrate to Tory rebels – as well as to the DUP – that the prospects of a hard border and frictionless trade are within reach.

The (EU) show must go on

It has also been a busy week in Brussels, with the European Council publishing further guidelines on how it will approach phase 2 negotiations specifically around regulatory arrangements and trade. As a reminder, this served to act as a clear rebuttal to the “basket-approach” agreed at Chequers and again demonstrated that if the UK are insistent on the red lines they have set, the only option is a basic Canada-style free trade deal (which wouldn’t include services) or no deal at all.

Worth remembering too is that whilst Brexit means Brexit for the UK, the European project must go on and the EU needs to plan for their own post-Brexit future. Running alongside the Brexit talks are negotiations about how the EU will fund its next budget cycle without the UK and manoeuvring has begun as to what this looks like. The Dutch are particularly keen for the budget to be slashed so some countries don’t have to make up the shortfall left by the UK, countries such as the Netherlands want a softer Brexit and the UK contributions that go with this to reduce this budget gap.

Meanwhile Angela Merkel sees Brexit as an opportunity to modernise the EU budget and trim the overall number of seats in the EU parliament – wishing to redistribute only 27 of the UK’s 73 seats. Underpinning these budget negotiations is the increased ‘East-West’ tensions within the EU, with Merkel looking to exert power over the likes of Poland and Hungary who are reluctant to take their share of asylum seekers and migrants. Germany is now pushing for certain funding arrangements to be dependent on immigration quotas.