Brexit: Over, but far from out

With Brexit day finally upon us, Iain Begg reflects upon the past and future of the UK’s relationship with the EU, concluding that, whilst in many ways it may be ‘over’, the UK is still far from ‘out’.

Finally, it happened: from 23:00 GMT on the 31^st of January 2020, the United Kingdom is out of the European Union. After all the political and constitutional mayhem of 2019 and more than three and a half years after the referendum, the formal conclusion of the Article 50 process marks the end of a chapter in the history of the UK spanning nearly five decades. Some will gloat, others will despair, but it is undeniably a significant milestone.

Although the date will be recorded in the history books, it will be remembered as an oddly low-key event. Until Boris Johnson’s decisive victory in the general election held on the 12^th of December 2019, the UK’s withdrawal from the EU was still in doubt. In the end, a combination of respect for the referendum vote and ‘Brexit fatigue’ prevailed, and, almost immediately, the mood changed. Quite simply, the country knew the game was over and was ready to move on.

Overnight, speculation about over-turning Brexit or a second referendum ended. The withdrawal bill was passed by Parliament without difficulty and the many objections to its provisions evaporated. The House of Lords tried to introduce a number of amendments, but they were swatted away by the House of Commons and barely covered in the media.

Notwithstanding the clever slogan – ‘Get Brexit Done’ – at the heart of the Conservative party’s general election campaign, Brexit is far from ‘done’. There is, first, the transition period until the end of 2020, during which a future relationship will be negotiated. There have been many voices warning of the rocky road ahead and the implausibility of concluding a comprehensive deal in just ten months, then ratifying it.

However, for now, neither businesses nor citizens will, in practice, see any tangible differences in their inter-actions with the EU. UK passport holders can still go to the EU desks on arrival in the Schengen area. The regulations governing conduct of business will stay the same, and EU courts will still be there to enforce the Union’s laws within the United Kingdom.

What does change right away is the loss of a British voice in EU decision-making. The UK no longer has a European Commissioner or representation in the European Parliament, and UK ministers and officials will not take part in the formal meetings of the Council of Ministers. But will anyone notice? A joint committee of officials will now oversee the transition and negotiating teams will work on the future relationship, but this Committee will function largely in the shadows.

In her recent speech at the London School of Economics, European Commission President Ursula von der Leyen recalled with affection her days as a student at the School. But she also warned that ‘our partnership cannot and will not be the same as before. And it cannot and will not be as close as before – because with every choice comes a consequence. With every decision comes a trade-off.’ She also said bluntly that ‘without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership’. It is hard to gainsay her judgement.

All the signals from Downing Street suggest what Boris wants is a comprehensive trade deal similar to the one the EU has with Canada. For trade in goods, this should not be too hard to achieve: after all the UK starts from a position of an insider, unlike Canada. The more awkward areas concern regulatory alignment, especially in financial and business services, where the UK has long had a competitive advantage.

Part of the appeal of the ‘take back control’ slogan from the leave side is the promise of regulation better attuned to UK preferences. The EU, though, does not want to see the UK adopting a deregulated socioeconomic model capable of attracting economic activity away from the Continent – what sometimes goes by the name of ‘social dumping’.

As argued in a previous blog, ‘Singapore-on-Thames’ is an implausible direction for the UK to take. It would directly contradict a number of the promises on boosting public services the Johnson team made to voters, and there is strong support in the UK for the social and environmental protections behind many regulatory policies. On the EU side, nevertheless, there is concern about how much divergence there will be in the future.

These fears are likely to prove unfounded. For example, in financial services, UK memories of the 2007-08 financial crisis will oblige policy-makers to remain robust in ensuring financial stability. In some areas, such as certain aspects of the labour market, the UK has relatively light regulation already. This will not change much, and in relation to climate change, the UK has far more in common with current EU policies than it does with the United States (with which Britain aspires rapidly to sign a trade deal).

What, then, should we expect in the months and years to come? Although the spectre of ‘no-deal’ will arise again if the negotiations on a future trade deal stall, the incentives for both sides are strong enough to make reaching an agreement probable. Ireland would certainly be adversely affected, but so too would exporters in the other neighbouring economies which trade most intensively with the UK.

There will certainly be some sticky issues and a need for trade-offs. A deal by the end of 2020 may be attainable, but is likely to be incomplete, meaning further negotiations to follow. Hence it is likely that enough will be achieved to enable Johnson to say he successfully avoided extending the transition period, but (in the classic EU sort of fudge), several cans will be ‘kicked down the road’ to be swept up later.

Despite its comparative insignificance in economic terms, fisheries could be a particular problem. Fishing communities in France and Spain would be badly hit by loss of access to UK waters, while those in the UK would suffer if the EU restricted imports of fish caught by British fishers. In other areas, such as security or research capabilities, the EU will want to hold the UK close. The UK will in return, be keen to obtain good terms for its financial services sector, suggesting a basis for grand bargains.

There is little chance of the UK wanting to reverse Brexit in the foreseeable future, but nor will it want to be distant. To sum up, the UK will remain close to the EU, whether socially, politically or economically. Yes, it will be ‘gone’, but it will not be far away and it remains to be seen in what respects the UK will be demonstrably ‘out’ or what aspects of the UK-EU relationship are shaken-up.

Maybe we should reflect on the lyrics of the party dance the hokey-cokey: ‘You put your left arm in, your left arm out. In, out, in, out. You shake it all about’.