Two years too late, May is reborn as a soft Brexiter
Soft Brexit was always a logical response to a close result. But where will things go from here?
Theresa May will feel pride in achieving what seemed to be impossible: cabinet unity on Brexit. In normal times, it would be unremarkable that the cabinet had united around the government’s flagship measure. But these are far from normal times. So what was the compromise and where will things go from here?
The PM’s proposal seems to combine ideas from two think tanks. The first is Open Europe’s idea to take a different approach to goods than to services. The UK would be tightly bound to the single market for the former, but footloose and fancy free on the latter. The second is IPPR’s idea for the ‘shared market’: the arrangements agreed at the Chequers meeting are virtually identical to those first proposed by the Institute in December. The UK would be outside the single market but aligned to it. There will be joint supervision and enforcement mechanisms, with proportionate consequences for divergence. Whereas IPPR proposed a new and comprehensive customs union, the government intends to negotiate a customs union for goods in all but name (it is described as a customs ‘partnership’).
So the key difference is the exclusion of services from May’s proposal. The main reason for this is May’s interpretation of the referendum result as an instruction to end freedom of movement rather than to modify it. There is a theoretical logic that freedom of movement is intrinsic to a single market in services, but not in goods. Services, after all, are delivered by people, whereas goods can be made and shipped from one place to another. Frictionless trade in goods requires both a customs union so that customs checks are not required and regulatory alignment so that compliance checks are unnecessary. Could this, then, be a way to square the Brexit circle?
The short answer is no. It is hard to see why this would be accepted by EU negotiators, not least because the UK has spent two years squandering it’s negotiating capital and trashing its reputation. The UK proposal slices the European economic project in half: the UK would be in a customs union and single regulatory space for goods, but outside those for services and without freedom of movement. That cuts across the EU’s two primary negotiating objectives: the first of which is to contain the UK from aggressive deregulation that undercuts the European social model. By the UK having full regulatory autonomy on services, this contravenes that objective.
The second EU objective is to contain the Brexit contagion from spreading to other member states. The UK economy is unusual: there are few countries where complex, high-value services make up such a high proportion of foreign trade. The single market in services has been largely pushed by the UK and has developed more slowly because it is more complex, and less important to many other member states. There are plenty of countries where freedom of movement is either unpopular or controversial. A deal like that proposed by the UK – all the benefits on goods, but without freedom of movement at the price of services access – might be very tempting. Others could want to follow the same path as the U.K. At that point, the EU project would start to collapse in on itself.
It is possible that May believes that, despite its consistent protestations to the contrary, the EU will fold. Britain, after all, is a large economy and a crucial destination for exports for many EU members. We run a very large trade deficit in goods with the other EU member states, so they have an interest in unimpeded trade post-Brexit. Perhaps she will argue that this is the best deal that could be extracted from her cabinet, and that there is no other plausible alternative.
The other possibility is that this is merely an intermediary step. May’s ultimate destination may be an ultra-soft Brexit as proposed in IPPR’s shared market paper. This would see full regulatory alignment on services as well as goods, with a new compromise, based on precedents, thrashed out on freedom of movement (as well as a new and comprehensive customs union and shared institutions). By getting her cabinet to agree to these arrangements on goods, the PM may think, half the battle is won. It’s certainly possible that the PM will return to the cabinet should the EU reject the plan and then argue for the same approach to be applied to services as to goods, to eliminate the cherry picking at the heart of the proposal.
In many respects, her intentions do not matter. Perhaps she will be lucky and EU member states will fold. But they seem much more likely to close ranks. And if they do not, then she would be forced to fall back to a wider deal that encompassed services and freedom of movement in any case. It now seems like a lifetime ago that May gave her now infamous Lancaster House speech where she declared that she would seek an ultra-hard Brexit. How times have changed. The cabinet negotiations appear to be over for now. But this is only the end of the beginning. Now the real negotiations can begin. And the clock is ticking.
