Public Policy

August 23, 2016

Making sense of post-Brexit uncertainty: Week 8


With Theresa May still on her holidays, she was able to enjoy from afar news of unemployment in the UK falling to an 8 year-low, inflation staying within the Bank of England’s target and an upbeat economic prognosis from credit ratings agency Moody’s. And politicians from across Europe even seemed to take a more positive stance. Also in her absence, the work of reassurance, and business and Government preparing for the negotiations continues…

Views from Europe

European leaders appear to be softening their positions on Brexit, as we get closer to formal negotiations. Germany’s Foreign Minister repeated Angela Merkel’s warning that the UK cannot ‘cherry-pick’ during negotiations. However, he also hinted that the UK should enjoy special treatment in any negotiations with the European Union, due to the size of its economy and its long history as a member of the EU.

Italy’s Prime Minister, Matteo Renzi, has agreed to give the UK more time before it formally invokes Article 50 and the formal two-year negotiations begin. The change in position is widely seen as having been pushed by Germany’s Angela Merkel, with Germany relaxing its stance on Italian deficit reduction in return.

Norway’s Prime Minister, Erna Solberg, has also been backtracking this week. She has softened her stance on the UK joining the EFTA, having previously poured cold water over suggestions that the UK could re-join the EFTA. She said she now sees ‘some advantages’ if the UK joined the four-member block. 

Business working up sector by sector wish lists

Businesses have been setting out how they would like to see the Brexit negotiations progress and what sort of deal they would want to see at the end.

According to reports, the City now appears to have lost all hope that the UK will retain universal access to the EU Single Market, and has instead suggested that they would like to see a Swiss-style deal done with the EU, based on numerous individual treaties and deals. They will now look for a specially tailored deal for the sector to keep trading with the Continent as open as possible.

While the UK finance industry appears to be suggesting Ministers seek an arrangement which gives two-way access on a sectoral approach whereby the UK adopts the same regulatory standards as in the EU, our intelligence is that other key industries – where cross-border trade is part of everyday practice – will call for a concordat approach; for the current regulatory regime to continue, based on the same standards, an avoidance of duplicating applications and inspections, and built on retaining access to the Single Market.

The reality is that in some industries, perhaps in the case of financial services, it will be more in EU players’ interests to close down the chances of continued wholesale access to the Single Market, as there may be hopes of securing more trade for themselves. In other industries, there may be less to be gained by the EU institutions and Member States taking this approach; this might be because the UK regulator does a lot of the heavy-lifting when it comes to the regulating product bound for or leaving the EU.

So, we can see at least two different approaches emerging as the key business sectors set out their negotiating positions. It will be a challenge for the Government to distil the different feedback it receives into one clear and credible strategic position from which to negotiate. It also suggests that sectors that have only one approach or angle could become casualties depending on the shape of the future relationship between the UK and EU. And there is not only the risk of not being aligned to the Government’s final negotiating strategy, but then failing to get priority for the sector.

Department for leaving the EU shapes up

The Department for Leaving the European Union (or Department for Brexit, or Dexit), has finally begun to take shape. However, the Department is set to be significantly smaller than Brexit Minister, David Davis, had hoped.

The Department looks set to have a staff of just 100 or less, and will have to call on the expertise of civil servants in other Departments where required.

Senior civil servants have now been put in place and the Department’s structure has been agreed. The Department’s organogram can be viewed here. Also appointed, is David Davis’ first Special Advisor (SpAd). James Chapman, George Osborne’s fomer SpAd and a supporter of the Remain side in the referendum, will take up this critical position.

EU funding to continue until at least 2020*

And while internally, the Government continues to build capacity, externally on 15 August, it sought to reassure UK public bodies, businesses, researchers and farmers regarding EU funding, including:

  • All multi-year structural and investment fund projects (inc. ERDF funded-projects) with signed contracts or funding agreed before the Autumn Statement (likely November 2016) will be fully funded, even when these projects continue beyond the UK’s departure from the EU. The announcement was criticised by some local authorities who wanted even greater reassurances.
  • The Treasury will also put in place arrangements for assessing whether to guarantee funding for specific structural and investment fund projects that might be signed after the Autumn Statement, but while we remain a member of the EU. Further details will be provided ahead of the Autumn Statement, but the Government “will ensure these spending commitments remain consistent with value for money and our own domestic priorities”.
  • Subsidies for farmers, paid on an annual basis, will continue until 2020, with the UK Government making the payments from the point the UK leaves the EU until 2020 (so likely to be for two annual payments, taking this issue past the General Election).
  • Competitive research funding that UK universities and businesses seek from the EU will be guaranteed by the Government where funding requirements extend beyond the UK leaving the EU, so as to bolster the UK participants’ efforts to go for and collaborate on work.

It seems that post-Brexit, Brits took the maxim ‘Keep Calm and Carry On’ rather more seriously than most commentators expected over the Summer months. It also appears that a dose of calmness has spread across Europe’s political leaders during the ‘Grand Vacance or Picolla Vacanze’. From sunny Rome to less sunny Oslo, the continent’s leaders have been almost tripping over themselves to show a more realistic and consensual approach to Brexit. Perhaps positions will harden again in the Autumn as we gain proximity to the triggering of Article 50 but the sunnier approach to Brexit from across the continent is to be welcomed from both an EU and UK perspective.