Britain doesn’t know what Brexit it wants ‘The City of London is the bullseye on the dartboard’

Whether it is red, white and blue, or black, white or grey, the eventual colour of Brexit will not be easy for anyone involved,

THE hardest version of ‘hard Brexit’ would see the UK out of the single market, out of the customs union and with no deal for London to retain its sizeable financial services exports to continental Europe.

Six months after June’s fateful referendum, none of the Brexit uncertainties has been addressed and the longer the prevarication continues, the more likely a ‘hard’ Brexit becomes. In a survey last Friday from accountants Deloitte, just 7pc of financial officers at large UK firms said they planned to increase capital investment during 2017.

Theresa May offered a risible non-clarification during her latest trade promotion trip, this time to Bahrain, on December 5. The UK prime minister’s initial revelation that ‘Brexit means Brexit’ was expanded into a crystal clear ‘red, white and blue Brexit’.

The context is the ‘grey’ characterisation applied by journalists to a middle course between soft (white) and hard (black) Brexit, reportedly favoured by the chancellor, Philip Hammond, and a convert from the dark side, David Davis, the Brexit minister.

Liam Fox, the trade secretary, and Boris Johnson, the foreign secretary, still favour the darker option, with Britain outside the single market and the customs union.

A white Brexit would see Britain remain in both, but continuing to pay the full whack into the EU budget, foregoing the freedom of the high seas for buccaneering trade deals and accepting free immigration from the EU, thus rather negating the electorate’s decision to quit. The compromise grey formula, if it could be negotiated, would yield some bespoke access to parts of the single market, some continuing immigration quotas and reduced, but ongoing, budget contributions.

The range of options is very wide and the UK government appears to have no view about what it wants.

Theresa May told reporters, “I’m interested in all these terms that have been identified — hard Brexit, soft Brexit, black Brexit, white Brexit, grey Brexit — and actually what we should be looking for is a red, white and blue Brexit.”

Let joy be unconfined in those lucky EU countries sharing the Union Jack colour scheme — Croatia, the Czech Republic, France, Luxembourg, the Netherlands, Slovakia and Slovenia all sport the red, white and blue.

Their citizens can dance through Christmas now that Britain’s prime minister has prioritised their concerns. And pity the British financial officers surveyed by Deloitte — how can people commit company funds to capital investment when the prime minister and her government still have no guidance to offer?

It is possible, at a push, to sympathise with the prime minister’s dilemma — the Conservative party is still divided over Europe and cannot choose between the white option (what was the point quitting?) and the black. To go for a clean black break has the twin merits of speed and simplicity but little else to recommend it — there would be serious disruption to trade with Europe and no certainty that losses could be made up elsewhere.

So long as the leap in the dark remains possible, firms would be foolish to commit investment funds. But the grey option is messy, unpredictable and difficult to negotiate. The prime minister’s red white and blue soundbite (congratulations to the spinners) reflects the simple fact that this dilemma is yet to be resolved.

The Financial Times reported last Friday that the French government is behind efforts to change EU rules permitting the European Central Bank to ban the clearing of certain euro financial transactions outside EU territory.

There is no obvious commercial justification for such a requirement — certainly none has been offered. The FT even suggested that, perish the thought, the French might be playing protectionist games, seeking to divert business from London to Paris.

There are lingering sentiments in both France and Germany, ever anxious to defend national corporate champions, and there was always a risk that Brexit would revive the protectionist spirit. Once Britain triggers Article 50 next March, through notifying its decision to initiate the process of departure, its hand is weakened — you cannot threaten to leave after you have signed the resignation letter.

If the FT’s story is accurate, the City of London is the bullseye on the dartboard.

The House of Lords European Union Committee released a series of reports last week on Brexit, beginning with a volume devoted to issues affecting Ireland. It suggested that the Irish and British governments, and the Northern Ireland executive, should be discussing shared concerns across a wide range, including border controls, agriculture and the implications for the Good Friday Agreement. This prompted Finance Minister Michael Noonan and the Taoiseach to point out, quite correctly, that bilateral deals between Ireland and Britain, however fervently desired by the Irish and British governments, are simply not possible. The Brexit negotiations will be between the EU-27 and the British. The European Council formally appointed the Commission to conduct the process on Thursday last and the Commission team, under Michel Barnier, has already commenced work. But Messrs Noonan and Kenny were not denying that these concerns can fruitfully be discussed bilaterally as the House of Lords report advises.

They were saying something more important — they cannot be resolved in any side-deal without the ultimate consent of the European Union.

The second report of the House of Lords committee, released last Tuesday, deals with trade issues and possible arrangements for Britain to remain in the EU’s customs union. It is clear that, unless the British are willing to contemplate a continuation of free movement, the option of retaining tariff-free access to the single market is not on offer. Britain, it would appear, will be quitting the single market, which means trade restrictions. But will it also be quitting the customs union?

The report argues that it will be difficult for the United Kingdom to remain part of the customs union, an outcome with negative implications for this country (and for Northern Ireland) additional to those arising from the departure from the single market.

The full re-imposition of customs procedures would affect Irish trade through, as well as with, the UK, would add to both import and export costs and would come on top of whatever tariffs or quotas might apply with Britain outside the single market.

Just one country, Turkey, has a customs union deal with the EU and this has been mooted as a template. But it is a partial arrangement, does not cover agriculture and food, for example, and has been coming under strain for various reasons. Their lordships list all the snags and a customs union deal may not be practical for the UK either.

If Britain departs both the single market and the customs union without an agreed transition to a successor arrangement, things could get very fractious. Protectionist lobbies in continental Europe could inflict serious damage in a free-for-all and there would be greater damage for Britain than for the continental EU.

For Ireland, and especially for Northern Ireland, this would be the worst possible outcome. The sanest approach is to negotiate the divorce agreement quickly, accept that a permanent successor deal is in everyone’s interests but will take too long, and agree continuing transition membership of both single market and customs union.

But would this qualify as a red, white and blue Brexit?