Flexibility needed to get Brexit deal
THE global economy is booming and UK products and services are in demand the world over. We couldn’t be better placed to be international leaders in the industries of the future – from tech and life sciences to advanced manufacturing and education.
Yet while UK businesses are optimistic, they are also deeply apprehensive. They’re not looking for a referendum rerun, but do need a good Brexit deal to keep investing and creating jobs – and speed matters.
Firms warmly welcomed progress in December but January has brought a cold dose of reality. The EU is adamant the only options are existing models that don’t serve either side. The UK team can’t agree with itself, let alone with the EU. There’s too much ideology, too little urgency.
It doesn’t have to be like this. If there’s one thing business does know, it’s negotiation. It’s about reaching deals that work for both sides, based on evidence.
It’s about the UK being clear on what we want, the consequences if we get it wrong and the opportunities if we get it right. The current debate isn’t delivering clarity, it’s delivering contradiction and confusion.
To move forward, we must consign the labels “Leave” and “Remain” to history. The overriding goal now is a good Brexit. This requires a profound change of approach: instead of ideology, we need facts and evidence to make the hard choices.
Most people now agree a no deal scenario would be an act of great economic self-harm.
It would increase costs on UK goods sold to the EU by between £4bn-£6bn per year and imported goods tariffs between £11bn-£13bn. The costs of regulatory red tape and border delay would be even greater. And there’s no doubt the EU would share this pain.
A Canadian model delivers control over immigration, some regulation and trade policy. But it won’t work for the UK, or the EU, as the Canadian deal was built around a premise of taking two countries wide apart – in geography, standards and trade – and bringing them closer together.
Canada does less than 10% of its trade with the EU, whereas the EU is our largest trading partner. We can’t afford higher barriers to trade. Nor can the EU. Currently, to trade with the EU, many UK businesses need only complete a simple form.
But with a Canada-style agreement UK firms would face customs declarations, which means filling out a 12-page form for each batch of goods sent to customers. Every consignment will also need a VAT registration and certificates of origin, declaring how much of each product has been made where.
The Canada-deal rules of origin are as long as The Lion, the Witch and the Wardrobe – and a lot less fun to read. It’s not just goods – the impact on services would be just as great. The Canada model is patchy on services, which make up 80% of the UK economy and 40% of our trade.
Our world beating financial sector, creative industries and legal services would be hit hard. And it cuts both ways – 8,000 European financial services firms would find their cross-Channel business disrupted or blocked. Put simply, a Canada deal is an ocean away from what we need. And the numbers bear that out – studies suggest it would hit our GDP between 2% and 5%.
Some losses could be clawed back through third country trade deals, but not all of them.
Only by focusing on evidence in this way can we achieve clarity about what’s at stake: hundreds of thousands of jobs and complications for tens of thousands of firms, on both sides of the Channel.
The Norway model would give the UK great market access. But the Norwegian model’s lower level of control is a problem. There’s the obligation to permit the four freedoms, and the substantial contribution Norway pays to EU countries.
There are some business problems too, such as the delay in the transposition of EU rules. A copy and paste of Norway’s deal could create similar problems here, and in Antwerp.
With flexibility, a solution that delivers a good measure of both access and control should be possible. One that strikes a balance for both the UK and the EU. A solution that’s neither Norwegian nor Canadian, but one focused on prosperity, reflecting the size of our economy and its value as a marketplace next-door to Europe.
One that builds on 40 years of economic integration, rather than forgetting the past and starting from scratch.
Economics and prosperity must be put ahead of politics and red lines.
On both sides of the Channel these kinds of solutions are already being sketched. In seeking the best final deal, I’d like to suggest that negotiators adopt one simple principle. And that is to start with rules we already share, and move on from there.
They have been 40 years in the making and support millions of jobs and communities across the UK and Europe.
For many sectors of our economy, this approach could make all the difference.
Our aerospace, automotive and chemicals sectors, for instance, have highly integrated European supply chains. Each business in that supply chain benefits from consistent regulation – and most want to maintain it.