Stuart Gardner looks at the state of play with 300 days to go until the UK exits the EU.
As of tomorrow, there will be less than 300 days to go until the UK’s departure from the European Union.
Following the draft agreement in March, there has been an obvious lack of real progress – so what does the current state of negotiations mean for business?
If implemented, March’s draft agreement would result in a transition period extending Britain’s de facto membership of the bloc until the end of 2020. However, the Irish Border continues to be the real sticking point, with an agreeable solution yet to be found to move matters forward. The Conservative parliamentary Party remains divided on whether to aim for a mutual recognition agreement – favoured by the Prime Minister and Chancellor – or a “Max Fac” option backed by many Brexiteers.
Due to technical complexities and a lack of political consensus, the Government revealed a “backstop” plan to keep the UK aligned with the EU's Customs Union after 2020, until new border arrangements can be agreed and instituted. The EU, however, has suggested that none of the Government’s current proposals (even the backstop) would be acceptable to them, and is putting pressure on the UK to present its preferred option at a meeting of the European Council at the end of June.
The EU appears united behind a strategy to capitalise on the Prime Minister’s political weakness, cornering the UK into remaining in the Customs Union. However, the UK still has cards to play courtesy of its large trade deficit, of around £100 billion, with the EU. If there appears little for the UK to gain from a deal, there is no legal obligation to meet the Brexit divorce payment – which would leave the EU with a hole of £39 billion in its finances.
Domestically, there is an increasing fear that the Brexit deadlock will prove insurmountable for the weakened Prime Minister. It is currently hard to see how the government can ‘square the circle’ and produce a solution on the UK’s future trading relationship with the EU which is acceptable to the Conservative Party and Parliament as a whole. One only needs to look at the EU (Withdrawal) Bill – which saw the Government defeated 15 times in the House of Lords – to see that the numbers are against the Prime Minister. If the Government faces similar defeats when the Bill returns to the Commons, Theresa May could seek to call an early election in a bid to end the stalemate.
Speaking to many of our clients, what they want more than anything is certainty – and that is in limited supply. This has resulted in businesses holding off from making important investment decisions until the transition deal has been finalised.
Currently, the position of the UK Government is one of “gradual divergence”. This means that once the UK fully leaves the EU there will be no “big bang” break with EU regulations. Instead, the UK will gradually diverge from EU rules over time. Businesses, however, will need to be ready to abide by two sets of rules, making compliance more challenging and costly.
Following the result of the referendum, many firms moved quickly to hedge against immediate regulatory and legal risks, in order to reassure boards and customers that services would continue undisrupted. More radical changes – including possible significant job movements – will only become clear once the future nature of the UK's relationship with Brussels is confirmed.
Of course, with any change comes opportunity. With Government operating at maximum capacity, and little time for much of the detailed thinking required, businesses providing solutions to the complex problems posed are likely to find an open door.
Indeed, some clients are actively being courted by Government to provide their expertise – whilst others are doing all they can to ensure Government listens to their recommendations and concerns. For those businesses likely to be materially impacted by Brexit, the time to engage with Government is now. If you wait, it may well be too late.