Brexit – A Painless Deal is Not an Option

As I write, the EU and UK negotiators have now agreed on a withdrawal agreement and very much an outline deal for the future relationship but the political messages are mixed on both sides. The UK’s offer appears uninviting to the EU: it’s between the UK crashing out of the EU without a deal or the EU accepting that a Member State leaves having cherry-picked free movement of goods from among the four freedoms.

The so-called Chequers proposal tried to balance the two opposing wings of the Conservative Party. Brexiteers dislike it because, while it lasts, it would permit no trade deals with third countries, at least on goods – though a trade deal on services alone is unheard of. But on the other hand, they see that at least the UK will no longer be an EU member after March 2019, at which point their nirvana is a step closer. Those seeking to preserve UK export earnings point out that the proposed deal would leave service industries out in the cold. Services currently account for 40% of UK exports to the EU.  

The deal would be bad for any regulated service industry because UK qualified professionals would no longer be automatically able to work in the EU. For example, doctors, lawyers, accountants, nurses, engineers, architects and tourist guides would have to satisfy a hotchpotch of 27 sets of national regulations. Currently, EU rules trump local regulation and permit free movement of service providers.  

Take one of the largest UK accounting firms – it has a team of troubleshooting consultants, lawyers and accountants in London. They each have a fresh shirt and a passport in their desk drawer. Whether you are based in Budapest, Bratislava or Barcelona, have just been warned that you have a dawn raid by the Competition Authority tomorrow at 8am, you can call this firm and have a team of professionals with you for the start of the raid. This works first because immigration clearance is not an issue as it would be for UK nationals after a no-deal Brexit. And second, it works because the professional titles of the troubleshooters are recognised.  

What happens in the future? 

Since the Brexit vote, non-UK offices of some UK service providers have ceased employing UK citizens in their EU offices. New recruits must have an EU passport to guarantee their free movement. If it has not already excluded UK nationals from its team of troubleshooters, the accounting firm cited above would need to be planning either to employ EU nationals only or, more likely, to move the base of these people to Continental Europe.

So, the proposed deal, based as it is, on the Chequers proposal and a no-deal Brexit, would be a serious shot in the foot for services, perhaps worse – despite the political protests that the government supports UK services.  But then Chequers was a political proposal. The slow bleeding of services for export is politically silent compared to traffic jams stretching from the Channel to the M25; an immediate shortage of medicines; and food drops being necessary to remote areas within two weeks of leaving the EU to counter shortages. Maintaining free movement of goods would also solve the Irish border issue.

What about the EU? 

In principle, they don’t want to carve out any part of the EU package deal of fundamental freedoms and sell them off separately and they are not prepared to leave an external frontier of the EU without border infrastructure – whether that be from Muff to Warrenpoint or in the Irish Sea.  

However, EU complaints of cherry-picking are unconvincing – the process of agreeing on a trade deal is for each side to identify the rights that it regards as ‘cherries’ and then to seek to ensure that a maximum number of its ‘cherries’ appear in the final deal.  But the real problem for the EU is that various routes to exiting the EU are emerging: the UK notification under Article 50, the slow leaching away of fundamental rights currently operated by the Polish and Hungarian governments or the open fiscal rebellion currently employed by the Italian government.  A painless exit deal for the UK is not an option.

So, the choice comes down to either an economic hit of varying intensity according to whether a deal or no deal exit or some closer relationship with the EU than that recently proposed. Economic common sense points strongly to the latter, at least as an interim stage. But the open question is to identify the true objective in leaving: an ideological clean break whatever it might cost the UK economy, or the step that is closest to the best interests of the UK population as a whole? This will be the real issue before Parliament when it ultimately votes on the way forward.