The Brexit impossibility conundrum

Events over the last week have taken us further into the looking glass world which we now seem to inhabit. Donald Trump is never far from the headlines and his trip to Europe last week raised some uncomfortable questions – some of which did need to be raised and many that did not – but I will deal with those in my next post. However, it is the surreal events in the arcane world of Brexit that are currently top of my thoughts.

The government’s White Paper, published last week, was supposed to be the moment when we finally got some clarity on the post-Brexit nature of the relationship between the UK and the EU.  After all, it is the document that the EU has been requesting for the past 16 months. “Tell us what you want,” they demanded of the UK. But when they finally saw what the UK was proposing, they probably wished they had never asked. In short, the UK is asking for an Association Agreement with the EU which preserves many of the rights and privileges which it enjoys now. It is suggested that the UK and EU create a free trade area for goods governed by EU law, underpinned by elements of the customs facilitation plans which the EU has already derided as unworkable. Moreover, although “the UK would not have a vote on relevant rule changes, its experts should be consulted on the same basis as Member States.” Meanwhile, it intends to end the free movement of labour and proposes only paying into “those EU agencies that provide authorisations for goods in highly regulated sectors” without any mention of more meaningful budget contributions.

As a brazen piece of cherry-picking, this document is up there with the best. There is absolutely no way that the EU can agree to a free trade area whilst the UK seeks an opt-out from one of the four freedoms and at the same time shows no interest in paying into EU schemes. As a starting point in negotiations, the document has its merits but it is the paper that should have been presented a year ago – and ideally before the Article 50 process was even triggered. It is very late in the game to be presenting a plan which has virtually no chance of success, especially when the UK hopes that it can determine the basis of its future relationship as soon as the EU summit in October.

Then of course, there is the small matter of domestic opposition. The ideas set out in the White Paper satisfy neither the pro-Leave nor the pro-Remain camps because the former see it as an attempt to remain in the EU by the back door whilst the latter group view it as a far worse deal than the UK enjoys today. And both are right. There is little point in leaving to get a worse deal than we have now (as I have argued all along) and the Brexiteers are right to argue that the plan crosses many of the red lines that Theresa May has delineated over the past two years. So both have been betrayed.

To add insult to injury, the plan focuses on trade in goods and downplays services trade. This makes very little sense given the importance of services to the overall economy. As the German newspaper Handelsblatt pointed out (in English) “Theresa May's long-awaited White Paper aims to keep manufacturing in Britain, and is willing to surrender London’s financial access to the EU in return. That suits Germany just fine.” Indeed, the financial services industry can argue that it has been thrown under the bus – the one part of the economy that generates a trade surplus – with the government opting not to pursue a policy of mutual recognition for financial regulation but instead relying on enhanced equivalence in which recognition will take place on a piecemeal basis. It is not the deal that the City was looking for to remain competitive at a time when life is already being made difficult by overarching regulatory changes and general trading conditions.

Yet, despite all the carping, it is probably the best that the government could deliver under the circumstances. The hard Brexit vision championed by David Davis, Boris Johnson et al risks driving the economy over the cliff (see this clip of MP Anna Soubry blasting the ideological nature of the Brexiteers’ case). Thus, in order to avoid the worst case outcome, the government has no choice but to accede to many of the EU’s demands in order to secure access to the continental European market. Hence we will end up with a half-in, half-out Brexit that satisfies nobody.

Increasingly, there are calls for a second referendum, to which the Brexiteers respond that this would be to sell out what was decided in June 2016. Yet they have had more than two years to present an acceptable plan as to how to proceed with Brexit and have failed to do so. But they oppose the government’s plans which envisage a closer relationship than they deem acceptable, and all the while we get nowhere whilst the clock ticks down. If politicians cannot come up with an acceptable compromise, they may be forced to throw the question back to the electorate. I am no fan of a rerun (Brexit II) but I am increasingly of the view that there may be little option. Former education secretary Justine Greening yesterday called for a ballot with three options: the prime minister's Chequers deal, staying in the EU or a clean break from Europe with no deal. At least the electorate will have to think about the implications of leaving in a way that they did not two years ago.

In a way, these are the choices that we always faced: The choice was never about a straight “in” or “out”. It was always “in” or choosing the least worst version of “out”. The prime minister predictably has ruled out a second referendum. But with her position weaker than ever and with an increasingly impressive track record of saying one thing and doing another, it would be unwise to rule out the second referendum option altogether.