Sean Rickard - Independent Economic Analysis

I’m sure I’m not the only one who regards the outcome of Theresa May’s Chequers away day for eleven cabinet members as yet another retreat from reality.   After months of indecision, the ‘war cabinet’ has decided that after a transition period Brexit will mean ‘managed divergence.’   This is as fanciful as Mrs May’s mantra that post Brexit UK businesses will continue to enjoy ‘frictionless trade’ with the EU.   As ever the announcement is devoid of details but managed divergence implies that on leaving the customs union and single market, the UK will still be subject to the EU’s rules and regulations but in the following years, governments will decide the areas where the UK will diverge from the EU.   This is completely at odds with frictionless trade because unless UK rules and regulations are aligned with, and enforced by the EU, UK-EU trade will be subject to customs administration, checks and delays.   In addition, this spells problems for Mrs May’s commitment to avoid a hard border in Ireland.


Who doubts that the true purpose of the Chequers meeting was a futile attempt to buy time in avoiding the Tory party tearing itself apart over Brexit?   Soft Brexiters can hope that UK-EU rules and regulations will be aligned for several years or longer.   Hard Brexiters – the zealots – can believe that sooner rather than later UK and EU rules and regulations will start to diverge.   Mrs May had better make the most of this Tory truce.   It will not last.   It is naïve to expect that the EU would agree to a system where the UK converges when deemed to be in its interest, but diverges in those sectors in which it could gain competitive advantage with the EU.    It amounts to cherry-picking, and the EU – not just Michel Barnier but also Emmanuel Macron, Angela Merkel and many other EU leaders – has repeatedly stated that such an agreement is non-negotiable.   Either the UK is in the single market or it is out.  


In contrast, the Labour party – also after many months of indecision – has taken a significant, but insufficient step towards a clear position on post-Brexit UK-EU trade.   Jeremy Corbyn has now committed the labour party to keeping the UK in ‘a’ customs union with the EU.   I am not sure what to make of the indefinite article; it could reflect the fact that in leaving the EU the UK will technically have to join a ‘new’ customs union or, more interestingly, it may align with the CBI’s and IoDs support for a ‘comprehensive customs union.’   Mr Corbyn argued that permanent membership of a customs union would avoid a hard border in Ireland but only a comprehensive customs union can achieve that outcome.  


The Centre for European Reform had defined a comprehensive customs union as, continued membership of the customs union and the single market but only for goods.    The CER describes this as the ‘Jersey option’ because the Crown Dependencies enjoy a similar relationship with the EU.   The UK would need to agree to follow all of the rules of the customs union and single market for all industrial and agricultural goods.   The EU would insist upon an annual financial contribution and a supranational court to settle disputes.   If the UK refused European Court of Justice jurisdiction, it would need to establish a new court that would indirectly take account of ECJ case law – a position apparently accepted by Mrs May in her Florence speech.   A significant issue is whether the EU would insist upon free movement of labour.   Most importantly, the Jersey option would solve the Irish border issue


Although Mr Corbyn was unwilling, or unable, to go into details it is clear that the Labour party now supports a closer future relationship with the EU.   This is good for the economy particularly at a regional level.   I hope that Mr Corbyn’s speech is a carefully crafted stage on a path set by Keir Starmer, who I believe has in his sights something like the Jersey option.   However, conscious of Labour’s Brexit voting provincial heartlands, he is wary of moving too far ahead of public opinion.   The timing of Jeremy Corbyn’s speech may have been influenced by Theresa May’s forthcoming speech on Brexit but it may also have been given pertinence by the leaked government studies indicating that Labour’s heartlands would be hardest hit post Brexit.   The Labour party’s announcement may bode well for the country but it also amounts to good politics.   Even before Mr Corbyn’s speech there was little chance of Theresa May’s ‘managed divergence’ surviving a meaningful vote in Parliament.   Following Labour’s shift the probability that Mrs May faces defeat on the trade and customs bills, due in the coming months, has become much greater.   The more so as Keir Starmer has signalled that Labour would back pro-EU Tory amendments to the trade and customs bills, intended to keep Britain in a customs union.  


Inevitably, the zealots’ Praetorian Guard, otherwise known as the duplicitous European Research Group, has urged (threatened?) Theresa May not give in to the wishes of business and their desire for the UK to remain in the customs union post Brexit.   Disgracefully the zealots dismissed the civil servant’s private analysis – and by implication, all respected trade experts who have come to similar conclusions – as fiddling the figures.   Instead, with breath-taking hypocrisy, the zealots have drawn on a report by a small group of pro-Brexit advocates, Economists for Free Trade (not one of whom is a trade expert) to claim that a hard Brexit will deliver a positive boost to GDP in the long run.   The report is a first class example of putting ideology above good science.   Chris Giles, economics editor of the FT comprehensively destroys the EfFT results, describing their assumptions as not only ‘absurd’ and disingenuous but also in conflict with David Davis’s assertion that Britain would not seek a deregulated, ‘Mad Max-style world borrowed from dystopian fiction’.


A  S I G N I F I C A N T,  B U T  I N S U F F I C I E N T  S T E P

27th February 2018


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