A Social Democratic Future

Policy paths towards equality and efficiency

An Open letter to the 26 Labour MP’s that wrote to Jeremy Corbyn on 19th June stating that Brexit must happen

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Dear Signatory

On 19 June you wrote to Jeremy Corbyn, demanding that Brexit proceeds without ‘further undue delay, as the UK ‘must leave’, warning that holding out for a ‘perfect deal’ risks rather a No deal exit, and that ‘fighting for a Brexit for the many not the few, is best fought for at Stage 2, after we have left’.

As Labour MPs representing Brexit-voting area, your prime fear appears to the threat posed by the Brexit Party to take Labour working class votes in your own constituency.

The worst of all worlds is, indeed, where we seem to be stuck at present. Continuing uncertainty is damaging the economy, starving it of the investment it needs to escape stagnation,  while the(current) Chancellor is preparing to spend £26bn to mitigate the immediate impact of a No deal exit, the Union with Scotland and Northern Ireland is threatened to the point of impending demise, and political discourse has become polarised and polluted, sometimes to a point where a whiff back to the push to political extremes of the thirties, is discernible, as any middle ground between Remainer and Leave positions is hallowed out.

Think, think, what £26bn could do to transform the housing and education environments in Brexit-voting areas and elsewhere, while relieving the pressure on health and adult social care.

We must escape this mess, but how? The Conservative Party has been captured by the Hard-Brexiteers, eschewing evidence and common-sense, in favour of a reactionary fetish.

Your party’s position is confused and conflicted, only (vaguely) comprehensible – like that of the governing party – if the trouble of studying its internal machinations and perceived electoral calculus is taken. But why should the electorate be required to do that?

It is not surprising that there has been a populist surge.

Yet your intervention is misjudged and follows the same self-interested groove. Most importantly, it is likely to be counter-productive, even when taken on its own terms.

It will strengthen the opportunistic and hubristic hand of Boris Johnson, if he becomes Prime Minister – as it will the ERG faction within the Conservative party regardless – to pursue the threat of a No deal exit.

The idea seems to be that the threat of No deal will induce Brussels to blink and give concessions on the Withdrawal Agreement (WA); linked, perhaps, to a commitment to enter into an interim side (or WA replacement) agreement involving tariff and quota-free EU-UK trade, as a precursor to a long-term Canadian-plus-type free trade (FTA) deal, all done and dusted with parliamentary approval secured before October 31st.

That simply is not going to happen.  The unnecessary hiatus that will follow will only heighten and prolong uncertainty, fuelling the risk that an economically and socially disastrous No deal exit occurs by default.

An event that is likely to let the populist genie out of the bottle in real earnest, probably fragmenting voter behaviour well into the future, quite possibly permanently.

Even taking a longer time-frame, and a further extension beyond 31st October, Brussels will not be induced to make concessions, other than to repackage its earlier iterations on the N.Ireland backstop, set out in the  Joint 24.1 letters of Tusk and Juncker, to make it appear more ‘temporary’ than ‘indefinite’, and/or revert to a NI-specific customs union and regulatory alignment: back round the same circle.

Besides, the Brexit trilemma will not dissolve with any change of the deckchairs in 10 Downing Street:  it is possible to secure two, but not all three, of the following: UK single market and customs union exit; a whole-UK Brexit; and no Irish border.

Or, put another way, without continuing UK-wide customs union and regulatory alignment with the EU, for, at least, goods, either NI will need to be subject to different customs and regulatory arrangements than the rest of the UK, or a border within the island of Ireland will need to be reinstated in some form or other: hence the backstop; and why time-limiting it in a legally certain way constitutes a contradiction in terms.

The retention of an open border in Ireland, without the separate regulatory treatment of NI, requires the UK to continue within an equivalent CU with the EU combined with some measure of continuing dynamic regulatory alignment for the currently foreseeable future.

A future freestanding FTA with the EU that allows the UK to negotiate bespoke trade agreements with the Rest of the World (ROW)  – likely to take at least six years or more to negotiate, taking the Canadian precedent – is inconsistent not only with an open Irish border, but with continuing frictionless trade between the EU and the rest of the UK.

We would also have to kow-tow to President Trump and follow US regulatory food standards (disastrous for farmers across the UK) and quite inconsistent with an open Ireland border, and open up the NHS to American health care providers. Protecting patriotism and sovereignty should not be confused with Brexit.

Tariff-free and quota-free UK-EU trade will also not by itself lead to frictionless trade without continuing UK adherence to the EU customs code, the common external tariff, and commercial policy, which then would rule an independent UK trade policy.

The government’s own evidence backs up that of independent economists that the economic benefits of future possible free trade agreements with the ROW will prove puny compared to loss the benefits of such frictionless trade with the EU 27: our closest neighbours.

It is incumbent on you to explain otherwise, with reference to evidence and facts, rather than assertion.

Alternatively, unless you wish to sink to the depths of ERG posturing, blind to facts and arguments, you should recognise that you are prepared to swallow the dismemberment of the Union and the infliction of lasting economic damage to the UK.

You could reply that I accept all of that, but I must respect the June 2016 vote in line with existing party policy, in line with democratic principles, respecting the majority who voted Leave, regardless of consequence.

But three years ago, people did not vote for No deal; and the real economic, political, and social consequences of leaving have become much clearer.

With respect to the interests of your working class constituents, it is difficult to discern how becoming poorer (the impact of disrupted and often sundered previously integrated manufacturing  supply chains, will be most severe on constituencies in Wales, the North and Midlands, dependent on them), weakened public finances, and restricting the migration of young economically active EU workers (urban areas, such as Sunderland, would likely suffer consequent population loss), will improve their lot.

That is not to say The Dangers of a Second Referendum should be under-estimated, or avoided if at all possible.

But, as explained above, your intervention reduces the prospects of a negotiated deal most attuned to the interest of your constituents, while raising the risk of No Deal.

One of you, Caroline Flint, confirmed last Sunday that she would vote for No deal, in preference to revoking article 50 or for a second referendum.

Each of you should make your own position on that clear.

Some of you have already stymied efforts to prevent No deal by voting against the combined Labour, LD, SNP, and Green-supported motion, presented earlier this month to the Commons.

In that light, do you agree with Caroline that it would weaken the government negotiation position to threaten a No Deal exit, or with Jim that we will have opportunities to do that ‘sometime later’?

The best way to avoid both a No deal exit and a second referendum is to work with your Labour colleagues and Conservative One Nationers to legislatively prevent a No deal exit by executive action or default.

If that is not possible, your constituents should be provided with an opportunity to choose between Remaining and No deal, if that is what is left on the table.

Meanwhile campaigning that raising local educational horizons and expectations, inward investment, greater transport connectivity, and housing choice and opportunity (and the means to realise them), as well as improving public safety, is what is needed, not Brexit, would, undoubtedly, best support your local constituents and secure their lasting respect and allegiance.

Making Public Investment Smart

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The level and quality of public infrastructural investment must meet macro-economic and social requirements and be efficient in selection and execution.

The establishment of the Infrastructure Projects Authority (IPA) in 2016, and the National Infrastructure Commission (NIC) in 2017, was a move in the right direction in line with that. It provides potentially a stronger institutional footing for the effective planning, funding, selection, and execution of infrastructural projects, which, hopefully, is associated with a better shared political understanding of the role that productive public infrastructural investment must play in underpinning a future sustainable productivity-driven growth economy.

Yet the fiscal and institutional environment for the funding, selecting, and delivering of infrastructure, remains, unfortunately, unfit for purpose.

The need to change that, and how, provided the tread for the Submission that A Social Democratic Future made this month in response to HM Treasury’s Infrastructure Finance Review, which closed on 5th June, (the Consultation).

The Consultation sought views on securing private finance in support of productive infrastructural provision in such a way that the ‘benefits brought by private finance must outweigh the additional cost to the taxpayer of using private capital’, (para. 1.9), and on the future institutional options for delivering government support for infrastructural finance, including establishing a new operationally independent institution in the expected post-Brexit environment, when the UK will no longer benefit from access to the European Investment Bank (EIB).

Continuing under-investment in both productive economic and social infrastructure will retard the achievement of the step-increase in growth and productivity required to escape continuing stagnation. That is the prime issue.

This means fostering and reaping the potential productivity gains that follow the agglomeration of specialized economic activities in the largest urban areas and other concentrated clusters, including improved matches of jobs and people, the sharing of information, knowledge and innovation, as well as facilitated market access.

Bigger and more people-dense high-productivity cities, in turn, will depend upon high quality transport, digital, and social infrastructure in housing, education, and, to a degree, cultural services.

In the UK context, that means supporting primarily the densification of London, and other high-productivity clusters that could potentially conflict with regional spatial and social equity and cohesion aims, and, certainly, is in tension with them.

The post-Brexit referendum environment has further highlighted that tension, and underscored both an economic and social imperative to support and foster the recovery and rejuvenation of ‘left-behind (or neglected) Britain’  for choice of a better descriptive phrase. Coastal and smaller cities and towns, especially in sub-regions located north of a line drawn between the Humber and Wash and in Cornwall spring to mind. They have borne the brunt of decades of de-industrialisation and/or relatively stagnant or declining service sectors – the same areas that tend to the most exposed to the future loss of EU Structural Funds.

Both these strategic policy drivers put an added premium on moving to a reformed and inter-linked fiscal and institutional environment that can best deliver efficient productive infrastructural investment.

Take a sustained increase in affordable housing investment to a known broad steady-state level, planned and meshed with the targeted and planned expansion of apprentice and training opportunities to indigenous workers: although it should help to secure structural change in the construction industry and a step-change in its productivity, it is presently prevented, however, by the operation of the current public expenditure system, where housing capital allocations are constrained by rigid fiscal limits.

The current unitary cash-based public expenditure system lumps together recurrent revenue and lumpy investment expenditures producing future financial, economic, and social benefits into the future.

The construction and provision costs of providing new dwellings is consequently front-loaded  as public expenditure contributing to the deficit into the short-term, leaving public investment, and the housing programme in particular, disproportionately prone to cuts during periods of fiscal stress or austerity (generally when increased counter-cyclical investment is required, as was the case in the wake of the-GFC, nut when it was by cut by 40% in the 2010 SR), and, more generally, constrained below optimal economic levels by undiscriminating unitary fiscal targets, such as when Parliament in January 2017 committed the government to reducing the cyclically adjusted deficit to below 2% of GDP by 2020-21 and having debt falling as a share of GDP in 2020-21.

In contrast, homebuyers budget to meet their recurrent mortgage costs, not the full value of their mortgage; nor are they double-counted.  Nearly all first-time buyers could not purchase if the same accounting treatment was applied to them.

The Fiscal Remit imposed on the NIC by HM Treasury – itself constrained by that same  discrimination against investment expenditure, intrinsic within the current cash-based unitary public expenditure system – sets a gross public investment funding envelope or limit of between 1.0% and 1.2% of GDP in each year between 2020 and 2050, within which NIC recommendations for economic infrastructure must adhere, after taking account of existing funding commitments, including HS2, CrossRail 2, and Northern Powerhouse Rail. This is even though that existing commitments – combined with expected maintenance spending on existing assets – will consume an estimated 1.1% of GDP between 2020 and 2025, and 0.9% between 2025 and 2030.

Very limited fiscal space, over the short-to-medium term, therefore, will be left for the NIC, by its own reckoning, to recommend new and additional projects, such as the upgradations and new additions to the intra-and inter-urban transport network needed for the posited benefits of HS2 for London and other urban conurbations to be substantively harnessed.

Likewise, projects that could step-up the productivity of under-performing urban agglomerations such as the West Midlands, currently held back by congested and inadequate public transport connectivity, closer to European average levels, will almost certainly be stuck on the drawing board or stillborn.

Its constrained Fiscal Remit will also undermine any effort of the NIC to select, rank, and sequence projects – given their lumpiness and interdependency – efficiently.

For example, it is unlikely that the London transport system could cope with increased HS2 numbers without the prior of completion CrossRail at the London Euston terminal end.

Most HS2 passengers arriving and departing at Birmingham will still also need to get to the terminus station by public transport, unless they can walk to a central destination or get a taxi to a poorly connected destination within the West Midlands conurbation.

Already, productive infrastructural projects have been pared back due to fiscal constraints linked to the achievement of short-term fiscal targets. Trans-Pennine Rail provides a recent example with likely significant sub-optimal economic effect on the Greater Manchester and West Yorkshire economies.

Another problem with the current fiscal rules is that debt raised by Public-Private Partnerships (PPP)’s to construct assets – within the current cash-based public expenditure planning system (if it meets defined accounting tests) – is not recorded as public spending or debt.

Unless public procurement and PPP’s are put firmly on a level playing field, the ‘fiscal illusion’, as the Office of Budget Responsibility (OBR) in 2017 described the Private Finance Initiative (PFI) programme, which Budget 2018, PF1/2 curtailed, risks repeat.

Private finance will then continue to be used to meet the infrastructural funding gap, even where it involves net higher public costs and hence public debt and borrowing over entire project lifetimes.

Alternatively, private financing of new water and energy assets under the current Regulated Asset Base will rely upon their ultimate funding on hidden subsidies and higher charges on consumers, with resulting regressive incidence on household budgets.

The effective development of the NIC’s proposed analytical framework for comparing the whole life costs and benefits of private financing and traditional procurement on an objective whole-life project basis, accordingly, and in addition, also depends upon inter-linked fiscal and institutional reform.

The Submission recommended integrated reform across three primary areas: the fiscal rule framework; the institutional environment governing the selection, ranking, and delivery of productive economic and social infrastructure projects; and tackling the root causes of the rising relative real cost of providing of such infrastructure.

Fiscal Rule Reform

The 2019 Spending Review (2019SR) should increase the NIC’s current Fiscal Remit funding envelope and disentangle it from unitary cash-based fiscal targets, while the NIC should provide evidenced assessment of the future volume need for public investment, and its sequencing, to the Treasury.

Capital spending on both conventional and PPP’s should be freed from year-to-year financial cash-limits, but their modelled future revenue liabilities included in future government debt projections used to assess future debt sustainability.

And the IPA and NIC should ensure that choice of procurement route for future publicly supported or regulated infrastructural provision should strictly and wholly be determined by relative whole-life project efficiency, taking account of the cost of finance, according to the best-available tools and evidence-base.

The selection, ranking, and delivery of productive economic and social infrastructure projects.

It is not apparent that the impact of future technological change on the economic value attached to shorter journey times between Birmingham and London, nor the actual scope potentially available in the future for existing networks, such as the Chiltern line, to increase capacity and average journey times, were adequately addressed during the original HS2 decision-making process.

At any rate, a fully transparent evidence-base does not seem to be available to convincingly rebut rising doubts, currently raised within and outside Westminster, concerning the vfm and the ultimate economic utility of the project – attached with an expected price-tag of over 55bn – relative to alternatives.

The Thames Tideway project – a 25km tunnel, currently in the process of construction, to upgrade and expand London’s Victorian sewer network will cost an estimated final c4.2bn at 2014 prices. A Special Purpose Vehicle (SPV) bears primary construction and execution risk. That feature and an innovative patchwork of public guarantees and retention of high impact but low likelihood risks, designed to avoid expensive and inefficient risk pricing, has led many to tout it as an emerging PPP model, but the business case need for the project relative to cheaper alternatives, such as improved maintenance and repair of the existing network to prevent leakages, has been questioned.

Ultimate project risk will rest upon the consumer and the taxpayer, with its costs mainly met by increased consumer water bills. The construction of the project will both foster and pre-empt engineering and tunneling resources.

All that said, the optimal ranking of the relative macro-economic worth of competing projects is difficult to achieve in practice for many reasons.

These include the complexity of the wider policy environment in which the selection and prioritisation takes place; the related need to balance competing multiple objectives; the existence of contingent political pressures favouring some projects for reasons other than their economic and overall worth, as well as capacity constraints within the public sector to apply effectively project appraisal methodologies, which like all economic tools are also only as robust as their underlying assumptions allow them to be.

It is vital, nevertheless, that the institutional environment in which both economic and social infrastructural projects are planned, selected, and delivered is improved in step and consistent with fiscal reform.

The NIC should, therefore, be empowered to assist each government department to publish a required annual Departmental Investment Plan (DIP).

Each DIP should prioritise projects according to their estimated economic and social return, incorporating auditable information on the methodology applied to rank projects, according to their expected whole project-life return.

The IPA should also be specifically tasked and resourced to expand the pool of personnel skilled and experienced enough to conduct the project appraisals underpinning DIP’s.

Partnerships with universities and the private sector should develop the methodological base and to enlarge and deepen the skill set of appraisers.

Progress towards such an improved fiscal and institutional environment should foster efficient public planning and programming of projects and a greater degree of partnership planning between the public and private sectors.

Improved growth and productivity outcomes, balanced in income and spatial distributional terms, should follow.

But, even with their adoption, the sheer scale of future infrastructural funding requirements requires alternative and innovative public funding mechanisms.

Tackling the root causes of the rising relative real cost of providing of productive economic and social infrastructure.

The costs of providing infrastructural investment have escalated much faster than general inflation: the public investment relative price effect. The escalating cost of land as a component of housing investment since 1955 is a striking instance of its operation and effect.

The true fiscal crisis should also be recognized: the demand and need for productive public expenditures across both current and capital budgets will inevitably outstrip public willingness to pay through efficient and salient sources of taxation, at least within a current competitive political system focused mainly on the electoral short-term.

Overcoming that crisis, therefore, requires further concerted and systematic institutional and policy reform. Lateral, radical thinking across the political spectrum, capable of fostering an overlapping consensus, is required, as much as is incremental reform.

In that light, Sectoral and Departmental infrastructure strategies should identify, address, foster, and integrate joined-up policy efforts to make public investment less costly in net public expenditure terms.

Housing provides a case-in-point example where market failure and rent-capture unnecessarily increases the cost of provision. These should be identified and addressed directly, along and innovative public funding mechanism,  within the DIP process.

The most direct and effective way of reducing the public cost of affordable provision is by deflating its land value component. This could be done by a mixture or combination of measures focused on ensuring that the land value of affordable housing sites are limited to existing use value plus an agreed premium of, say, 30%, backed up by stronger compulsory purchase powers and an affordable housing obligations system that is more robustly, transparently, and uniformly applied than at present.

In parallel, the future long-term rental income and sales of a steady-state affordable housing programme could be securitised to provide collaterised backing for its public funding.
At an overarching level, a dedicated funding intermediary that could take equity stakes in economic and social infrastructure, where long-term returns (for example, linked to revenue streams, such as rents rising with inflation, interest on loans, profit-shares) could be realized and recycled across the lifetime of the project.

Links follow to the  A Social Democratic Future‘s full  Response to Treasury consultation June 2019, its Appendix Table 1, and a summary of the Recommendations.

The major issues that will need to underpin future assessments of the whole-life project efficiency of conventional and PPP projects are outlined in Table 1.

Will Brexit High Noon be settled by a Shootout, or a Nod-and-Wink?

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The UK will exit the EU on the 29 March by legal default without a deal (No deal), unless the Commons agrees on one, or a combination, of the following five options.

1. May deal revised by Brady amendment
The Commons by a margin of 16 votes on the 29 January mandated the Prime Minister (PM) to seek ‘alternative arrangements’ to the Northern Ireland (NI) backstop, included in the Withdrawal Agreement (WA) she had negotiated and agreed with the EU back in November.

Only a fortnight earlier MPs had rejected that WA and its accompanying Political Declaration (PD) – The May deal– by a record 230 votes.

Despite the PM’s previous implacable insistence that her deal – backstop included – was the best and only one on offer, her acceptance of the Brady amendment was not totally unexpected.

It had already become clear that May would to continue to court support from the hard-Brexiteer (HB) faction of her party by promising to go back to Brussels to get concessions on that backstop.

She seems to have calculated – on the advice apparently of her husband, Philip, and in accord with her Chief Whip, Julian Smith – that seeking broader cross-party support for a softer Brexit, as was preferred by her chief of staff, Gavin Barwell, would have split her party more certainly and quickly.

She needed something to take back to Brussels with parliamentary backing. Essentially, however, the can was kicked down the road yet again. The notion that the PM could bring back to the Commons a revised deal that eliminated or at least time-limited the backstop in a legally certain way was illusory from the onset.

Alternative ways to prevent a hard border in Ireland, such as the technological fixes that the July 2018 Brexit White Paper mooted are not feasibly available, at least within the foreseeable future.

As EU’s deputy Brexit negotiator, Sabine Weyand, put it pithily earlier in February, they simply don’t exist. A time-limited backstop, in turn, is a contradiction in terms.

It simply is not in the interests of the EU, either strategically or tactically, to re-open the WA.

Strategically, it would lose Brussels the agenda-setting control it has exercised over the negotiation process. The UK could press for the adoption of alternative trading arrangements of its own choosing sooner, rather than later (outside a common EU customs territory).

Such premature arrangements could either cause the return of a hard border within Ireland, or through smuggling and the back-door dumping of goods through an open (NI) back door, undermine the EU’s own common customs territory and the single market(SM).

Tactically, the EU possesses no incentive to alter its red lines, at least until the last possible moment, to avoid No deal.

Many HB European Reform Group (ERG) MP’s are wedded to a No deal exit. They voted on tactical grounds for May to do their bidding while the No deal cliff edge becomes ever-closer.

Their – always lent and conditional – support will be withdrawn in the absence of a demonstrable capitulation by the EU to their demands. Given that, any concessions offered by the EU to May to placate them would prove futile and probably counter-productive in outcome: taken by ERG members as a willingness to bend.

Yet a No deal UK exit would itself activate the risk of the re-imposition of a hard border within the island of Ireland – the outcome that the backstop is designed precisely to prevent.

For that reason, Brussels has shown some willingness to offer May something ranging from a letter(s) of comfort to a codicil or supplementary protocol to the main body of the WA, as indicated in the 24 January Letters of Presidents Tusk and Juncker to Prime Minister May<

Their content, subject to sympathetic interpretation, could allow May to claim that the backstop would be ended with reference to some defined process, providing her ERG faction some residual assurance that it would not be permanent.

Such assurances will almost certainly call upon  the beholder to make  a semantic differentiation of temporary and indefinite,  open to future interpretive dispute. Subordinate to the main legal body of the WA , such a protocol or codicil will not be legally certain, but will rather rely on the good will of both parties, as was the case previously.

2. Extension of Article 50 agreed or imposed by Parliament.

The essential dilemma that the PM continues to face is that tilting towards a Brexit soft enough to attract cross party support will split her party, while relying on ERG support to secure a parliamentary majority is a chimera.

Boxed-in a corner of partly her own making, her forlorn hope is that by running the clock down close enough to the 29 March exit date will frighten enough hard-Brexiteers to pass her deal, with or without a last-minute EU concession on the NI backstop.

The stick that she apparently thinks that she can hit them with is that if they do not, an extended, rather than an operational, extension to Article 50, on the EU’s terms as long as one year, will follow.

The Commons would then increasingly likely vote for a softer Brexit, or, if it remained deadlocked, as the only last option left on the table, apart from voting to revoke Article 50 or for a general election, or for a People’s Vote (PV) that could reverse Brexit.

Such a strategy was always an inordinately dangerous, uncertain, and risky one, both economically and politically. That Parliament would allow such brinkmanship with so much at stake, beggars reasoned belief.

Yvette Cooper’s amendment to set out a statutory process for MP’s to require the government to seek an Article 50 extension from Brussels will be re-tabled on the 27 February, this time with Sir Oliver Letwin, a Conservative ‘one nation’ grandee appealing to its middle ground.

A similar amendment fell on the 29 January. This was largely because 14 Labour MP’s, plus the unwhipped Frank Field and Kelvin Hopkins, voted against it, while 12 abstained, including eight members of the current Corbyn-led shadow cabinet: Tracy Brabin, Judith Cummins, Gloria de Piero, Yvonne Fovargue, Mike Kane, Emma Lewell-Buck, Jim McMahon, and Melanie Onn. A full voting inventory is provided here.

Another month has elapsed since then. Barely a month is now left before a default No deal proceeds by default. This time, therefore, the Cooper amendment is more likely to attract increased support from ‘agnostic’ Conservative MP’s who desire Brexit to be delivered through an orderly negotiated deal without further delay.

Consistent with that, the convenors of the Brexit Delivery Group, Simon Hart and Andrew Percy, wrote on 21 February to Julian Smith, the Chief Whip, warning them that its members were inclined to vote in favour of the Cooper amendment to avoid No deal by extending Article 50. If their 50-odd members support the Cooper-Letwin amendment it would likely pass on the back of majority Labour support.

Even more significantly, Remainer Ministers, have put pressure on the PM to rule out No deal before 27 February, some apparently threatening resignation. This weekend three cabinet heavyweights, Amber Rudd, Greg Clark, and David Gauke, expressed, in clear and unambiguous terms, their support for an Article 50 extension.

Others, including the chancellor, Philip Hammond, and the PM’s and hitherto steadfastly loyal deputy, David Lidlington, are probably keeping their powder dry, at least until next month.

If May still does not concede an Article 50 extension, they might well activate that threat, deciding that the time for them to finally bark had come, and by supporting the amendment help to defeat the government they had just left. Such an act of desperation would be to the almost certain likely detriment to their future political careers, which, of course, does raise a question mark over its likely scale and significance.

But to head it off and to prevent a split that potentially could even prove more portentous than that involving the ERG, May could well bow to the inevitable and rule out No deal. A short extension might even suit her as that would tend to concentrate ERG minds on the risks of continuing to reject her deal.

But it is also possible that May will try to persuade her Remainer Ministers and MP’s to give her until 12 March to come back to the Commons with a revised proposal subject then to a meaningful vote: one last kick of the can, before the day of reckoning, when Parliament finally has to decide whether to take control or not of the Brexit process to prevent No deal, finally comes.

3. Second referendum or PV
MP’s are riven into factions, each banking on a result – whether that is No deal, Norway-plus, or a PV – coming to pass as ‘the last one standing’ before the No deal curtain comes down, rather in a bar-room brawl fashion.

Two large segments of MP’s within the Conservative and Labour Party’s demand something that most MPs within the Commons generally, do not want: on the Conservative side, a No Deal exit; and, on the Labour side, a PV.

Without compromise from a substantive number within either or both groups, any alternative to No deal cannot command a stable majority within the Commons.

Apart from only a handful of ‘hard’ Remainers, of which three, Anne Sourby, Sarah Wollaston, and Heidi Allen, have already defected to The Independent Group (TIG) of MPs, most Conservative MM’s oppose a PV.

A larger group of Labour Remainer MP’s do support it as providing a channel to cancel, rather than mitigate, Brexit. The original seven party defectors to TIG, cited Jeremy Corbyn’s failure to support a PV as a catalyst for their decision, accusing him of enabling Brexit, contrary to the expressed wishes of most party members and voters.

Further such defections could follow, if an amendment by Hove MP, Peter Kyle, is not supported and whipped as official party policy. This, intriguingly and tantalizingly, trades acquiescence to May deal for the government allowing a second referendum choice between it and Remain.

But May could not accept it without splitting her party. It appears to be designed to put pressure on Corbyn to accept the principle of a PV, sooner, rather than later.

This website has clearly set out the The Dangers of a Second Referendum, and understands the reluctance of Corbyn and many Remainers including Yvette Cooper – to embrace it.

It very likely would suit Corbyn, and many in the shadow cabinet, for the May deal to pass as the result of Labour abstentions – witness the lack of disciplinary action taken against the eight shadow cabinet ministers who defied the Labour whip to abstain on the 29 January Cooper amendment vote.

Labour could then focus on its domestic transformative agenda, while still blaming any adverse economic consequences on a Tory Brexit.

But if Parliament continues deadlocked, a PV could become the only (but elongated, indeterminate, and quite possibly counter-productive) way to move the log-jam.

An element of chicken and egg, however, is present. A primary reason why there is no parliamentary consensus for an alternative to No deal is the refusal of the proponents of a PV to endorse such an alternative: a going for broke mindset, mirroring that of the ERG on the other pole of the Brexit spectrum.

And Parliament could well still remain deadlocked, this time on determining the, and the order of, the questions, included in the PV ballot paper.

4. Alternative Norway-plus
Norway-plus, involving both an equivalent Customs Union (CU) and continuing UK membership of the Single market (SM), provides the closest possible fit to Labour’s previous six tests, ostensibly designed to secure the same benefits currently obtained by EU membership.

By allowing continuing frictionless trade in goods along with the minimisation of non-tariff barriers for services between the UK and EU, it would best mitigate the economic damage of leaving both long- and short-term, lifting the economic deadweight of uncertainty that currently is depressing business sentiments, investment, and the wider economy. It could be negotiated within the existing WA and transition period timetable.

And, as pointed out in a A Week in December , Norway-plus would meet the requirements of the overarching December 2017 NI backstop, rendering the WA backstop, with its separate regulatory treatment of NI, redundant.

But as also explained, it is unlikely to secure a majority in this Parliament – at least, a sustainable whipped one, in the event that the Commons was allowed to vote on alternatives to May deal.

The Labour leadership can be expected to shy away from whipping its MPs to support Norway-plus, fearing that MPs, at both ends of the party Remainer PV and Brexiteer spectrum, would rebel.

Its official adoption could, and crucially, also allow May to paint Labour as the party of Brexit-in-name-only (Brino) driving a potential parliamentary and electoral wedge between the party’s divergent Brexit constituencies.

Norway-plus, is more likely to muster an unwhipped majority; more so, if MPs had already voted to reject a PV.

Yet, May, as PM, then would be unwilling to progress Norway-plus as head of the government. Not just because of her fixation on migration and ending freedom of movement, but because she could not carry her own party in negotiating it with Brussels.

That could possibly change if she decided to resign, but her potential replacements, even if they willing to tack towards it – would also face heavy internal ERG and party resistance.

A new government with Hunt-Javid-Gove-Rudd at its centre of gravity might at a push take the plunge, but probably only by presenting the option again as a temporary rather than permanent arrangement.

Another general election would appear increasingly unavoidable. If that did come to pass, Labour’s Brexit manifesto stance is likely to be that it would negotiate with Brussels a new deal, broadly in line with its six tests.

If a majority Labour government was subsequently elected, something very close to Norway-plus is most likely what its negotiators would come back from Brussels with to ask the new Parliament to approve.

The burning issue as to whether – and in what form – that agreement should be ratified in a fresh referendum would still need to be settled, if that had not been defined in a fresh 2019 party Brexit manifesto.

5. Revised May deal merging into Jersey

The 6 February Corbyn letter to the PM demanded that the government should change its negotiating red lines within the PD.

This was with reference to five ‘negotiating objectives’ to be enshrined in law before the UK leaves the EU ‘to provide certainty for businesses and a clear framework for our future relationship’, including:

• a permanent and equivalent CU involving UK adherence to the EU customs code, the common external tariff, and commercial policy – subject to the UK having some ‘say’ in the detail of future trade deals; and continuing UK:
• ‘close alignment’ with the Single Market (SM); and,
• ‘dynamic alignment’ with EU worker, environmental, and consumer rights and protections, ensuring that such UK standards, as a minimum, keep pace with evolving standards across Europe, while providing scope for the UK to ‘lead the way’.

The letter fell short, however, of demanding full and continuing UK dynamic alignment with SM rules for goods. That, as a minimum, if full frictionless trade in goods between the UK and EU is to be maintained, would have to be combined with the equivalent CU that it did set out. The combination defines the Jersey option.

Its adoption, if sought within a revised PD, would then depend upon the EU further softening its core red-line on the indivisibility of the four SM freedoms. A very big ask.

Yet, to avoid a No deal exit that would itself would risk the re-imposition of a hard NI border, the EU could possibly bend at the last negotiating moment. It could even offer concessions, providing some prospect an independent UK trade and migration policy sometime in the future. That is far from certain, however.

Downsides of the option for the UK, in any case, include the economic cost of the loss of EU market access for services.

Norway-plus would also achieve frictionless trade in goods, much more surely and seamlessly.

More pertinently at a domestic political level, the adoption of full Jersey would require May, not only to merge with the official Labour Party position on the CU, but to dynamically align with EU regulations concerning goods, splitting her party. Is official adoption does not, accordingly, appear to be a runner, at this stage.

More likely is some government tweaking towards it in substance, if not stated intention. A longer transition period could be agreed that with an Article 50 extension extending beyond a May 2022 election date; keeping the UK, in effect, within a CU and SM until then.

A revised Political Declaration (PD) could also offer some genuflection to Labour’s position, particularly with dynamic alignment on standards.

The PM will need to delimit the precise offer required get enough added Labour abstentions and Conservative votes to offset the official Labour, Scottish Nationalist, and TIG opposition, which will joined by ERG hardcore rebels, numbering in all likelihood between 30-80.

If their number settles closer to 30, she could have a chance. The Private membership lists of the different ‘tribes’ of the Conservative Party, recently obtained by the Financial Times, suggests that if the existing Conservative payroll and existing Brexit group are joined by unaffiliated MP’s, such as Oliver Letwin, the government would harness just short of 220, requiring it still to capture a substantial mix of ERG returnees to the government fold with Labour votes and abstentions.

Even if a majority reliant on cross-party unwhipped votes is secured by a whisper, it would be an unstable one to base the piloting of the Withdrawal Bill and associated legislation through Parliament.

The WA backstop with its separate regulatory treatment of NI would also continue to hang over subsequent negotiations with the EU as a Sword of Damocles, perhaps, ruling out the DUP support.

It is, accordingly, quite possible that if a bare parliamentary majority was obtained for such a tweaked May deal, it could then be offered for ratification either through a general election or a yes/no binary referendum choice.

But if that principle was conceded, pressure would be intense for it to include Remain and No deal options.

Is there a way out?

With Brexit, the only certainty is uncertainty. The 60’s puppet show, Thunderbirds, always began with the clarion call that ‘anything can happen in the next half hour’: true for Brexit also, especially if the period is extended a bit.

Most MPs believe that a disorderly No deal should be avoided, but no majority exists as to how.

At one pole, hard-Brexiteers committed to what to they consider is a ‘clean’ No deal Brexit, are concentrated into the ERG faction within the governing party.

At the other, a similar number of hard-Remainers, wedded to a PV reversing Brexit altogether, are concentrated within the main Labour opposition.

Some MP’s representing often marginal constituencies, concentrated in the North and Midlands, that voted to leave, often by a large margin, will vote against any official backtracking on the 2017 manifesto commitment to respect the 2016 decision.

This polarisation within the parties between No deal and a PV has prevented a convergence towards a soft Brexit compromise that could secure a stable parliamentary majority, sustained by cross-party whipping.

The PM chose not to court cross-party support out of the real fear that would split her party; the Labour opposition, in turn, has resisted actually promoting a soft Brexit alternative to the government position that could best meet its six set tests, for fear that it would be accused both of supporting Brino – with continued EU control over UK migration and trade policy – and of betraying the 48% of who voted to stay, upsetting two key electoral constituencies that it will rely upon to secure power.

Both parties agreed to trigger Article 50 and to ‘respect the decision of the electorate to Leave’ in the 2016 referendum.

Subsequently neither Front bench has been honest about the trade- offs involved between taking ‘back control’ and protecting future UK economic prospects. A failure not unrelated to the fact that many of their respective supporters voted to leave out of ‘gut’ or ‘populist’ instinct, not ‘rational’ economic calculation.

Certainly, the parliamentary and mainstream media debate has seldom focused on evidential realities. The retention of an open border in Ireland, without the separate regulatory treatment of NI, requires the UK to continue within an equivalent CU with the EU combined with some measure of continuing dynamic regulatory alignment for the currently foreseeable future that cannot be time-limited.

Or the limited – at best – prospect of the UK negotiating free trade deals with the rest-of-the world could compensate for the loss of frictionless trade with its nearest trading partners, especially within a globalized world where regionally-based trading bloc agreements  have become predominant.

That failure contributes to continuing deadlock.

This spring, a deal tweaked towards a continuing CU and regulatory alignment in substance, if not stated intention, if combined with a limited Article 50 extension to May, seems to provide the politically most feasible route to secure at least an unwhipped parliamentary majority for a revised PD to be taken back to Brussels for negotiation linked to some tinkering of the wording concerning the NI backstop.

If that majority proved too unstable for the withdrawal legislation to be piloted through Parliament, the cliff edge would return. If Article 50 had to be extended again, a second referendum with all of its attendant dangers as well as opportunities, would appear inevitable.

Not Norway-Plus for Now: perhaps later

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Often when the police appeal for information to solve a notorious crime they make the point that circumstances, allegiances, and loyalties change.

It has turned out to be true also for parliamentary support of the ‘Norway’ option: shorthand for continuing and permanent post-Brexit UK membership of the European Economic Association (EEA).

Hardcore Remainers, seeking the softest of Brexits, initially promoted it: for example, Labour Campaign for Single Market.

That changed last autumn when Conservative MP, Nick Boles, founder of the influential Policy Exchange think-tank and a close confidante of Brexiteer but latterly loyal Cabinet apologist for May’s deal, Michael Goves,  in an attempt to provide an escape from parliamentary deadlock moved it mainstream.

The twist made was that the UK should rejoin the EEA on Brexit day – but only for three years – and enter a ‘temporary’ customs union with the EU that day also, without a transition period. Its new moniker, Norway for Now, reflected its expected transitory nature.

This website in  Jersey rather than Norway-Now dismissed it as a red herring. This was for three main reasons.

First, it proposed a temporary holding pen or a marriage of convenience to provide breathing space for a former EU (but now an EEA) member that wanted to put into place a comprehensive replacement bilateral free trade agreement with the same trading bloc that it had just left. This was not the purpose of the EEA.

Second, the EU’s Northern Ireland (NI) backstop red-line meant that it could not be time-limited.

And, third, the mechanism identified for the UK to join the EEA applying to become a member of the European Free Trade Association (EFTA), on the face of it, appeared also incompatible, or, at least, inconsistent, with the UK remaining in a Customs Union (CU) with the EU.

Nor could it be expected that special arrangements for the UK for a temporary and time-limited period of membership, in contrast to one offering a continuing and progressive template for a long-term replacement trading relationship, could be agreed with the EU.

The ground shifted during November, however. Boles addressed the above flaws, at least in general, if not specific, terms.

The proposed arrangement was made indefinite or even permanent, not temporary and time-limited. It contained an continuing and equivalent CU with the EU that could obviate the need for rules of origin checks on goods passing between the UK and EU. Special status and related derogations capable of reconciling continuing UK participation in a CU with the EU with that of the status of EFTA as a dedicated free-trading bloc outside it was recognised as necessary.

Norway-for-Now morphed into indefinite Norway-Plus (as termed hereafter in this post). Its main selling point was that it could offer the economically least damaging Brexit.

This was a product of its retention of the four freedoms of the single market (SM): free movement of capital, people, goods, and services between the member states.

The other side of that same coin required the UK to become an indefinite rule-taker of the EU with only limited say in framing future SM rules, including those impacting upon its financial sector, unless, in the unlikely event, that special additional provisions could be negotiated during the reinstated transition period.

Nor could the UK progress and implement an independent trade or migration policy. Substantial budget contributions to Brussels would also continue.

Early in 2019, ait was repackaged – or, at least re-labelled – it as Common Market 2.0 in a pamphlet jointly authored by the Conservative MP for the Essex town of Harlow, Robert Halfon – often portrayed as the parliamentary champion of ‘white van’ Conservatism – and, Lucy Powell, centrist and staunch Remainer Labour MP for Manchester Central, a northern 2016 Remain-voting redoubt.

No doubt this confluence of political backgrounds was chosen to court support from both Leave and Remain supporting MP’s from both main parties, especially those representing Leave-voting constituencies.

Its title was also emblematic, heralding a return to the commercially led principles of the original common market – in effect, CU – of the European Community (EC) that the UK had joined back in 1973, a decision endorsed by a wide margin in the 1975 referendum. It also conveyed an accompanying antipathy to the progressive political integration of member nation states within an enlarging EU since progressed by Brussels.

The authors made efforts to explain how UK membership of the EEA could possibly provide mechanisms to control free movement from the EU in certain defined circumstances, additional to the actual implementation of powers that are (were) available to the UK as an EU and SM member, such as requiring migrants to obtain work within a stipulated period, but unused by the May and previous governments.

They also highlighted that the UK could reduce its budget contributions to c50% of the current level. The prospect that ‘sometime in the future’ it could negotiate its own independent trade deals was also held out.

The revamped version still struggled, however, to grab the parliamentary and media limelight. The 29 January mandation by the Commons of the Prime Minister to renegotiate the NI backstop element within the Withdrawal Agreement (WA) suggested the prospects of Norway-plus attracting a majority in this Parliament, never high, would recede further.

The reasons for this are explored further below.

Opposition of Hard-Brexiteer (HB) Tories
The parliamentary HB bloc is broadly coterminous with the European Reform Group (ERG) faction within the Conservative party. The 117 MP’s who voted no confidence in Mrs May during that momentous week last December are a broad proxy for that HB tendency. It will not vote for the softest of Brexits.

And it is difficult to see how Mrs May, given how completely and tightly that she has chained herself to the mast of ending free movement, her reddest of red lines, could stay on as Prime Minister (PM) to preside over Norway-plus.

Besides, it has become quite clear that her over-riding priority is to prevent an epochal shattering of the Tory party, not minimising the economic damage of Brexit: the main advantage of Norway-plus.

Supporting it would serve as a red rag to the HB parliamentary faction on the Conservative benches, and alienate the majority of Conservative party members who support a No deal exit. It is their political pulse that she has have always prided herself on understanding.

It is that rump and increasingly elderly membership that will choose the next Conservative leader. Possible future leadership contenders will need to take account of their HB worldview: pace Savid Javid’s and Jeremy Hunt’s expressed recent ambivalence towards a No deal outcome. This reflects their need, as potential candidates, to triangulate against their grassroots party-pleaser and Brexit opportunist rival, Boris Johnson.

In such a context, they are likely to calculate that it is not in their personal political career interest to tilt towards Norway-plus.

Fragmentation of Soft Brexit support into opposing factions
The weakness and incoherence of the government’s Phase 2 negotiating strategy and then its subsequent and related inability to garner anything even approaching a parliamentary majority for the deal it negotiated with Brussels (the May Deal), induced confidence among a growing number of Remainer-inclined Conservative and Labour MPs that a second referendum could provide a means to cancel Brexit together.

Soft-Brexit variants, Norway-plus in particular, designed to mitigate its economic damage, were rendered less appealing, even redundant, as a consequence.

Individual examples include, on the Conservative side, Anna Soubry. She, as noted in Sourby’s Norway-plus Approachback in February 2018, had been an early and pioneering proponent of Norway-plus, but during the course of the year changed instead into an ardent ‘People’s vote’ proponent. So did some prominent Conservative Remainer rebels, such as Dominic Grieve, former Attorney General, and Sarah Wollaston, chair of the powerful Common’s Liaison Committee.

On the Labour side, prominent soft-Brexiteers, previously sympathetic to permanent EEA membership, such as Chuka Umunna – a founder member of the Labour Campaign for the Single Market grouping, became more and more lukewarm in support, perceiving that continuing SM membership lacked a parliamentary majority.

They, too, became leading lights of the People’s Vote campaign, encouraging colleagues, such as Mike Gapes, to dismiss ‘Norway-plus ‘as a ship that has already sailed’.

Ben Bradshaw, another Labour Campaign for Single market founder member, and vocal critic of Jeremy Corbyn, perhaps encapsulated that tendency when, during the first 14 January Commons debate on the May deal, he declared that he preferred to ‘bet’ on a second referendum to reverse the June 2016 Brexit decision, to secure, in effect, a full glass Remainer victory, not a glass half-full or-empty Norway-plus soft Brexit compromise. Such a ‘worst of both worlds’ compromise was as ‘pointless’ by ex-PM, Tony Blair, a view echoed by many other ‘People’s vote’ champions.

Labour opposition to continuing freedom of movement (FOM).
Some MPs representing Leave-voting constituencies where immigration was touted to have been a major factor, many of which are Labour-held marginals in the North and Midlands, will oppose an option retaining, to all intents and purposes, FOM.

For related reasons, the Labour front bench can be expected to resist whipping its own MP’s to support Norway-plus as the ‘something’ that Parliament will need to prevent No deal, extension or no extension to Article 50.

Whipping, not only could alienate much of the party’s hardcore Remainer membership base, wedded as they have become to the perceived lifeboat escape from Brexit that a ‘People’s vote’ potentially offers, but could enable the PM to partially unite her party behind her by painting Labour as the party that supports a Brexit-in-Name-Only (Brino) and continuing FOM in particular.

Gravitation of the Agnostics towards May-deal.

The amendment that Yvette Cooper, former Labour Cabinet and shadow Home Secretary, supported by Nick Boles, moved on 29 January, requiring the PM to seek an Article 50 extension, was defeated by 23 (321 to 298) votes. Instructively, despite winning Labour whipped support, it fell because of Labour votes against and abstentions that included no less than eight Corbyn shadow cabinet members.

17 Conservatives supported the amendment and three abstained, including the erstwhile and hitherto indefatigable, Norway-plus supporter, Nicky Morgan. She pivoted to support the Brady amendment, while promoting the so-called ‘Malthouse Compromise’.

It suggests that although the ‘agnostic’ group of MPs, as the No Deal cliff-edge becomes ever-closer, could well grow, such members will tend to gravitate towards a May-deal variant in preference to Norway-plus.

Perhaps later: When?
Here and now, Parliament will need to agree to ‘something’ by early March, if an economically and socially disastrous No Deal exit is to be avoided.

That ‘something’ could be nothing more than to ask the EU to extend Article 50 into the summer. That would only delay the day of reckoning, however. It is, for that reason, unlikely to be granted by Brussels without conditions that might well include a timetable for Parliament to resolve on an agreed option.

In that event both Front benches might well conclude that the best way to avoid No deal, whether disorderly or partially managed, without splitting their parties, leaving a dangerous electoral hostage of fortune for them, would be to provide leeway to MP’s to vote according to preference, lifting party whip.

That might open-up a refreshed window of opportunity for Norway-plus.

To muster a parliamentary majority would presuppose, not only added support from Remainers – many of whom are wedded to a second referendum – but also from the MPs across both parties, who – above all and anything else – desire to see Brexit delivered without further unnecessary and prolonged ado and damage. As noted above, the numbers of this ‘agnostic middle’ can be expected to rise as the No deal cliff edge approaches ever-closer, but will not necessarily gravitate in favour of Norway-plus.

But, besides, Norway-plus cannot realistically be taken back to Brussels for re-negotiation, if it is simply the product of an unwhipped vote that will not or cannot be sustainably supported and progressed by the executive. It will continue to be led by Mrs May or a Conservative successor, unless a general election or a change in government subsequent to a successful no confidence vote occurs.

Back around the same circle, then?

Perhaps. The most feasible scenario in which Norway-plus could become the successor arrangement appears to be one where Labour formed a parliamentary majority, following a snap general election precipitated by continuing parliamentary deadlock, and as the government it promised to go back to Brussels to negotiate a deal aligned to its six tests. Some variant of Norway-Plus was what it then could best come back, to be ratified by a second referendum.

In such circumstances, the referenda choice conceivably could be between Norway-plus and Remain, but such a restricted choice would provide a dangerous and uncertain political path to navigate.

A Week in December

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On Monday 10th December, cabinet ministers confirmed on breakfast-time radio that the scheduled Commons ‘meaningful vote’ on the Draft Withdrawal Agreement  (WA) would proceed the next day.

By lunchtime that vote had been pulled. This was to prevent its defeat on the floor of the Commons by a large enough margin to topple the Prime Minister (PM).

By Wednesday evening, May had faced and won a confidence vote in her leadership, albeit with 117 of 317 of her own MPs voting against her.

By Friday, her attempt to persuade EU leaders to provide sufficient comfort to the Ulster Democratic Unionist (DUP) members and the 80-100 Conservative hard-Brexiteers and European Research Group (ERG) MP’s within her own party to time-limit the Northern Ireland (NI) backstop provisions within the WA, or, at least set out a route map with legal standing as to how it could be escaped, had demonstrably failed, notwithstanding some vague assurances that its activation was not desired and that ‘further clarifications’ could follow.

On Monday 17 December, the PM confirmed that the meaningful vote will take place in the week of January 14. Debates on her deal would restart in the week of January 7, when MP’s return from their Christmas break.

Her 2018 December Summit line was reiterated: political and legal assurances on the WA Northern Ireland (NI)backstop line would be sought from Brussels.

The reasons why the WA backstop is futile and misconceived and contrary to the overarching NI backstop that she agreed to in December 2017 are set out and discussed below.

Her game plan still appears to go to the wire to put pressure on MP’s of both parties that simply want done with Brexit, avoiding both a second referendum and a No deal departure.

After the inevitable defeat in parliament, the government will have 21 days to report back as to how it intends to proceed, providing opportunities for MP’s to debate, put forward, and perhaps even secure majority support for one of the alternative options, discussed earlier. That period will end in mid-February.

That process is likely to be interrupted by an opposition no confidence vote in the government. Jeremy Corbyn will table a vote of no confidence in the PM today (Tuesday 18th December), but whether it will take place is uncertain.

Understanding the NI Backstop
This was defined in Section 49 the UK-EU December 2017 Joint Agreed Report on the Phase 1 Negotiation process, as follows.

The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship.

Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland.

In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement’

It is that commitment in the last paragraph of that provides an overarching NI backstop.

Coupled with the government’s (and widely supported) blood-red line ruling out an Irish Sea regulatory border and/or specially agreed other arrangements for NI, that NI backstop meant and continues to mean, in effect, that the UK would need to: (i) stay in an equivalent CU with the EU; and, (ii), cede continuing regulatory alignment with the EU for goods, at the very minimum, for the foreseeable future.

As explained in The May Agreement, the WA backstop, if activated, would not allow frictionless trade between the EU and UK to continue. The WA relies instead on the operation of a separate regulatory treatment regime for NI.

For that reason alone, it is difficult to discern how it could never be accepted by parliament without jettisoning the overarching principle of the December 2017 NI backstop.

Any reliance that a future trade deal will render that WA backstop unnecessary is a mirage.

Close to unanimous agreement exists among informed commentators that the time-frame for putting in place an alternative trade deal would extend far beyond 2020. Recent EU trade negotiations have taken far longer to negotiate and ratify. The Canadian Free Trade Agreement (CETA) took over six years.

To expect the UK to conclude an agreement with the EU, more comprehensive and deep than the Canadian one, in less than two years is widely unrealistic.

And that is after taking on board heroic assumptions that all the negotiation stars are all aligned to produce a treaty within, to all intents and purposes, 18 months.

It then has to be approved by the EU national and, as required, by some regional parliaments, such as Wallonia in Belgium, without, as the UK Trade Observatory recently put out, any quibble and delay.That proved not to be the case with both the recent EU Canada and Ukraine agreements.

Cutting to the chase, a future UK agreement is not going to finalized and approved soon enough to render the WA backstop, or an extended transition, unnecessary. Full stop. To assume otherwise is either dishonest or self-delusional.

Besides it remains unclear how a replacement Canada-style agreement could ever avoid the re-imposition of a hard border within Ireland. Technological fixes that could allow the UK to levy differential tariffs on imports depending on their ultimate destination will not come to the rescue in the foreseeable future, if ever.

In that light, Parliament’s unanimous December 2018 Brexit Select Committee report re-affirmed that a Canada-style agreement with the EU would not, on its own, ensure the type of friction-free trade with the EU that many UK companies with just-in-time manufacturing supply chains need, concluding that it is not a viable option, insofar that:

‘the commitment to avoiding a hard border enshrined in the Withdrawal Agreement will continue to shape the future relationship between the UK and the EU because it will not be possible for the UK to decide on customs and regulatory arrangements which negate that commitment’.

A time-limited NI backstop is a contradiction in terms, therefore, and can never be accepted by the EU in a legally tangible form within the current or any amended WA..

What should happen next?

The Hard-Brexiteers who voted no confidence in the PM on Tuesday, in any case, will not be persuaded to support the WA. They seek instead a disorderly no deal exit occurring by default, regardless of its impact.

The WA can now only pass Parliament with some measure of Labour support. The PM to secure it will need to tilt at the very least the Revised Political Declaration  (PD) towards a more permanent Customs Union (CU) and greater on-going regulatory alignment with Single Market (SM) rules.

But she continues to be boxed-in by the malign influence on the government that the hard-Brexiteers can exercise. This is through their power to determine the parliamentary selection of the two candidates to be submitted to the hard-Brexit-leaning rump party membership for the next Conservative Party leadership contest.

If either No deal or a second referendum is to be avoided, she must break out of that box and find a way to secure cross-party support for an option acceptable to the majority in parliament, with or without Labour whipped support, that will preserve an open border within Ireland.

Her difficulty is that could risk the break-up of the Conservative party in parliament, rather like the Liberals did over Irish Home Rule in the nineteenth century.

But, if she doesn’t, Tory Remainers are quite likely to jump ship at the prospect of a rigid, and, ultimately, an unelectable government beholden to the hard-Brexiteers and their accompanying neo-liberal economic and social policy agenda.

It did not help that some EU leaders were indicating post-December summit that they would still like to give Mrs May some comfort concerning the application of the WA backstop to help her to secure a parliamentary majority. That is a forlorn hope that will encourage May to extend the impasse or the agony, rather than to cut her losses and strive to strike a deal with MP’s.

The Labour front bench needs now to act in the national interest and hold Mrs May to account properly by highlighting her capture by – in the words of her own chancellor – extremist hard-Brexiteers, who are wedded to a no deal exit that would cause at very least considerable short-and longer-term damage to the economy, household incomes, and the public finances, undermine and even destroy the foundations of the Good Friday Agreement, before ushering-in a neo-liberal race to the bottom inducing greater inequality in market incomes amid further welfare state retrenchment.

May messed up by going back to Brussels in a self-defeating exercise to secure concessions bending to that destructive faction, living the lie that an alternative deep and comprehensive trade deal consistent with her December 2017 NI backstop commitment is negotiable with the EU within a time-limited period.

The only way, indeed, that a border within the island of Ireland and separate treatment of NI to the rest of the UK can be avoided and the industry supply chains integral to the protection of UK manufacturing industry and employment can be protected and fostered is by the maintenance of frictionless trade between the entire UK and EU.

That, in turn, as this website has consistently argued, requires an equivalent CU with no rules of origin checks along with continuing UK regulatory alignment with SM rules for goods  – at least until institutional and technological means can be identified and implemented that will allow the UK to levy differential tariffs on imports, depending on origin and destination.

The real impact of Brexit and the actual choices that are available continue to be obscured in the mainstream media Brexit debate, reflecting not only the government’s, but also Labour’s failure to demonstrate through forensic precision and focus that:

  • The current WA backstop, whether time-limited or not, is incompatible with the December 2017 overarching NI backstop;
  •  A comprehensive and deep economic partnership with the EU cannot be achieved in the short-to-medium term through the agreement of a Canada-style FTA;
  •  The future benefits of any future UK trade deals with the ROW will be miniscule compared to the economic damage inflicted by loss of frictionless trade with the EU;
  •  Frictionless trade, in turn, depends upon the maintenance of an equivalent CU with no rules of origin checks and continuing UK regulatory alignment with SM rules for goods into the foreseeable future.

The time for tactical posturing is over if either no deal or a divisive and, for the reasons discussed  in The Dangers of a Second Referendum quite possibly destructive second referendum, are to both avoided.

The Labour front bench needs to be up-front and hammer home each of the points above – evidenced by the government’s own published documents and supported by the mass of independent expert opinion – not only in the national interest, but for its own wider electoral and strategic political purposes.

Each potentially commands a majority in parliament, and could be subscribed to by at least a significant minority in the cabinet.

Informed political and media focus on them will help to drive a wedge between the sensible majority in parliament and the hardline ERG faction, who continue to peddle their no deal exit vision by falsehood and misrepresentation – for example, it would be feasible for the UK to unilaterally declare tariff-and quota-free access to EU imports.

Such a wedge would assist the government to tilt towards the Labour position and at least increase the likelihood of an agreement acceptable to the parliamentary majority being agreed that could then be taken back to Brussels.

It would also help to define the dividing lines for any second referendum process in the event that transpired as the only alternative to no deal, and would begin to set them also for the next general election, whenever that happens.

The Dangers of a Second Referendum

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The ‘People’s Vote’ campaign has steadily built some momentum – at least within the rank of Remainers – for a second referendum to include an option to Remain. Their clarion call is that details and impact of Brexit were unknown in June 2016 and the electorate has the right to decide anew, now that the implications and impact of Brexit has become clearer, at least in broad terms.

A second referendum has been consistently rejected by the government, however, pointing out the people in the first referendum voted by a clear, if modest, majority to Leave, and that its job is to effectively execute that decision.

It would certainly be problematic in design and indeterminate in outcome. Referendums involving a politically contentious nation-changing decision really need to offer a binary choice between two options.

They are employed ideally to legitimize a once-and-for-all complete change or revolution in governance or social practice arrangements, such as the transformative move to democratic majority rule in South Africa, or the introduction of divorce in countries, where previously it was prevented.

The 2016 referendum, however, was convened mainly to manage internal Conservative party dissension, and was to all intents and purposes, unnecessary.

The actual vote in that referendum was found to be correlated with age and education. It undoubtedly was also influenced, not only by such social-economic factors, such as inequality and perceived social and political exclusion, but also cultural factors linked to community and class, not necessarily related to EU membership,  including immigration and refugee dispersal.

Any second vote would also be influenced and probably decided by such proxy factors, sometimes only loosely related, if at all, to the pros and cons of each ballot paper choice.

Non-binary choice referenda become complicated, producing results that can reflect tactical voting, the order or permutation of the questions, or the intention of the framers of the questions, rather than indisputably the actual preference of the majority.

Leaving aside for a moment that hard-Brexiteers oppose the idea of a second referendum on the ground that the issue has already been decided, but, if it was conceded by parliament, they, for example, can be expected to agitate for a choice between No Deal and the May Deal, because that is the permutation most likely (but uncertain) to deliver victory to them.

By the same token, Remainers relish a binary choice between Remain and either no deal or the May deal, as current polls suggest a Remain majority over both.

If an alternative vote (AV) system was used, where voters are asked to make a first-and second- preference, with their second preference votes counting if no option obtains more than 50% of first preferences and their first preference option is eliminated, the May Deal could win, even when both Remain and Leave options were able to secure more first choices but more than 50% of the total vote. Polls can change, of course.

Most MP’s reject No deal. They could decide to exclude that option as simply too damaging and thus not in the national interest option to offer the people in a referendum, and decree that choice should be between the May deal and Remain.

Logically, however, that is little different to parliament taking the entire decision on behalf of an electorate, not trusted to make the ‘right decision’ because it could decide in favour of No deal, notwithstanding its expected dire economic impacts. That decision could be the result of the electorate placing a higher weighting on sovereignty (perceived or actual) or be the product of the proxy factors discussed above, or a mixture of both.

A second referendum undoubtedly would be divisive. Committed Remainers and some Brexiteers, as noted above, now increasingly see it as a ‘going for broke’ option, where their best outcome, cancellation of Brexit for the former, and ‘No deal’ in the case of the latter, can be achieved.

As Daniel Moylan, a former adviser to Boris Johnson, noted at an Institute of Government seminar last week, its proponents tend to promote it to solely to secure a desired outcome rather than because of their commitment to the process itself.

It is not surprising therefore that there has been little evidence of either camps engaging with the arguments of other. A simple re-run of June 2016 would be a bit like a referendum in Belgium being convened to decide if the national language should be Flemish or French, after a narrow victory of one or the other could not be translated into actual arrangements that were politically acceptable and sustainable.

Nor would a simple binary choice between Remain and Leave, if Leave was subsequently confirmed, settle the terms for the UK’s departure: back to square one minus x, then.
On the other hand, a flip-over in favour of Remain would induce claims of betrayal by up to 49% of the electorate who voted to Leave across both referendums, risking the further estrangement of a huge number of people from the political process and associated political and social instability.

Many Cabinet ministers and MP’s across the party divide share that concern and for that reason have hitherto been most reluctant to go down the route.

Moreover, no guarantee exists that any alternative option to the May Deal that required re-negotiation of the Withdrawal Agreement (WA) would be accepted by the EU in the form envisaged, giving rise to the prospect of a third vote becoming necessary when the detail of any final negotiated revised deal became available.

The details and impact of other possible Leave options, such as a stand-alone trade deal would also not be known.

Framing and finalizing the actual details of the referendum questions would be as, if not more, contentious, and as likely to be deadlocked, as the current parliamentary impasse has proved to be.
Logistically, its organization and delivery could take up to six months. Parliamentary business would continue to be gridlocked by Brexit, and the economy further undermined by uncertainty.

The majority of MP’s could conclude that the fundamental interests of the four nations of the UK required the cancellation of Brexit, and then act on the courage of their own convictions as elected representatives of the people and resolve to revoke Article 50 and the withdrawal legislation already on the statute books.

In that case, they would, however, be accused of ignoring the expressed will of the people as expressed in the first referendum. Undoubtedly some who voted Leave would feel betrayed and robbed of their Brexit by the distant Westminster establishment, leading to an even greater risk of political and social instability.

That danger could, however, possibly be mitigated by a concentrated communications exercise explaining their decision was taken, accompanied by a strategy to tackle the causes of Brexit, such as the upskilling of indigenous workers: things that need to happen anyway.

It is not really conceivable a simple revocation of Article 50 to cancel Brexit would be taken up by either the Conservative or replacement Labour government, without prior recourse to a referendum, although they could ask the electorate to ratify the revocation after the event: an uncertain outcome.

Facing continuing deadlock, May could ask the electorate to approve or the WA agreement. Hilary Benn at the same IOG seminar indicated that it might be convenient for both front benches for May to take her agreement direct to the country.

If the point was reached where her deal was rejected by the Commons and the lack of majority parliamentary support for any alternative option threatened No deal by default, and a no confidence motion had been defeated, most bets are on the Labour front-bench swinging in favour of a second referendum.

That would not necessarily translate into a parliamentary majority for a second referendum, but given the looming reality of a no deal exit and with other options exhausted it might become difficult to identify an alternative outcome, save for MP’s to vote in a temporary Government of National Unity to go back to Brussels to re-negotiate a revised May Deal more in line with majority preferences of both parties, but the prospects of that appear dim.

An understanding of the dangers of the drawbacks, uncertainties, and risks involved in a second referendum might help to concentrate parliamentary minds in mapping out a process to an agreement that that could be sustained in Westminster and Brussels, however.

May’s Contradictory Deal

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The Draft Withdrawal Agreement (WA) The Draft Withdrawal Agreement was published on the 14th November accompanied by a  Revised Political Declaration on the 22nd November (the May deal or agreement).

The Northern Ireland and Ireland Protocol of the legally binding Withdrawal Agreement (once approved and ratified) provides for a NI backstop that diverges in both principle and spirit from that defined in December 2017.

It is thus termed, here, the WA backstop, to differentiate it from the overarching NI backstop.

A common customs territory is created, where no quotas or tariffs would be applied on goods circulating between the UK and EU. It is not comprehensive, however, failing, for instance, to make express provision for road haulage or agri-food movement (services), the absence of which would result in bottlenecks and delays at the UK-EU border.

Even more crucially, the WA backstop does not provide for continuing regulatory alignment at the UK-level for goods, which is also necessary if continuing full frictionless trade between the UK and EU is to be maintained.

In order to maintain an open intra-Ireland border additional provisions are made within the WA that will apply to NI only and not to the rest of the UK.

These include NI’s full adherence to the EU Customs Code and its continuing regulatory alignment with SM rules with respect to the technical standards of goods, to sanitary and phytosanitary measures relating to animal, plant and food safety, to environmental protection, to agricultural production and marketing, and to rules relating to VAT and excise in respect of goods, and to state aid.

The European Court of Justice (EJC) will continue to exercise direct jurisdiction over the application and interpretation of these rules.

NI, in effect, would be treated differently to the rest of the UK under the WA backstop, making it impossible for the DUP to support the agreement.

It will become operative at the end of the transition period on 31 December 2020, until when the UK will continue to apply full CU and SM rules, unless alternative other arrangements that are consistent with an open intra-Ireland border are put in place.

Otherwise the transition period is extendable by mutual agreement for up to a further two years until December 2022, subject to the government requesting an extension by 1st July 2020 and then its subsequent approval by the Joint Committee that will be set up to oversee the WA.

The government’s expressed intention is that the WA backstop would be rendered unnecessary by the UK entering into a subsequent agreement with the EU that would establish a future ‘deep and special future economic partnership’ between them.

To that end, the WA shoulders a joint ‘best endeavours’ duty on both parties to finalise such an agreement.

More specifically, Article Two of the Ireland and N.Ireland Protocol within includes provision for specific ‘best endeavours to reach a future agreement which supersedes the WA backstop by December 2020’ to be made.

When activated the WA backstop arrangements would then, according to Article One of the same Protocol, continue indefinitely “unless and until they are superseded, in whole or in part, by a subsequent agreement”.

The current draft of the WA does not include any time-limit on, or for any right for the UK to unilaterally exit the backstop after it comes into operation; nor does it define in which precise circumstances when it would no longer apply.

The UK commits to continue to adhere to EU State Aid and Competition Policy, and not to dilute existing EU social, labour, and environmental standards – the so-called non-regression clause, with provision is also made for both parties to jointly agree to raise them.

No provision is made in the WA for services at either the NI or the UK level. Nor is provision made for the UK to benefit from existing and new trade agreements with third-party countries.

Turning to the accompanying non-binding PD, no mention of frictionless trade is made, even though the original version published on the 14th November did, indicating the fluidity of the document and the PM’s tacking to her party’s hard-Brexiteer faction in response to their initial hostile reaction.

It, however, does air the possibility of using technological fixes and ‘trusted traders’. This suggests that government may hope to resurrect the Facilitated Customs Arrangement (FCA) included in the 2017 Brexit White paper to build and improve on the barebones customs union set out in the WA.

That FCA was considered and ruled-out as unworkable by the EU during the WA negotiations. For reasons explained in https://www.asocialdemocraticfuture.org/2018-brexit-white-paper/and little has changed since then, other than the political environment within the Conservative party.

The PD gives emphasis to the development of an independent trade policy with reference made to a future (trade?) agreement ‘that will obviate the need for checks on rules of origin’.
Such an outcome, however, assumes either the maintenance of the EU’s Common External Tariff (CET), or undue reliance on a future technological fix that would allow the UK to levy differential tariffs without border formalities.

The government conceded in Section 181 of its  November  Explainer on the Draft Withdrawal Agreement that, indeed, ‘The (WA) text reflects the UK’s commitment to align with the EU’s Common External Tariff, and with the Common Commercial Policy on trade in goods with third countries to the extent necessary give effect to these (WA backstop) provisions’. But to do that would probably prevent the UK negotiating, and certainly bringing into effect, its own trade deals with the Rest-of-the-World (ROW), save for services.

The government has been, therefore, caught facing in different incompatible directions, when explaining the WA. It will continue to do so, thus undermining its own position, until that it is made consistent and fit for purpose.

Such basic confusion, reflecting the conflicting internal party pressures within the Conservative Party, hardly augurs well for any expeditious trade negotiation process that can culminate in a 2020 trade deal. That, of course, in any case, assumes that the May deal is approved by the House of Commons next year, which it won’t, at least in its current form.

Jersey rather than Norway-now.

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The phony war between the EU and UK ended in October. Brussels made it clear that the Northern Ireland (NI) backstop – continuing adherence to EU customs union and single market requirements for goods sufficient to prevent the return of customs controls on the inter-Ireland border – meant precisely that: one indefinite in duration, spatially specific to NI, involving a regulatory border down the Irish Sea; at least, if and until UK-wide arrangements are agreed during the subsequent ‘future relationship’ negotiations.

Mrs May on her part re-affirmed that Westminster could never accept such a splitting of UK customs territory. She offered instead to extend the transition period, during which the UK would, in effect, continue to be part of the EU-wide Customs Union (CU) and Single Market (SM), beyond December 2020, while insisting that it should still be time-limited to end before 2022 – when the next election is due in accordance with the Fixed Term Parliament Act and rejecting any specific NI ‘backstop within the backstop’.

These respective red-lines are, of course, incompatible. They must give if a calamitous no deal exit is to be avoided. The UK parliament will not approve a WA that involves an Irish Sea regulatory border, which, in any case could itself infringe the 1998 Good Friday agreement, at least in spirit.

On the other hand, a time-limited backstop constitutes a contradiction in terms: it will not be infringed (or, put another way, be required, or be necessary) while trading arrangements that obviate the need for NI border infrastructure are either maintained or are committed to into the future by formal treaty within interruption; the problem is that the date when any such future agreement could be made is unknown.

Three key points need to be borne in mind. First, the WA is legally binding and needs a super-majority vote approval by the EU27 members; it then will be subject to a ‘meaningful’ vote in the UK Parliament. But the accompanying political declaration plotting the future economic and political relationship between the UK and EU, is not. It can therefore be vague and aspirational in a way that the WA as a precise legal document cannot. Second, any replacement Canada-style comprehensive trade agreement is likely to take years to put in place. It almost certainly will not be ready by 2022. And, third, of course, politics trumps economics in Brexit.

The first two explain why the EU feels that the backstop requires legal backing in the WA. Without it, the UK could without legal impediment unilaterally decide when and how its future proposed trading relationship would prevent the need for border infrastructure within the island of Ireland. Its existence  – given the UK blood-red-line against an Irish Sea regulatory border and/or specially agreed arrangements for the Province – mean that the entire UK, as a minimum, will need to: (i) stay in an equivalent CU with the EU; and, (ii) cede continuing regulatory alignment with EU regulations concerning goods.

That is, at least until an alternative trade agreement and/or technological fixes or arrangements that are consistent with no hard inter-Island border are mutually agreed with the EU and put in place. But, as noted above, the timescale for that end-point looms beyond 2022. Nor is it even clear how a replacement Canada-style agreement could ever avoid the re-imposition of a hard border within Ireland. Reality finally has caught up with the wishful thinking and/or hubris: the aspirations of the hard-Brexiteers as reflected in Mrs May’s Lancaster House speech conflict with minimising economic damage to the UK, and arrangements that can maintain frictionless trade without border controls within the island of Ireland rendering unnecessary the NI backstop.

The third means that May will need to depend on Labour votes to secure parliamentary approval for any Chequers Mark 2 agreement that she shortly could and needs to make with Brussels. The formal Labour position is to vote against any agreement that does not meet its six tests that in effect require UK continuing participation in arrangements equivalent to the SM and CU.  On her own benches, the hard-Brexiteers of the European Reform Group (ERG) forswore after Chequers that they would not accept any variant to it. If they stick to their guns that would mean, unless Labour shifted its position, that parliament would vote down any Chequers Mark 2 agreement presented to it.

But, as no parliamentary majority for a no deal exit exists, such a concerted ERG rebellion that led to the deal being voted down would risk either a second referendum or a general election. For that reason, But no parliamentary majority for a no deal exit exists. A concerted ERG rebellion that led to a Chequers Mark 2 deal being voted down would risk either a second referendum or a general election. For that reason, it is quite possible that many of its posited 80-odd members will not actually vote against the government to a point where the numbers that do could be offset by enough Labour MP’s willing to vote – even against their party – for an orderly exit lifting economically damaging uncertainty.

One proposed possible way to avoid such a disorderly exit is for the UK to park itself into the European Economic Area (EEA), at least on an interim temporary basis until future long-term arrangements can be agreed. Nick Boles MP, close to Michael Gove – a possible leading Leaver contender for prime minister in the event of the ouster of May – has most recently put forward the case for Norway for Now.

The UK would scrap the planned transition period starting in March 2019. It instead would rejoin the EEA for three years, alongside a ‘temporary’ customs union with the EU: making it, in effect, Norway-Plus for Now. Boles claims that this model offers an escape from a no deal exit that is supported by  a broad swathe of MP’s, including prominent Conservative Remainers, such as Nicky Morgan. Back in February, the Labour Campaign for the Single Market , supported by prominent Labour Remainer MP’s unreconciled to the Corbyn project, such as Chuka Umunna, Chris Bryant, and Ruth Cadbury, demanded that – as a minimum – the UK should remain part of the European Economic Area (EEA) allowing it to stay on a permanent basis in the single market for both goods and services. When push comes to shove some could be expected to support support interim EEA membership, plus UK continuing CU participation, as a second-best alternative.

But Norway-Plus for Now appears to offer a red herring for three main reasons. First and foremost, the EEA is not designed to be a temporary holding pen for an exiting EU (and EEA) member wanting to put into place a comprehensive replacement bilateral free trade agreement with the EU, it had just left. At the end of October, Norway’s prime minister, Erna Solberg, highlighted that -albeit rather delicately and diplomatically – as ‘a difficulty’, no doubt fearing the entanglement of her country into UK Brexit politics and the possible disruption that it could cause both domestically and across EEA-linked institutions, and the European Free Trade Association (EFTA) in particular. Indeed, the UK economy in size dwarfs that of the three extant EFTA/EEA members – Norway, Iceland and Liechtenstein – combined. But, even if they were prepared to welcome the UK into their club on such a basis with open arms, the EU has shown no indication that it would be prepared to fast-track the UK to re-join EEA through an application to the European Free Trade Association (EFTA) in such circumstances.

The EFTA/EEA route from the onset of the negotiations was offered by Brussels as a counterpoint alternative model to a Canadian-style trade agreement for the UK to pursue. The May government chose  the latter. That the EU would now pull out all of the stops to allow the UK to join as a temporary expedient in the compressed timescale now available before a March 2019 exit, while at the same time ditching its red line that the NI backstop cannot be temporary or be time-limited, is, frankly, inconceivable.

Second, the mechanism for the UK to join the EEA by becoming a member of EFTA, on the face of it, appears incompatible, or at least inconsistent, with the UK remaining in a CU with the EU. An ex-Director-General  of the EU Legal Service, pointed out in https://twitter.com/piris_jc/status/1056860779427913728 that such membership appears inconsistent with Article 56 (3): Any State acceding to this Convention shall apply to become a party to the free trade agreements between the (EFTA) Member States on the one hand and third states, unions of states or international organisations on the other: the accession to EFTA of a new Member State (UK) aiming at a custom union with the EU appears inconsistent with it entering into existing  EFTA free trade treaties.

It is perhaps possible that on a needs-must basis, special arrangements for the UK could be sought and engineered. But not for a temporary and time-limited period of membership that both the EU and EFTA members are uncomfortable with. The UK could not make an application to join EFTA until it had left the EU in any case.

Third, all relevant Internal Market legislation is integrated into the EEA Agreement so that it applies throughout the whole of the EEA. All EU members are contracting parties to the EEA, along with Norway, Iceland and Liechtenstein. The four freedoms of the free movement of goods, capital, services and persons lies at its heart. In addition, the EEA Agreement covers horizontal areas, such as social policy, consumer protection, environment, company law and statistics; to ensure equal conditions of competition throughout the EEA, it mirrors the competition and state aid rules of the EU Treaties, while also providing for participation in EU programmes, in return for agreed budgetary contributions. This would mean that the UK would need to maintain freedom of movement (FOM), continue to pay budgetary contributions to the EU, but now – as a non-EU member – as a rule-taker.

Norway-Plus-for-Now could not be time-limited without infringing the EU NI backstop red-line. That so, given the complexities and uncertainties of negotiating a replacement free trade agreement, the arrangement would need to be indefinite one, contrary to its prime purpose of providing a temporary holding pen for the UK. The prospect of the UK being a ‘vassal’ state indefinitely is deeply troubling, not only to hard-Brexiteers, but to some Remainers, such as Dominic Grieve, who have indicated that a second referendum would be preferable. Many Labour MP’s, such as Caroline Flint, representing leave-voting constituencies on their part have expressed a willingness to vote against such an arrangement, while accepting a principle of a continuing CU, because UK EEA membership would involve full participation in the single market and thus continuing FOM, putting themselves at odds with their Campaign for Single Market colleagues.

The end-game to secure a deal that is politically acceptable in both Brussels and Westminster is imminent. Time is certainly running out to avoid mounting abortive and wasteful expenditures on preparations for a disorderly ‘no deal’ exit with its accompanying market turmoil. The Withdrawal Agreement (WA) should be agreed at least in principle by an EU Summit in November – certainly no later than early December – for it to be approved by the scheduled EU Council on the 12/13th December.

Rather than making a CU an adjunct to UK continuing full involvement in the SM through the EFTA/EEA route, as Norway-for-Now does, a more bespoke arrangement that focused on extending UK participation in an equivalent CU with the EU to encompass regulatory alignment for goods in sufficient depth to render the NI backstop unnecessary, would seem to offer a better prospect of securing both EU and UK parliamentary approval.

As Sam Lowe of the Centre for European Reform, noted back in July, in  Inching Towards Jersey, from the EU standpoint, such an arrangement would need to provide comfort to the EU that the UK would follow all the rules of:
• The customs union, single market rules for goods and the EU’s VAT regime. All industrial goods and agriculture would have to be covered to prevent checks on origin and standards, among other things, becoming necessary;
• State aid, industrial emissions and social and employment laws, to avoid the charge of environmental and social ‘dumping’.

Lowe further noted that it would need a surveillance mechanism, to check that the UK is complying with EU rules, a court to settle disputes between the EU and the UK that would have to take account of the case law of the European Court of Justice. The EU would insist upon a financial contribution to the economic development of central and eastern Europe, among other things.

Such an arrangement could allow the UK to pursue and sign FTA’s in services with third-party countries. It could also possibly be provided some flexibility on developing an independent migration policy – probably the most pertinent point in terms of selling it to MP’s who my be prepared to vote with the government, as well as the wider UK public-at-large. It would no longer be bound to the Common Agricultural and Fisheries Policy, thus addressing the concern of David Mundell, the Secretary of State for Scotland, who, in October warned that he would resign from the Cabinet if the UK was still subject to the Common Fisheries Policy when the next Scottish Holyrood elections next took place in 2021: a resignation that Mrs May cannot really withstand.It would allow the transition to be time-limited: the Political Declaration would simply confirm that both parties would apply best endeavours to negotiate, resolve, and finalise the arrangement prior to the expiry of the transition period. Overall, it could offer a model close but crucially distinct to the EEA,  particularly with respect to the addition of a CU so to ensure continuing frictionless trade in goods between the entire of the UK  and EU, rendering the NI backstop unnecessary or irrelevant in practice: one bespoke to the particular economic and political prevailing circumstances of the UK impacting upon on Brexit. As is required, of course.

In that light, if the national interest is the assessment criterion to be applied, this Chequers Mark 2 ‘Jersey’ option appears to represent the least damaging available Brexit option that can also politically sidestep the hiatus of No Deal by attracting  a sufficient number of MP’s to approve it. There would, however, be an economic downside in terms of loss of EU market access for services. In that regard,  while the importance of the financial sector to the UK economy and its public finances should not be under-stated, the sector is better-placed to withstand and adapt to such loss of access than most goods sectors are, with better distributional outcomes. An alternative Canada FTA would have similar or even worse impact. Better to remove the uncertainty now and support the export-oriented service sectors to get on protecting their existing EU business and to secure new and growing markets across the ROW.

The EU can be expected to insist that the NI backstop remains in the legally binding WA. Semantics is likely to come into play in cross-referencing it with the accompanying Political Declaration,  in terms of reconciling the ‘temporary’ with the ‘indefinite’. Both parties committing to the end outcome of no return to border infrastructure within Ireland as an inherent feature of any post-transition replacement must be central to that. Crucially, as noted above, and unlike the negotiation of a Canada-style replacement FTA, a bespoke CU+ regulatory alignment for goods arrangement covering the entire UK could be finalized within a time-limited transition.

The EU previously has underscored that the four freedoms underpinning the single market are inviolable and indivisible. Well, needs-must. The NI backstop on a smaller spatial scale showed that. A bigger prize beckons. The advantages to the EU of avoiding No Deal – with its economic and diplomatic known and unknown adverse consequences – and in securing a higher market share in services are salient to its balancing of the net advantages and disadvantages to its members of such a bespoke deal . Navigating the separation of services from goods in practical implementation terms is not unproblematic, but possible.

Across the Channel, Prime Minister May could offer this Chequers-Mark 2  as the ‘pragmatic’ and ‘principled’ best available deal that follows the thread of her the July 2017 Brexit White Paper  on establishing a sustainable free trade area in goods with the EU. One that within a realistic longer-term timescale could provide scope and opportunity for the UK to progressively identify and reap the most advantage of its altered and new relationship with Europe, in accordance with the result and spirit of the 2016 referendum vote.

Not only could the UK could forge new FTA’s concerning services with the ROW, it could also possibly allow the UK’s to progress FTAs concerning goods to the point where they could come into operation when the UK finally leaves the interim equivalent but still bespoke CU, where that is consistent with the NI backstop: that will be sometime in the indeterminate future, as always has the been the case. The actual prospect of independent deals – at least of the significance and scale needed to offset the loss of frictionless trade with our nearest and main partner, the EU, across the high value supply chains that are of particular economic importance to many communities in the north and midlands, was always to put it kindly, dim and distant, and unrealisable in the short-term, at least. The majority of MP’s appreciate that.

So such a Chequers Mark 2 deal could pass muster, at least on a two-thirds glass full basis, with enough Labour and Conservative MP’s to pass parliament. That, in turn, could create political space for  co-ordinated labour market and industrial strategies to be put in place on a sustainable basis that  can effectively upskill and provide more secure and better paid conditions for indigenous workers and young people., especially across the caring, construction, cleaning, hospitality, and other low wage and insecure, service sectors. If Brexit is to provide any lasting benefit to the UK economy and society that process needs to start now in earnest.

A Way Out of the Brexit Impasse

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The prime minister clearly hoped that her Chequers package could at least be sold to the warring factions in her own party. The swift resignations of her Foreign and Brexit secretaries soon put paid to that. The European Research Group (ERC) of hard-Brexiteers, led by Jacob Rees Mogg (JCM), were emboldened to openly rebel. The government then went on to accept amendments from him that seemingly contradicted the principles on which its and her own package was based.

That, in turn, prompted 12 Conservative Remainer MP’s to table an amendment of their own requiring the government to consider staying in the customs union if no EU agreement had not been reached by the end of January 2019 – their initial promise to give ‘a fair wind’ to the new approach blown away by May’s apparent craven capitulation.  It was defeated by a mere three votes, and then only after four Labour MP’s, including Frank Field, defied their own party’s three-line whip to vote with the government.

May’s decision, on the surface, puzzling.  She had earlier – at least according to some reports – advised Conservative Remainers to hold fire on their amendment and to wait for the EU to knock-back her then-forthcoming Chequers offer. She could have then told Parliament that the only way that to avoid either NI/Ireland border infrastructure or an Irish Sea border, as well as the maximum economic disruption of a disorderly exit, would be to accept, in effect, the UK staying in a CU equivalent to the existing one beyond the already-agreed two-year transition or implementation period slated to end in December 2020, where no tariffs or quotas or intrusive border ‘rules of origin’ checks would be needed, or levied, or conducted on goods travelling between the EU and UK. The UK would continue to levy, collect, and remit the EU’s applicable Common External Tariff (CET) on all goods imported into the UK from the rest of the world (ROW).

Such a position with government support could have been expected to pass Parliament given Labour Party support for the UK to remain a customs union.

Although Mrs. May had previously provided the Trade Secretary, Liam Fox, with personal assurances about his ability to sign independent trade deals with the ROW, that does not explain why the prime minister felt that it was necessary to capitulate to JRM and his ERG band of fundamentalist Brexiteers. Their two ‘wrecking’ amendments, covering VAT and the EU collection of tariffs on behalf of the UK, would have almost certainly been rejected by the Commons, had her government not accepted them.

Most likely, her motivation was to persuade potential rebels to desist from depositing enough letters of no confidence in her to trigger a summer leadership contest. Yet, by accepting JRM’s amendments, she served to strengthen their position and stiffen their intransigence against the Chequers package. Such appeasement has and will continue to undermine her future political negotiating positions, both internally with her party and externally with the EU, making her ouster as Conservative party leader and prime minister more likely than less.

Putting that political misstep aside, the yawning core contradiction at the heart of the entire Brexit process was inescapably and openly laid bare by Chequers: the economic damage that it entails can only be mitigated by the UK retaining as much of the tangible benefits of EU customs union and single market membership that it can. But that in return requires the UK to accept some of the obligations of EU membership along with an accompanying loss of domestic UK control over their content and of their future development: making the UK a rule-taker without representation.

If the point of leaving was to wrest wholly in practice and effect any EU direct control of ‘our money, laws, and borders’ back to Westminister, such a Brexit-in-Name only (BINO), as it is called by its detractors, seems, in logic at least, pointless: the UK might as well not leave. But that would be contrary to the June 2016 referendum result. On the other hand, exiting with no deal to trade on World trade Organisation (WTO) rules, as extolled by the ERG, would result in the most economically most damaging, and politically (and quite possibly socially) calamitous consequences: a conclusion disputed, or brushed away, only by most fervent Brexiteers.

As Parliament went into its summer recess, individual members of the ERC group – that could number between 60 and 100 MP’s in total – swore that they will vote against any future withdrawal deal aligned to the July Brexit White Paper, which fleshed out the Chequers package. The Labour party, on its part, confirmed that it will continue to oppose such a deal because it would not meet the – albeit unrealizable (short of continuing de facto CU and SM membership) – six ‘Starmer’ tests. And, the Conservative Remainers, alienated by May accepting the ERC amendments, were once again cast outside the government tent.

If the Labour Party and the ERG stick to their existing guns, any deal based on the white paper package will be rejected by Parliament later this autumn, thus shortening the political odds on a UK ‘no deal’ exit, occurring by default. That outcome is far from certain, however: a season is a very, very, long time in politics.

Neither a responsible government nor opposition could engineer, or even countenance, a no deal exit; that is unless they simply washed their hands of its known anticipated consequences on the national interest. Even if they did, many of the potential political ramifications or fall-out from such an outcome, either by design or default, are too unappealing, or too uncertain, for both main parties to stake their future electoral prospects on.

The looming prospect of ‘no deal’ itself could cause the EU, however, to modify or fudge its own previously declared red lines to accommodate a compromise deal with the May government that could then possibly garner the grudging acquiescence of Parliament. It is to that prospect, we turn.

The european dimension

The facilitated customs arrangement (FCA) provides the cornerstone of the UK negotiating position. It is designed to avoid the need for the NI backstop included in the draft withdrawal treaty. The other main pillar on which May’s package rests is UK regulatory alignment with the EU, but only to the extent necessary for the UK to continue to benefit from frictionless trade in goods with the EU27 and with no border infrastructure to be placed between the two Irelands.

That pitch jars with the mood-music coming from, not only from Barnier and the European Commission, but also from key political leaders, that has hitherto maintained the steady tune that the four freedoms of the single market – goods, services, capital, and people – are both inviolable and indivisible.

But as summer simmered in early August, some suggestions of a possible softening of the EU’s absolute position began to emerge. Thee separate treatment of goods and services could perhaps be countenanced, subject to the adoption of interpretation and enforcement mechanisms that would give the final say to its own institutions, most particularly the ECJ.

The EU and UK red-lines could both be blurred or fudged, by, for example, providing the European Free Trade Association (EFTA) court a similar role in deciding disputes that it currently  commands in the existing European Economic Association (EEA) governance structure.  That arrangement already involves Norway, for example, opting out of membership of the customs union, and the acceptance of some associated frictions in the free movement of goods.

Freedom of movement is the main elephant in the room for the UK, and some tweaking of its application could be creatively presented by both parties as part of a movement to a negotiated and  comprehensive replacement arrangements.

That the EU might be prepared to row back on its own stated negotiation red lines should not come as that much of a surprise. A no deal exit would cause one of its members, the Republic of Ireland, almost as much – or even – greater economic harm than it would wreck on the departing UK, whose domestic manufacturing and farming sectors would bear the brunt of the pain both immediately and longer-term. The EU’s other 26 members would also suffer some economic loss, most marked for the Benelux countries geographically closest to the UK.

A chaotic UK exit would put in jeopardy both the £40bn divorce payment and the residence rights of EU nationals working in the UK. At its most existential, the diplomatic credentials and reputation of the EU with the ROW would be soiled, perhaps permanently. The UK exit is a particular situation; at the end of the day: needs must.

Yet it is difficult to discern why the EU should allow the UK – a state that has chosen to leave its ‘club’ and become a non-member third-party –  the benefit of the  special customs arrangement represented by the FCA, while allowing the UK also to continue to benefit from FTA’s agreed between the EU and the ROW.

In particular, the proposed dual tariff structure of the FCA provides an inherent incentive to fraud and smuggling that along with its other added complexities and inefficiencies makes the prospect of its 27 remaining members suffering consequential trading and revenue, almost inevitable. That makes its adoption most unlikely as, https://www.asocialdemocraticfuture.org/2018-brexit-white-paper/, pointed out.

In that light, the EU should also do itself, as well as the UK, a favour by putting the FCA out of its misery as soon it can, without precipitating Mrs May out of office, although that might mean waiting until after the Conservative Party conference in October.

Brussels could then push the UK to maintain an equivalent CU with the EU until such time that a replacement FTA can be mutually agreed and put in place, as a ‘price’ for offering the UK some measure of flexibility on FOM. Of course, no real economic price would be paid by the UK by accepting de facto continuing membership of the CU. Its manufacturing businesses would benefit from the greater certainty of the maintenance of frictionless trade for a longer period; it is only the illusionary prospect of securing substantive new trade deals in goods outside the EU in the short-term that would be lost.

The real issue is whether the resulting political price for the government – and for Mrs May in particular – would be too high.

The domestic political dimension.

Any variant of the Chequers package is sure to be rejected by a sizeable segment of Conservative ERG members. But they set their face against the Brexit White Paper even in its July pristine published state. They, therefore, have already shot their bolt:  no deal is their unshakeable article of almost religious faith, whatever happens.

Mrs May can be expected to stand firm behind her Chequers banner and now face down their messianic zeal for a disorderly exit, relying on the silent majority of her more Brexit-agnostic MP’s to carry her through.

But if she does, could the ERG unseat her in the autumn? Possible but unlikely. Not only are the majority of Conservative MP’s not wedded to a hard-Brexit outcome, which even if they were, would not pass Parliament, but a new hard-Brexiteer Conservative leader would face another general election.   That precise same prospect is likely to deter Conservative MP’s from exposing both their party’s Brexit record and their divisions to a leadership contest and then to a volatile electorate.

That electorate could well vote in a ‘hard-left’ Labour government led by the populist Jeremy Corbyn, and trust it to negotiate a vague soft-Brexit aligned to Starmer’s six principles under a jobs and prosperity banner. A new Labour  government can be expected to seek an extended Article 50 timetable – a need that Labour would make clear during the election had been generated  by Tory incompetence and extremism.

Even if the Conservatives won, the ensuing chaos and economic damage caused by a disorderly exit would quite likely render it a short-lived victory that then made the party subsequently unelectable for a generation.

It is possible that the Conservatives,  if a leadership contest was forced onto Mrs May, would elect a compromise candidate, such as Jeremy Hunt or Sajid Javid, promising a harder line with Brussels in the negotiation,  but with no deal as the backstop rather than the desired destination. This assumes that the constituency members, who would decide such an election, would be amenable to any whiff of Brexit compromise. The deep Tory divisions would still be exposed by such a contest.

Some suggestion has been made that such a ‘compromise’ leader could oversee a UK exit according to a vague and skeleton withdrawal agreement and its accompanying political declaration minimally acceptable to the EU, before exiting in March, but then backtrack to a more hard-Brexit arrangement, presented as ‘what the people voted for in 2016’.

The EU, however, can be expected to include provisions within the withdrawal divorce treaty that would make that difficult. Nor could it be expected that Parliament would be fooled by such duplicity.

Turning to the Labour party, it might hope that a parliamentary vote rejecting any final package based on Chequers would also precipitate an election bringing it then to power. An election fought ‘on what happens next for Brexit’, however, is just as likely to expose Labour’s own Brexit fault-lines.  Its outcome could well prove to be another stalemate that second time around could also induce a splintering of existing party alignments. Its current leadership could well decide, in that light, that betting on the altar of Brexit the once-in the-lifetime opportunity to implement the socialist transformative programme, which is its main preoccupation, was not justified by the odds.

Some on the left, most notably Paul Mason, How Labour could unite the country have argued that Labour should complement its opposition to the Chequers package by publishing the single market and migration approach that, after getting the Article 50 exit date extended beyond March 2019,  as the new elected government it would progress with Brussels.  Labour should also promise the electorate  a second referendum on the final deal that it was then able to secure with the EU27.

This presupposes, of course, that Labour voting against the variant of Chequers package that is offered to Parliament would result in a general election and that sufficient time was left to extend Article 50. It is questionable whether a Corbyn-led government would wish to be distracted from its domestic transformative programme by such a second referendum and its connected complexities and uncertainties.

It is certainly unlikely that either the May government or the present Parliament will concede a second referendum.  Indeed, the cross-cutting complexities of the Brexit permutations are not amenable to a vote between binary alternatives, underscoring that the 2016 referendum was inappropriate in the first place: there was no precipitating new overarching ‘new destiny’ issue; party political management reasons rather led to it.

A second referendum offering Brexit multiple-options would be problematic in content – for example, see the permutations offered in https://infacts.org/theres-more-than-one-way-to-count-a-three-way-peoples-vote/  – and could well be indeterminate  in result, notwithstanding that this time round it would be billed the ‘People’s vote’. There is no simple solution to the complex problem of Brexit. Pretending otherwise is likely to cause more problems than solution.

Anything short of an astounding vote to Remain, would simply lay the ground for Leaver demands for yet another and a third vote, compounding divisions within and between the constituent countries of the UK to an even more dangerous tipping point.

A second referendum only really makes sense when framed between leaving with no deal, and extending Article 50 and staying in: leaving with no deal with its resulting economic and social damage, in that case could well come into ‘new destiny’ territory.  If the majority voted for no deal at least they would be doing so with their eyes wide open, taking, perhaps, the heroic assumption that the consequences of the choices are communicated clearly and transparently the second time round.

But, as argued above, defaulting to ‘no deal’ option should be avoided by a responsible government and opposition.

Can Parliament agree on a ‘least bad’ option?

It is both possible and mutually desirable for both the EU and UK  to negotiate a withdrawal treaty and accompanying political declaration exit that could be conceivably be accepted by the UK Parliament.

The UK would accept an equivalent CU and connected continuing harmonization to EU rules concerning goods infinitely after its formal exit from the EU, at least until alternative trading arrangements are thrashed out and finalised.

Such a Mark 2 Chequers agreement would resolve the NI backstop for the foreseeable future and preserve the continuing vital not-to-be-lost benefit of frictionless trade in goods to both parties.

From the EU standpoint, it would provide comfort that the UK would continue to align and conform to EU rules.  In return for the UK jettisoning the unworkable FCA, the EU could offer some wriggle space to the UK on FOM.  It could also allow the UK’s to progress FTAs concerning goods to the point where they could come into operation when the UK finally leaves the interim equivalent but still bespoke CU. In the meantime the UK could negotiate and enter into new service agreements with the ROW.

The prime minister could thus offer this the as the ‘pragmatic’ and ‘principled’ best available deal that will allow the UK to actually leave the EU at minimum net economic cost, while providing scope within a realistic timescale for Britain to progressively to identify and to reap the most advantage from its altered future relationship with Europe.

The ERG and other hard-Brexiteers, of course, would indict that to stay in the CU and SM indefinitely would make the UK a ‘vassal-state’ that will prevent it venturing out onto a world stage again as a buccaneering and proud free trading nation winning new trade deals on its own account. Their bawl that this would constitute a grass betrayal of the June 2016 democratic decision to leave the EU can already be heard.  They are going to continue to shout that whatever happens, short of securing their desired no deal exit. That outcome – like the continuing CU and partial SM membership arrangement proposed here, was not on the 2016 ballot paper, when 52% of those who voted, simply expressed to leave the EU in preference to remaining.

The sensible majority in Parliament – across the parties –  should simply rely on the facts to demolish the deluded and national interest-damaging hard-Brexit position. The actual prospect of independent deals – at least of the  significance and scale needed to offset the loss of frictionless trade with our nearest and main partner, the EU, is to put it kindly, dim and distant, whose horizon has always extended way beyond January 2021.

Paul Krugman analysis on why existing customs union is better than relying on alternative free trade deals, provides a concise expert summary of that common-sense reality. It already is reflected in the government’s own economic analyses of the expected impact of different Brexit alternatives. Other studies have highlighted the particular adverse impact on jobs and incomes across areas most dependent on manufacturing industry, often located in either Labour-voting or marginal constituencies,  most notably in the North-east, as described in more detail in previous posts, such as https://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/.

Of course, for Parliament to exercise its collective wisdom, the Labour leadership would need to be prepared at least to refrain from impose a three-line whip against such a Chequers Mark 2 withdrawal deal.

This it might do insofar that the government will have saved them the trouble of negotiating a deal with the EU that could and would not differ materially very much from what Labour could negotiate with Brussels. Voting it down to precipitate an election that would inevitably be dominated  by ‘what next for Brexit’ would very likely come across as self-serving; and rejecting a CU that would accord with current Labour party policy, which the majority of Labour MP’s are united in supporting – a unity that could shatter if attention shifted to the single market.

Other similar political calculations could also come into play.  Tory hard-Brexiteers  might well be joined by some ‘Lexiteer’ Labour MP’s; perhaps  some hard-Remain Labour MP’s committed to nothing short of a cancellation of Brexit or at least a second referendum could even join them in the ‘noes’ lobby, providing a potential silver lining to both Mrs May and Jeremy Corbyn, by isolating their respective hard-Brexit and Remainer detractors and plotters.

The prime minister could claim that she had delivered Brexit in accordance with the referendum mandate, while Labour could claim that they have secured a result far more worker and jobs-friendly than otherwise would have been the case.  Both leaderships would be served the national interest, while avoiding an election that risked the future break-up of their respective parties.

The balance of political risk would remain with Mrs May and her party. She would still have to withstand the venomous and destabilising attacks of the thwarted hard-Brexiteers who no doubt would strive to incite a rightwards-drifting rump membership to exert pressure on their MPs to ditch the prime minister.

If, on the other hand, she allowed the negotiations to drift to a point where a ‘no deal’ exit beckoned, the pressure for a second referendum to be called in time for such an outcome to be avoided, could become unstoppable.

 

 

 

2018 Brexit White Paper

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The December 2017 interim withdrawal agreement (the draft Article 50 divorce treaty) requires Northern Ireland (NI) – specifically – to stay in regulatory and customs alignment with the EU. This to avoid a hard border between the two Irelands, which is an accepted red line for both the EU and the UK.

It would, however, create a customs border in the Irish Sea, unless the UK continued to remain in the Customs Union (CU) and Single Market (SM) past the transitional period posited to end in December 2020. Both end-states have been consistently rejected by Mrs May. The horns of her dilemma are thus. To escape them, beginning with her Mansion House speech, she initiated a process involving the loosening of some-stated red lines, even if almost imperceptibly, such as conceding that continuing to participate in EU agencies will involve some measure of at least indirect European Court of Justice (ECJ) jurisdiction.

Her slogan that ‘Brexit means Brexit’ was displaced by a more nuanced approach that, in effect, simply recognized the inevitable: that any agreement would require from both sides some measure of pragmatism and compromise, not least from the UK, which would suffer the most from a disorderly ‘no deal’ exit.

At the same time, with the resignations of Damien Green and Amber Rudd, her erstwhile deputy and home secretary, respectively, she lost her ‘soft’ Brexit majority within the Cabinet Brexit sub-committee. As time ran out for the UK to present a coherent package of proposals to Brussels that could stand even the remotest chance of being progressed to agreement with the EU no later than December, she finally took the plunge and convened a Cabinet awayday at Chequers on the last day of June and provided it with a firm brief to agree and produce such a package.

That it duly did without too much apparent discord. Initial impressions, however, were deceptive, insofar that within three days, the prime minister’s Brexit and Foreign Secretary resigned. It soon became apparent that Mrs May will struggle to get any subsequent agreement based on the package – as formalized in a Brexit White Paper   (the white paper) published nearly a month later in mid-July –  through parliament, as hard-Brexiteer opposition on her backbenches to it  hardened.

The purpose of this post is to consider the details of her package as set out in the white paper in detail sufficient enough to allow any assessment to be made of its likely fate, with a particular focus on the Facilitated Customs Agreement (FCA).

The white paper outlines a future ‘economic partnership’ with the EU, including:
• A common rulebook for goods including agri-food limited to (the relevant rules) those necessary to provide for frictionless trade at the border (avoiding customs and other inspections);
• On-going UK harmonisation with such necessary and relevant EU rules, when approved by Parliament or by the devolved legislatures;
• Continuing participation by the UK in EU agencies that provide authorisations for goods in highly regulated sectors – namely, the European Chemicals Agency, the European Aviation Safety   Agency, and the European Medicines Agency – with the UK accepting their rules and contributing to their costs;
• The phased introduction of a new Facilitated Customs Arrangement (FCA) that would remove the need for customs checks and controls for goods traded between the UK and the EU as if they were within a combined and new customs territory, but where the UK could set its own tariffs for trade with the rest of the world (ROW);
• The negotiation of sector-specific arrangements for services and digital, providing regulatory freedom outside EU rules for the UK’s services-based economy;
• UK to be no longer bound to the Common Commercial Policy (CCP), the Common Agricultural Policy (CAP), and the Common Fisheries Policy;
• Freedom of movement (FOM) to end, to be replaced by a negotiated migration policy covering UK and EU nationals.

Trade in services, therefore, which accounts for over 80% of UK output, although less than half of its current exports, will no longer be subject to EU single market regulation. This, the government accepts, will involve ‘some’ loss of market access to the EU for the largest segment of the economy: it follows that net economic loss can only be avoided if that is offset by an increase in service exports to the ROW, noting that such service exports are not really constrained by EU membership at present.

The UK Parliament could post-exit refuse to implement new regulatory standards and requirements decided in Brussels pertaining to goods, but with the knowledge that adverse economic consequences could follow. That would make any such freedom, however, very much an unappealing Hobson’s choice: a yes, of course you are free to leave, but beware that you will need to dodge the bullets in the process type of choice.

More fundamentally, the separate treatment of goods and services that lies at the heart of the package, presupposes that the EU will concede the divisibility of its cherished four overarching freedoms of capital, goods, services, and people in an arrangement with a third-party (the UK) that has chosen to leave its club.

Leaving aside these first-order obstacles or issues, the actual design – as sketched out in the white paper – of the FCA appears to require a leap of faith on the part of the EU for it to be accepted, at least without substantive modification during the negotiation phase.  Such a process of modification will require May to further blur her red-lines, including a continuing role for  EJC jurisdictional oversight over the operation and interpretation of the agreed regulatory alignment, probably to the point of her accepting that it must continue in a binding form – regulated by processes that the EU can control – until alternative permanent arrangements can be agreed and put in force, perhaps many years down the road.

A dispassionate analysis indicates that the FCA cannot really run; yet the alternative prospect of ‘no deal’, however, could serve to concentrate minds on both sides of the Channel for sufficient fudge to be shovelled on it for a vague version of a withdrawal agreement and accompanying political declaration to be presented to parliament close to the wire.

Will the facilitated customs arrangement (FCA) fold of its own contradictions?
In June a Government technical note on a temporary customs arrangement, set out most of the government’s stall as to what the FCA would entail. On the insistence of David Davies, the then-Brexit secretary, this temporary arrangement was strictly time-limited to end no later than December 2021, after coming into force when the implementation (transition) period in December 2020, whereas the white paper, published in July after the Chequers agreement and Davis’s resignation, wisely avoided such prescriptive time-limiting.

Indeed, to suppose that a comprehensive Free Trade Agreement (FTA) or other ‘permanent customs arrangement’ replacement to the ‘temporary’ FCA could be negotiated and put in place by 2021 was incredible; based on the experience of the less ambitious Canadian CETA agreement with the EU, such a replacement could even exceed six years to finalise, although it can be expected that efforts will be made to shorten that gestation period. The white paper is also indeterminate on the relationship of the FCA to any future replacement arrangements. This, again, is sensible; these will only begin to take shape after the UK formally exits the EU.

The FCA is offered rather as a temporary arrangement that would prevent the need for a discriminatory and fragmentary NI backstop to come into play, once the transition period ends in 2021. The alternative of a border in the Irish Sea is, of course, unacceptable to both the UK government and parliament. It follows that the FCA cannot be strictly time-limited while it remains an interim arrangement put into place to avoid a hard NI border: it will need to remain in place until alternative replacements are agreed and put in place, whenever they are. The FCA would hardly be worth the candle, in any case, for either party, if it was to be the temporary short-lived arrangement that it sometimes touted to be.

In terms of the mechanics of how it will work, the FCA will replicate existing EU customs union (CU) processes to allow the UK to collect the full the correct EU common tariff (CET) for imported goods deemed destined for EU27 countries, before remitting it back to Brussels. Goods imported from non-EU (ROW) countries – but deemed for domestic consumption – would alternatively attract a UK-set dedicated domestic tariff (presumably lower than the CET tariff, in most cases).

The white paper expresses the hope that this dual-tariff combination would facilitate the greatest possible trade with the EU and the ROW. The flow of goods between the UK and EU, particularly those involving deep and inter-connected supply chains (engine made in Germany, gearbox in Italy, car in UK etc) would remain unimpeded. The UK, at the same time, would be freed to strike new independent trade deals.

It also supposes that the correct EU or UK tariff will be applied and paid ‘up-front’ ‘up to 96%’ of the time, reducing the need for non-EU imports to be either tracked within the UK and/or the tariff to be adjusted retrospectively, to just 4% of occasions.

Trade experts have already cautioned that this appears an optimistic hope that is not evidence-based. A forensic analysis by the UK Trade Observatory, for example,  Decoding the Facilitated Customs Arrangement , points out the stated or implicit assumptions that the white paper appears to rely upon to derive that figure, are heroic. Most notably, ‘trusted traders’ or Authorised Economic Operators (AEOs), as they will be known, will be responsible for the importation of  100% finished goods and of 81% of the remaining total of intermediate goods (those used as inputs into finished goods) imported from non-EU countries that, as such, will be subject to either the CET or the UK tariff when the transition periods ends in December 2020.

The EU CET tariff on finished or consumption goods, such as on foodstuffs, can be expected to be appreciably higher relative to what the UK will freshly set for imports from non-EU countries destined for domestic consumption once the FCA comes into operation as envisaged in January 2021.  A strong incentive would therefore exist where the UK duty was levied – especially where the imported goods in question could easily be broken down and distributed in small loads,  for them to be deemed as destined for domestic consumption or use and then  split up into smaller lots, once they enter into the UK jurisdiction area. They could then be trans-shipped to the EU, whether across the NI border or other UK borders with the EU, with the dishonest trader or other agent profiting form the difference between the domestic UK and EU tariff.

Some batches of intermediate goods could be also split up to evade correct payment of duty, for the same reason. In short, the existence of the dual-tariff will therefore tend to encourage agents of ROW countries to import goods and re-export to them to the EU via the UK to secure the benefit of a lower domestic tariff: the bigger the difference, the bigger the potential trading arbitrage profit, and the bigger the incentive to cheat.

The white paper’s implicit assumption that approved or trusted traders will never levy the wrong duty, whether that is due to commission, to negligence, to the dishonesty of other agents, or to simple error, preventing any  consequent loss of revenue to the EU –  or related loss of trading advantage to EU27 members, is, to say the least, implausible, therefore.  The EU chief negotiator, Michel Barnier,  in his initial public response to the white paper cites that precise real fear as shedding doubt on the workability and acceptability of  the FCA. That it would allow the UK, as a non-member third-party, to collect tariffs on behalf of EU outside its legal structures and purview, and that it would involve added bureaucracy and thus additional costs for the EU to monitor, was likewise cited.

Barnier also indicated that although agri-food and pesticide inspections will not need to be undertaken at the border (material to the NI border context, where border food and animal-based traffic is significant), they will still need to be subject to EU rules and regulation. This would appear to rule out any real progress on a replacement UK-US trade deal involving a departure from EU food standards. The scope for significant new trade deals with the ROW seems to be limited largely to services. And even these are likely to be limited in scope for a variety of reasons, including the unwillingness of potential partners, such as India, to grant greater service access to the UK in the absence of UK concessions, such as visa liberalisation for their nationals.

But, in any case, it remains unclear, however, why the EU should give the UK – a state that has chosen to leave its ‘club’ and become a non-member third-party – special customs arrangements that add complexity and associated scope for error and confusion, in a way that is contrary to the efficient operation of both its CET and CCP, while allowing that same country to continue to benefit from existing, and to retain an input into new, FTA’s agreed between the EU and the ROW.

With respect to the harmonization of future UK and EU rules to the extent that such harmonisation is necessary for continuing ‘frictionless’ trade in goods between the UK and EU to proceed consistent with the NI backstop, the EU can be expected, as a minimum, to insist on interpretation and enforcement mechanisms that give the final say to its own institutions, most particularly the ECJ, rather than rely on the proposed institutional joint-committee structure that the white paper proposes; to do otherwise would risk the UK diverging from EU rules to the detriment of its members’ interest,without adequate or timely recourse.

Besides, the mood-music coming from, not only from Barnier and the European Commission, but also from key political leaders, continues to march to the tune that the four freedoms of the single market – goods, services, capital, and people – are both inviolable and indivisible.

A trite and an obvious observation, perhaps, but something must give if deadlock and a disorderly UK exit is to be avoided. Exactly what will depend upon whether the respective EU and the Conservative government ‘red-lines’ remain inviolable in strict practice and, if not, the extent to which both are willing to fudge them – or allow them to be flexibly applied – to secure the wider end of putting a negotiated deal together that could be offered to the UK parliament with at least some prospect of success.