A Social Democratic Future

Policy paths towards equality and efficiency

John McDonnell: Sinner or Saviour?

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As the May government continues to lose credibility over Brexit, mainstream attention has unsurprisingly shifted towards the prospect of the self-declared anti-capitalist shadow Chancellor becoming the Britain’s most radical Chancellor since Lloyd George.

Respected journalists, like Philip Stephen (PS) of the FT, express animated fear that this self-confessed Marxist – if given the opportunity by a gullible electorate taken in his superficial adoption of a friendly old-fashioned bank manager pose – will then proceed to wreak unquantifiable damage on the economy, as he ruthlessly proceeds to dismantle capitalism, regardless of the consequences.

Is then McDonnell, Corbyn’s Stalin-in-waiting, or, is the near-hysteria about him rather a symptom of how far the parameters of accepted mainstream political analysis has shifted since the eighties?

Stephens squirms at Labour’s core manifesto policies to re-nationalise utilities and the railways, to impose higher taxes on the corporate sector and on the highest paid, and to further reform the banking sector. Most of all, he appears to take most umbrage at the commitment to ‘irreversible shift power backing to working people and their families’.

This he describes as a destructive throwback to the seventies, proclaiming with evident fear that with Labour polling close to 40% of the popular vote, turbo-charged by the support of young people in particular, Corbyn could ride a populist surge that then delivers the keys of 10 Downing Street to him.

The pendulum does, indeed, need to swing back towards ordinary working people, whether by hand or brain. Not least for many of the reasons that PS himself sets out.

That the incomes of most Britons have stagnated or fallen for over a decade while the incomes of FTSE 100 chief executives have quadrupled, that the industries targeted for nationalisation are run by ‘avaricious, rent-seeking oligopolies’,  and that the tax and spending policies pursued by the last two Conservative-led governments have rigged the system in favour of the affluent elderly, loading debt on to students and cutting services for young families, while the bankers who caused the crash are as grossly overpaid as they have ever been: a pretty over-powering case for radical reform, if there ever was.

Certainly, as south London suffers from prolonged water shortages caused by under-investment linked to excess profiteering by a privatised utility, the notion of re-nationalising such utilities appears eminently sensible: at least if it is effectively and efficiently planned and executed.

The real issue is whether a Corbyn-McDonnell Labour government actually could achieve such a shift of power and opportunity in favour of the many rather than the few.

This will require strategic pragmatism, rather than populism. The precise detail of the sequencing, funding, and organisation of any future re-nationalisation programme provides a case in point.

At another level, one risk is that Labour could exhibit the wrong kind of pragmatism, as suggested by their open-ended manifesto commitment to continue a poorly targeted Help-to-Buy programme: a clear example of reversion to Blairite triangulation.

That example of ‘bad’ pragmatism reflects a quite discernible danger that untargeted sops to young people, certain categories of professionals, and other groups – identified by polling as potentially sympathetic to Labour within political circumstances current at the time – and motivated by the pursuit and the maintenance of electoral popularity, will take preference over strategic and sustainable political advance.

In short, and ironically, a back-to the-future New Labour focus again on presentation rather than substance: a possible omen, the beloved Jeremy appearing at Glastonbury as the Tribune of the People taking the mantle of Tony Blair as the personification of Cool Britannia. Think about it!

Analysis and informed objective criticism is required, not polemical ‘marxist’ name-calling. Informed and influential journalists, such as PS, should be challenging – and even assisting -McDonnell in terms of developing the detail and rationality of his proposals in conformity with the twin and mutually supporting demands of economic efficiency and social fairness – or, is it, perhaps, the prospect of a shift back in favour of ordinary working people that is the real problem for Stephens and his kind?

Could a future partial customs union (CU) on Turkey model be part of a Norway-Plus UK deal?

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The Institute of Directors (IOD) new policy paper, https://www.iod.com/Portals/0/PDFs/Campaigns%20and%20Reports/Europe%20and%20trade/IoD-Customising-Brexit.pdf?ver=2018-02-15-083137-800, advances the case for a new bespoke partial customs union. It would allow tariff-free and frictionless trade in manufactured products and in processed agricultural products, but raw primary agricultural produce would be excluded from the arrangement.

Such a partial arrangement, the IOD argues, would lift the threat that the UK manufacturing firms will face costly ‘rules of origin’ requirements when the UK exits the CU on Brexit day – rules that would impact particularly across the manufactured product sectors. But, at the same time, it would provide scope for the UK to forge its own trade policy by seeking free trade deals with non-EU countries across other areas, most notably allowing the the UK to lower or remove tariffs on raw agricultural products from the world’s poorest countries.

The example of Turkey, which is currently part of a partial customs union with the EU that excludes agriculture, and, as it is outside the single market (SM), services, is highlighted as a possible model.

Such a bespoke partial customs union arrangement, similarly to a Norway-Plus arrangement, would involve a UK departure from the Common Agricultural and Fisheries Policies.

The IOD proposal, however, appears to accept SM exit without considering many of the inter-relationships between a CU and the SM.  While the UK could could commit to continuing regulatory alignment for manufactured and processed agricultural goods, but that would still leave open the question on how movement of people between N.Ireland and the rest of UK could be handled given a combination of UK repudiation of SM free movement of people and an open Eire/N.Ireland border; nor does it address  the rule-taker problem of having to accept EU regulations without the UK having a formal say in their construction and implementation.

Nor is the economic and social impact of removing or lowering agricultural tariffs on the the domestic agricultural sector modeled or discussed. Most significantly, perhaps, is that the incompatibility of agricultural tariffs with an open NI-Eire border is not addressed.

Another problem is that Turkey is a rule-taker in that it has no say on trade deals that the EU makes with third party countries, and does not benefit from reduced tariffs made under such deals.  Such a partial customs union could possibly be complemented by a wide-ranging parallel free trade agreement with the EU across such areas not covered in the partial bespoke CU new agreement, however.

Soubry’s Norway-plus approach

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The case that Labour should support any amendments that sought to maintain de facto customs union (CU) membership infinitely – at least until an improved and sustainable alternative emerges was made in https://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/ .

Certainly if the UK government does not present very soon a coherent picture of its desired Brexit end-state, Barnier on behalf of the EU will simply begin to impose on the UK a settlement that is consistent with the legally-binding phase 1 agreement.

The Phase 1 agreement made it inevitable that the UK maintains a mutually agreed de facto CU with the EU during any transition period. Regulatory alignment and the avoidance of immigration checks along either the Eire/NI or between the NI and the rest of the UK, seems also to suggest an arrangement very close to continuing de facto single market (SM) membership.

The current efforts of the Conservative MP, Anna Soubry, to marshal cross-party support for a European Economic Association/ European Free Trade Association (EEA/EFTA) + CU (Norway-plus) option are consistent with UK adherence to that Phase 1 agreement.She highlights other selling points of such an approach, apparently directed at ‘leaver-lites’.

First, such a Norway-plus option would still allow the UK to exit the Common Agricultural and Fisheries Policies, membership of which has increased prices for UK consumers, while the latter  has hastened the decline of Britain’s fishing industry.

Second, it would possibly allow some wriggle room to escape direct European Court of Justice (ECJ) jurisdiction – through the EFTA Court and associated treaty provisions.

Third, the SM freedom of movement (FOM) requirement could possibly be combined with some measure of immigration control based on work permits.

Fourth, the UK could possibly seek to negotiate alternative trade deals as a EFTA member.

These claims are contestable in terms of EU acceptance, while their actual potential relevance in practice could well be thwarted by the weight of complexity and trade offs involved in, for example renegotiating fisheries with the EU.

And what Soubry and colleagues have also not clarified is whether Norway-plus would just be a transition to another end state, and if so for long that it would apply. This is material, as neither the EEA nor EFTA were envisaged as transitional arrangements for a country on a journey to somewhere else, although there is always a possible first time for everything.

If Norway-plus operated as a two year transition, the UK would still face a cliff edge in 2021 when that ended, as it would not be possible for the UK to negotiate alternative trade deals within that period, implying a much longer time period that it would need to operate.

In any case it remains unclear how many Conservative MP’s are prepared to sign up to support to such a position, which, in effect, commits the government to the softest brexit. Perhaps the threat of revolt is being used to force May to formally align with the Phase 1 agreement that it signed only last December.

Across the benches, it is perhaps understandable that the Labour front bench continues to be cautious in taking the lead in trying to force the government to face up the inevitability of de facto staying in the CU and SM, for fear of providing political space to May to paint Labour as the referendum-reversing party: safer instead to act as to bystanders to a mess created and made worse by the Conservatives, and wait for its consequences to unravel, without risking splits within its own ranks by imposing three line whip, which some Labour Brexiteers might well then defy.

Although it is inevitable that the government’s position will unravel, less clear is precisely when it will.

Yet the national interest and the particular economic interests of those of the ‘left-behinds’ located in brexit-voting constituencies, such as Sunderland, demand that Labour discharges its responsibility as the official opposition, and steps up, not only to hold the government to account for its backtracking from the Phase 1 agreement, but in order to require the government to adhere to it, while offering them a compelling vision of a post-brexit UK.

Time for Labour to protect both the national and its own interest by voting for continued Customs Union membership

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Two Conservative MPs — Anna Soubry and Ken Clarke – were reported last week to be seeking cross-party support for keeping intact the UK’s current customs arrangements with the European Union (EU) in amendments that they intend to table for a vote by Parliament at the end of this month.

The former has also indicated that in the event of the displacement of Theresa May by a leadership triumvirate of Rees-Mogg, Gove, and Johnson that she would jump the Conservative ship to an alternative – albeit – undefined party.

A political window of opportunity, accordingly, appears to beckon for Labour. But, it should, in any case, make every possible effort to secure the passing of any such amendments. The national interest demands that HM Government’s loyal opposition spotlights the confusion, drift, and downright contradictions that continue to swirl unresolved within the current conservative brexit approach, which can hardly be called a policy or a strategy.

A January 2018 economic analysis produced by the government’s own economists (that it does not trust us to read) has been widely reported as forecasting that any form of brexit would depress UK GDP over the next fifteen years. A disorderly one, where we reverted to World Trade Organisation (WTO) rules in 2019 would have the most adverse outcome at eight per cent of GDP. A Canada-style Free Trade Agreement (FTA) would lead to a five per cent drop. Even the ‘softest’ exit option of continued UK membership of the European Economic Association (EEA), involving continued single market (SM) access, would still induce a two per cent drop.

Those MPs allowed to read it have relayed back that increased government borrowing of £20bn by 2033 is forecast under the EEA model, £55bn under a Canada FTA, and £80bn under the WTO, options.

Essentially, possible forecast gains secured from alternative trade deals with the US, Japan, and India were modelled lie at best in the 0.4% to 0.8% range, over the entire 15 year forecast period: negligible, in comparison.

It is not impossible that these forecasts could be belied if the UK, freed from the shackles of EU membership, became a buccaneering free trade partner within a future global trading environment that bestowed most of its favours on countries negotiating bespoke trade agreements outside wider international arrangements or customs unions, but pigs may fly. Here and now common sense screams that disrupting trade links and complex integrated supply chains with your closest neighbours whom you have shared a deepening single market for decades, simply is not sensible.

Alternative free trade deals with countries, such as the US – led by the mercurial and protectionist Trump, or with India, which will seek the lifting of UK visa restrictions, or Japan, which has recently finalised a trade agreement with the EU, will take the UK years to negotiate; even if achieved, the available evidence converges on the conclusion that the posited benefits to the UK of such agreements will prove largely illusory and limited, and that they will fail to offset the loss of a large slice of the ‘gravity-based’ gains currently secured through frictionless trade with our EU neighbours within a long established regional trading bloc.

A study published earlier this month that modelled the particular impact of brexit on the manufacturing sector, for instance, concluded that high-tech and medium-high tech sectors, such as car-making and aerospace, are most at risk of a decline in domestic production. Such losses are associated with a possible employment loss in excess of 1,000, in Sunderland, in Birmingham, in Coventry, in Derby,as well as the Cheshire East, Solihull and County Durham, local authority districts, http://blogs.sussex.ac.uk/uktpo/files/2018/02/Briefing-paper-16.pdf.

As to the question as to whether the UK signing new trade deals could compensate for the loss of market access and the EU, its modelling of an even a ‘best-case’ scenario, in which the UK leaves the EU without a deal, but signs FTAs with all other countries in the world (the pigs might fly option?), suggests that even such universal FTAs would not fully mitigate the brexit-related loss of trade with the EU.

The balance of risk, as is currently discernible from reasonable analysis and observation, is towards the downside that the economic impact of brexit will prove to be more severe than is currently modelled.

Maintaining de facto CU membership infinitely until an improved alternative and sustainable alternative emerges would, therefore, accord with Labour’s EU negotiating red lines, concerning economic and employment outcomes. It should help to mitigate the adverse economic consequences of brexit across the regional economies most dependent on manufacturing, such as the North-east and the West Midlands, that also provide large swathes of its actual and potential vote amongst the ‘left-behinds’ – the group that is likely to suffer the most from brexit. At the same time such a stance should help to solidify Remainer support for Labour.

What is then stopping Labour? That is not wholly clear; clearly its front-bench does not wish to appear to disrespect the referendum vote, at least until the climate of opinion demonstrably changes, fearing further loss of its core vote in brexit-voting constituencies.

Some also suggest that both Corbyn and McDonnell, want a complete UK rupture from the CU and SM, in order to remove future impediments to Labour implementing an interventionist industrial strategy. Such impediments are, however, based on perception rather than reality, as a recent publication by Labour MPS, Heidi Alexander and Catherine West, and others, explain cogently with particular reference to relevant parts of the party’s 2017 manifesto in:
https://d3n8a8pro7vhmx.cloudfront.net/in/pages/14074/attachments/original/1517224151/lexit_paper_finalONLINE.pdf?1517224151.

Labour should support the Soubry-Clarke amendments, or otherwise table its own, requiring the government to include continued CU membership within its EU negotiating position, which due to its own internal divisions  it cannot settle. Time before the EU seeks to impose its own terms is now rapidly running out.

By doing so, Labour could make a clear case in the general national interest, as well as in the particular interests of voters in brexit-voting constituencies, that a cliff-edge exit from the CU, either in 2019 or 2021, would certainly cause unnecessary, deep, and quite possibly catastrophic, economic and social damage.

The public finances would be consequently weakened, thus constraining further the fiscal capability of any future government to invest in the health, education, and health infrastructure, most needed by the ‘left behinds’.

The official opposition needs to hammer home the reality that May’s espousal of a deep, special, and comprehensive bespoke replacement FTA with EU cannot possibly be negotiated by 2021.

Another core reality is that the Phase 1 agreement on the Eire/N.Ireland border assumes continuing de facto CU membership, as well as continuing regulatory alignment. In that particular light, already the EU is taking contingency steps to enforce the December 2017 Phase 1 agreement in the event of UK backtracking and/or a disorderly exit.

Advancing such amendments would also offer a platform for Labour to develop its strategy to actually extend opportunities to the ‘left-behinds’ in terms of industrial policy, affordable housing, training and apprenticeships, and for general education advance.

What it would not do is to signal a Labour-led overturning of the EU referendum result. In fact, the contrary, insofar that the prospect of a disorderly exit or one imposed on the EU’s own terms, would most likely result in pressure for that vote to be revisited given the resulting damage to Britain’s economic and social fabric.

Continuing CU membership is different to continuing SM membership with its four freedoms, including freedom of movement (FOM), although there is overlap, as discussed in: https://www.asocialdemocraticfuture.org/can-uk-long-term-stay-cu-outside-sm/.

A concerted and focused Labour intervention could well  be effective. A position whipped across the Labour benches attracting sufficient support from Remainer conservatives and other parties is likely to force May to crystallise more clearly the government’s position in favour of continued CU membership, in the face of a potential fatal loss of support from the NI Unionists, as well as from her own Remain wing.

The Brexiteers should they choose to sought to reverse any such concessions through setting in train a leadership challenge would risk precipitating a general election.

To duck this challenge would be a dereliction of duty by Labour, in respect of both its actual position as the official opposition and of its purported one of safeguarding and protecting the interests of the disadvantaged in society. It will not be forgotten by future generations.

Can the UK long term stay in a CU outside the SM?

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The Confederation of British Industry (CBI) through its director-general has indicated that it considers that long-term continuing membership of the customs union (CU) is in accord with UK economic interests, even though continuing CU membership would appear to preclude the UK from negotiating bespoke trade deals with third party countries outside the EU.

It is indeed doubtful that future gains actually realisable from any such future deals would offset the economic costs of the UK losing the advantages of SM membership, given the concentration of trade that the UK has with its european neighbours.

Certainly it is difficult to see how a hard border between Eire and N.Ireland could be avoided – a key plank of the brexit stage 1 agreement between the UK and EU – if the UK exits the CU.

But is it really possible for the UK to continue in the CU indefinitely, while in parallel disengaging from the the obligations and processes of the single market(SM)?

Cutting a complex and uncertain reality to its essentials, post-brexit UK regulatory autonomy appears inconsistent with it maintaining regulatory alignment with the EU.

In the absence of such alignment, it highly doubtful that ‘frictionless’ trading of both goods and services can be maintained even if the UK retains some sort of de facto CU membership.

The UK could offer to continue to ensure such regulatory compliance through domestic regulations and processes. But there would need to some assurance assurance and compliance system that would satisfy EU SM requirements, that would appear, inevitably, to involve continuing ECJ oversight or something comparable, at least well into the medium term.

Yet both the May government the Labour leadership appear still appear to seek bespoke bilateral arrangements where the UK could continue to secure the advantages of SM membership, while jettisoning perceived accompanying unwelcome requirements, including free movement, ECJ jurisdiction, and in the case of Corbyn, restrictions on state aid.

But the French President, Macron, has recently made it clear again that continuing UK access to the single market, including its financial services, requires the UK to continue to contribute to the EU budget and to acknowledge European jurisdiction, as well as honour free freedom of movement of labour and capital, if it wishes to continue to benefit from the free and frictionless movement of goods and services.

He also did hint that that some bespoke tweaks relating to how UK adherence to SM requirements could be interpreted or portrayed might possibly be on the table (one example could be on how EU oversight of UK regulatory compliance is defined), while reiterating that no fundamental breach to the institutional SM architecture would be entertained.

The UK tactical bet seems to be that the attractions and importance of the UK as a trading partner will trump the determination of the EU
to conserve the complete integrity of the SM and its rules during this year’s negotiations. That appears wishful thinking.

Such a misguided approach detracts from a UK negotiating position that is best capable of maximising UK benefit from a least economically damaging settlement.

Corbyn and the single market

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This week the leader of the Labour Party appeared to rule out any continuing UK de facto membership of the single market (SM) because it would prevent a future Labour government re-nationalising the railways, the water and electricity utilities, and the Royal Mail.

Corbyn appears also concerned that continuing UK involvement in the SM would likewise prevent the provision of selective state assistance or aid as part of a more interventionist industrial policy. This could possibly involve a state investment bank taking equity stakes in firms or supporting research and development expenditures, especially across new technology and medical research areas.

The detail of these plans, which were outlined in its 2017 GE manifesto , however, remain hazy, particularly with in connection with how will be financed without undermining confidence in the public finances.

Each element requires focused and objective debate and scrutiny measured against strategic social democratic ends. That requires potential and likely gains to be balanced against realistically-assessed costs. Otherwise Labour will risk being portrayed – not only by the Tories, but also by responsible and informed elements of the mainstream media, as economically naive, at best.

Crucially it is doubtful whether most – if not all – of Labour’s proposals will infringe current EU state aid rules, as discussed in , and https://d3n8a8pro7vhmx.cloudfront.net/in/pages/14074/attachments/original/1517224151/lexit_paper_finalONLINE.pdf?1517224151.

It is perplexing that at this crucial juncture in the brexit negotiation process that the leader of the opposition party is resurrecting a particular historic and ingrained left-wing concern about EU membership that is not informed by the actual underlying situation.

This is at a time when Labour needs to crystallise its brexit position in tune with the national interest, in order to effectively challenge and expose the government’s self deluding ‘let us have cake and eat it’ approach to the impending stage 2 negotiations.

Future funding of health and social care

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Some measure of cross party consensus is needed on how to secure additional and sustainable funding streams for the NHS in order to bridge the current funding gap. This has been variously estimated as lying between 2-4bn in terms just surviving the current seasonal winter demand increase, and 20-30bn in terms of approaching best european levels of provision.

Local authority funding of social care in the community likewise must increase. But increased health and social care funding presupposes that sufficient political maturity and commitment to national rather than party ends, is present across the parties, a widely over-optimistic assumption, that also presupposes that there is cross-party acceptance that reducing the budget deficit should be downgraded in priority further (with respect to current as well as investment expenditure) and/or on the design and general acceptance of new levies/taxes to fund health and social care expenditure.

A problem with the latter is that such hypothecated charges – raised through national insurance and council tax bases – tend to be regressive without wider reforms of those systems: again, such reforms are not on the foreseeable horizon; especially so given the political crowding-out effect of the brexit process.

A possible way forward that the May administration could initiate in any future Green Paper on social care funding is to propose an additional social care levy on the top council tax band. This could be part a part of a package involving a cap on user charges on high worth wealthy homeowners unfortunate enough to suffer long-term continuing conditions, such as dementia, requiring expensive residential care.

It would, at least, lift the exiting fear of such households that they could lose entirely or most of the inheritances that they hoped to pass on to their families. It might also offer a better match between contribution, risk, and benefit than the present system does, as well better accord with the old fashioned, but still pertinent concept, of citizenship.

Another possible idea is for the Government to issue public health bonds with the coupon or interest calibrated to the achievement of defined delivery and public health results.

More high quality research that actually decomposes the input demands on, say, A&E services, is also probably needed. This would seek to quantify the relative contribution, and actual costs, of age-related conditions, differentiating between presenting circumstances. These can include acute emergency episodes, such as strokes and fractures, as well as premature discharge, lack of suitable primary care alternatives, such as domiciliary assistance with moving, shopping etc at home. Secular trends in drink and drug related ;attendances, accidents at home and work, should be similarly constructed. Costs and admissions related to car accidents and fires at home, for instance, should have reduced over the last 30 years. Have they?

Phase 2 negotiation options

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Four main negotiating scenarios appear on the horizon at the beginning of 2018.

First, European Economic Association (EEA) membership, involving continuing Single Market (SM) access, along with its four freedoms, as well as continuing financial contributions, but with European Free Trade Association (EFTA) Court rather than European Court of Justice (ECJ) jurisdiction.

The UK could seek some possible tweaking to Freedom of Movement (FOM),and its exit from the Common Agricultural and Fisheries Policies, in order to make such membership more bespoke to UK needs, with associational tie-ins across areas, such as defence, medicines, and security.

Indeed some in the Labour Party project that an EEA arrangement, with some tweaking to FOM, to the Fisheries policy, and across other limited areas, is where the UK will, and should end up; and that end-point could then be sold as the least economically damaging option, while still  still honouring the Brexit vote and responding to connected primary immigration concerns across  leave voting Labour voting constituencies.

A de facto UK CU membership could possibly be then yanked onto UK EEA membership, as part of a permanent or indefinite post-brexit UK-EU deal, in place of a long-term 2019 transitional or ‘implementation’ arrangement. Ths remains current UK policy.

But EEA membership is not designed as a transitional phase in a journey towards an alternative trading relationship – at least, as it is currently constituted.

The UK being able to tweak FOM provisions is a doubtful and uncertain proposition, although the Cameron temporary brake proposal could possibly be resurrected.

And, of course, the negotiations are being conducted by the May government, not the Labour opposition. The prime minister is pushed to placate the hard brexit demands of a significant segment of Conservative MP’s, who will not hesitate to push for a disorderly brexit if the alternative that is offered appears to be, in effect, continuing practical adherence to EU requirements and processes, albeit outside full membership.

Second, an extension to Article 50 UK exit date in order to allow sufficient time to negotiate a Comprehensive Free Trade Agreement (CFTA), which, post any 2019 legal exit, is likely to take more than five years to conclude. Again, that would be anathema to the Tory hard brexiteers, but even more so. They would no doubt agitate that the democratic will of the UK population was being betrayed, supported by most of the populist media. It seems unlikely that the EU would be willing to agree such an extension, while the legal case for the UK to unilaterally declare an extension is contested.

Third, a disorderly (read: most economically damaging) exit.

Fourthly, and currently, the May government’s preferred expressed option, is a Deep and Comprehensive (or Special) Free Trade Agreement (CFTA).

Such a CFTA could be modelled on the EU-Ukraine Association Agreement (UK-Ukraine AA) rather than a EU-Canada CFTA-plus services model.

The EU-Ukraine AA was finally ratified in 2017 by the EU27. It, in essence, offers most of the the benefits of the SM and Customs Union (CU), including tariff-free access for goods and passports for services and with associated customs cooperation, Trade Observatory Briefing Paper on Ukraine/EU associational agreement. 

Regulatory alignment, including to EU competition, to state aid, to anti-dumping and to public procurement regulations, is also enshrined in the agreement. The FOM SM full membership obligation, however, is excluded, dealt with instead by a visa liberalisation and work permit system.

It also offers Ukraine the option of ‘buying in’ to a number of EU common programmes, for example, to the Horizon 2020 research programme, to EU agencies such as Europol. Prospects of participation in a wider set of EU common policies, such as transport, environment, employment and consumer protection policies, with political cooperation across justice and home affairs, foreign, security and defence fields is included.

But the EU-Ukraine AA was offered by the EU as an inducement for a country formerly in the erstwhile USSR political and economic orbit to move politically closer to it (and by extension NATO) and away from Russia.Ukraine confirmed its self perception and wish to be perceived as a European state looking westwards: a stance not universally accepted across its geographical area,  exposing the political fault lines involved. As such the agreement could indeed be viewed as particularly exceptional and special.

The replicability of the treaty to the UK-EU Phase 2 negotiations is open to severe doubt, insofar that these will be driven by a quite different set of political and economic imperatives.The Ukraine and the UK vastly differ in in economic characteristic and importance to the EU. The exponents of the treaty, however, point out that it could offer a precedent framework in which the UK could progress its own bespoke agreement with the EU, a process that could be propelled by the UK’s relative economic and political importance to the EU.

A bespoke CFTA, where the EU offers tariff-free access to the UK that has exited its regional trading bloc could possibly raise charges that the WTO Most Favoured Nation (MFN) rule, discriminating against other Non-EU potential trading partners, had been infringed.

Similar to the Canadian CFTA, the UK-Ukraine AA took many years to negotiate and ratify, meaning that a long term transitional agreement would be required. Full circle almost back to the first EEA option.

Most seriously, the negotiation of a CFTA involving continuing UK frictionless trade with the EU and its continued enjoyment of the benefits of SM membership while jettisoning key obligations, such as FOM, rests upon the willingness of the EU to flexibly adjust the institutional architecture of the SM to Britain’s particular interest or requirements. Why should it?

Further views on stage 2

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Most experts on trade matters are clear that a bespoke Comprehensive Framework Trade Agreement (CFTA) between the UK and EU can be expected to take at least five years to negotiate after UK exit. For example:https://blogs.sussex.ac.uk/uktpo/2017/12/15/magic-realists-and-economic-realists/.

The Stage 1 negotiation process showed that the EU calls the shots in this process. It has confirmed that the purpose of the impending stage 2 exit negotiation phase is to secure full agreement on the divorce deal, including the outlines and parameters of the future trading relationship between the two parties, the detailed negotiation of which will follow later.

Insofar that the UK chooses to pursue a bespoke CFTA in line with current government expressed intentions, it is most unlikely to be operative by 2024, at best.

Assuming that the UK does irreversibly leave the EU in March 2019, subsequent to a UK Parliament vote, but then continues with de facto single market (SM) and customs union (CU) membership regime for two years until early 2021, some of these experts, as above, have pointed out that would mean the UK falling off the cliff in mid-2021, leaving a hiatus until a new CFTA is ratified.

It follows that transition period involving continuing de facto SM and CU membership or, alternatively, postponement or extension of article 50 until 2024 or when the CFTA actually becomes operative, is required.

That, however, would be unacceptable to the conservative hard Brexit wing. They could bide their time until the Brexit divorce is legally sealed in early 2019, and then agitate for ‘real Brexit” without continuing SM and CU de facto membership: in other words, a disorderly exit.

Meanwhile it appears that the May cabinet has authorised an approach where the UK will seek from the EU, a transitional deal where the benefits of continuing CU and SM membership are retained, viz: frictionless trade in goods without tariffs and without border customs checks, but with some regulatory divergence in key sectors to the UK interest, as well as, say, exit from the Common Fisheries Policy: the ‘let us have our cake and eat it’ option.

It is almost certain that this approach will be rejected by the EU next spring; perhaps that will serve to further clarify minds.

The prospect of de facto five year SM and CU post 2019 transition period-at least involving continuing FOM, EOJ jurisdiction, and membership fees, does not appear yet to have been accepted or understood by Labour, at least in public discourse or in policy terms. Perhaps that will change when the fixed parameters of the stage 2 negotiations, as set by the EU, become even more visible by March 2018, as above.

By then it could be clear that the real choice is either a disorderly exit or a status quo where the UK continues as before until 2024 or later, but without influence; that is, unless, the UK seeks to postpone Article 50 divorce with EU assent.

Beveridge 2.0

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The LSE is holding a conference February 2018 focused on how the future development of the welfare state can best overcome the challenges of globalisation, ageing, technological change and automation, income inequality, and related pressures on demand for services, their costs, and public capacity and willingness to pay for them.

The new director of the LSE has provided a broad but succint summary scoping analysis in

Asocialdemocraticfuture will aim to contribute to that debate through its
policy and research area.