A brief respite on Brexit, but what can we expect from the latest extension?
18 April 2019
Finally, with Parliament in recess, a little breather for everyone working on Brexit. The Special European Council on 10 April concluded with the Prime Minister and EU27 leaders agreeing to extend the EU exit process to 31 October. But as a win for Westminster, Theresa May convinced the EU to agree a flexible extension – should the UK be able to pass the Withdrawal Agreement (Bill) before 31 October – it would be able to leave earlier. This unfortunately opens up two different no deal dates that businesses and Whitehall must prepare for.
First, 22 May, if the Withdrawal Agreement is not ratified by then the UK will need to participate in European Parliament elections on May 23 – 26. Failure to participate will lead to us crashing out with no deal on 1 June.
On to extension number two — 31 October. EU countries have signalled that a further extension is unlikely – so businesses need to be ready, whether Halloween brings us a Trick (no deal) or Treat (transition).
The EU has made it clear that the Withdrawal Agreement will not be reopened, which means changes can only be made to the Political Declaration, a framework of the future trading relationship with the EU, but ultimately a non-binding document and more a paper of intent.
A Conservative-Labour alliance?
In the meantime, talks between Government and Labour continue but are not expected to advance any further unless May is willing to move her red line on the future customs union (which would include a common external tariff policy). Working groups between key Cabinet and shadow Cabinet ministers have been set up to find agreeable positions on security, workers’ and environmental rights. None of this will get them closer to finding an actual agreement though – the two key issues are Labour’s position on a second referendum and the Conservatives’ position on a customs union (without trying to water it down to a customs arrangement). There is clearly a lot of ground to be bridged between the parties if there is any hope of an agreement.
The impact on our service sector
Even if they were to agree on a customs union, lately heralded as a “soft” Brexit, this will still mean a very hard Brexit for many of the UK’s businesses who are currently reliant on the benefits of the Single Market. Much of the UK’s service industry makes use of the free movement of services, capital, data and people to sell their products to other EU countries, and this includes far more than just financial and legal services – think for example of the music industry.
London businesses have repeatedly told us that the free movement of services (75%), data (71%), capital (66%), people (60%) and goods (63%) are important and should be part of any future trade deal with the EU.
Businesses have also told us how they think Brexit will impact different areas of their business. The negatives unsurprisingly outstripped the positives in every category, with exports to the EU having the dimmest forecast, followed by decreases in demand for goods and services and a decline in investment.
After months of making the case that no deal would be a disaster for the UK, campaigning directly with politicians, on social, with allies and through the media, we live to fight another day. For now at least the immediate threat of crashing out of the EU has been lifted. We await the next chapter when Parliament reopens.
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