The Times, 17th January.
After months of speculation, soundbites and noises off today we learnt in some detail what the government’s vision is for Britain’s future relationship with the European Union. We bring you the first analysis of Theresa May’s speech and what it means for all of us.
Single market
What we learnt
The UK is leaving the single market, the cornerstone of European integration over the past few decades. Since the referendum, and before, European leaders shouted across the Channel that to continue to be full members of the single market, enabling British businesses to operate in any of its member states under one regulatory system, we will have to accept the four freedoms: goods, capital, services and – most controversially – people.
Not only would accepting this mean no new controls over immigration, Theresa May said, it would also leave us accepting the EU’s rules and regulations without any say in what they are, and by mirroring membership “it would to all intents and purposes mean not leaving the EU at all.”
The prime minister also confirmed what she told Tory activists in October – that the jurisdiction of the European Court of Justice (ECJ), based in Luxembourg, will end.
What we didn’t learn
Mrs May said the government will “seek the greatest possible access” to the single market in the form of a “new, comprehensive, bold and ambitious free trade agreement”. That agreement, she said, could “take in elements of current single market arrangements”, such as in the exports of cars or on financial services.
But this idea of sectoral access looks quite tricky set alongside Mrs May’s clear desire to be rid of the ECJ.
Privileged access to the single market of the kind the prime minister is aiming at would require accepting the EU’s rules on product standards. They are ultimately set by the European Commission (which the UK will no longer have any input to) and the ECJ (whose jurisdiction Mrs May wants to end).
How will Europe react?
European leaders will be unsurprised by the decision to leave the single market, which has been on the cards for some time.
On the ECJ, they may see a way forward through the Efta court, which supervises the EU’s relationship with Iceland, Liechtenstein and Norway – although if Mrs May is to be taken literally, a stumbling block is that this court is also based in Luxembourg.
Customs union
What we learnt
Theresa May provided far more detail about the kind of “bespoke” tariff and customs union relationship she wants with the EU than we have heard – even in private – before.
She ruled out “full customs union membership” because that would prevent Britain from negotiating its own trade deals. In particular she singled out the common commercial policy and the common external tariff as two areas that Britain would not participate in.
But she said she wanted “tariff-free trade with Europe and cross-border trade to be as frictionless as possible”. She suggested that the UK could become an “associate member of the customs union” or “remain a signatory to some elements of it”.
What we didn’t learn
Despite saying she wanted frictionless trade she provided no detail on how this might work – which in reality would be fiendishly complicated. For example if the UK signed a free trade deal with a third party country that did not have an EU trade deal, how could the government ensure that Britain did not become a back door for that country’s good into the wider EU market? This would affect both goods crossing the Channel and even more significantly the Irish land border.
Such a hard border could have a devastating effect on existing EU/UK supply chains that are all predicated on easy free movement of goods. Some in government loftily suggest there could be technological solutions to such problems. But past experience of government and IT suggests that this should not be relied upon.
How will Europe react?
The EU’s common commercial policy is key to its trade policy and is the basis for the “customs union” so this will be difficult to square with Mrs May’s objectives. However her call for a bespoke customs agreement will not be dismissed out of hand as the EU has been privately looking at the practicalities of this too.
Immigration
What we learnt
Mrs May said that post-Brexit Britain will “get control of the number of people coming to Britain from the EU”. This suggests she is in favour of a cap on numbers that would vary depending on economic need. This would perhaps imply that she favours some form of work permit system.
She also drew a distinction saying she wanted to attract “the brightest and the best to work or study in Britain” but said nothing about the thousands of other EU nationals who come to work in care homes, agriculture and other lower-skilled sectors of the economy.
Under questioning Mrs May said full immigration proposals were still being worked on in the Home Office.
What we didn’t learn
Mrs May refused to say whether EU nationals would get preferential access to UK labour markets over nationals from other countries. This is a crucial question – that will affect what kind of wider trade deal we will get with the rest of the EU and we still have no idea what the government position on this will be.
How will Europe react?
It depends entirely on the specifics. If EU workers don’t get preferential treatment then a much harder line will be taken on single market access. But if the controls are light touch and favour EU migrants then this may be something other EU countries can live with.
Money
What we learnt
As a corollary of leaving the single market, Britain will no longer pay annual sums to the European budget. There may, Mrs May said, be “some specific European programmes in which we might want to participate”, in which case “it is reasonable that we should make an appropriate contribution”.
What we didn’t learn
The prime minister made the rather obvious point that Britain will no longer pay the membership fee of a club it has left. She entirely avoided the question of how her government will settle the tab.
Britain is liable for a large share of long-term EU bills, such as pensions, structural funds and infrastructure projects. Senior EU figures have suggested that the bill could be as much as £50 billion – how much of that Britain pays before it leaves will have to be settled as part of the Article 50 negotiations.
The fact that Mrs May didn’t mention the issue in her speech strongly suggests that the prime minister may be willing to pay a hefty, one-off divorce bill in return for the terms of exit she wants.
She also made no mention of whether Britain might contribute to EU structural funds in future that help the development of the poorest member states. Such a gesture – even if it was time limited – would buy the EU a lot of good will at the negotiating table.
How will Europe react?
Brussels might see a chink of hope in Mrs May’s pledge to end “vast” contributions to the EU budget, and hope that that does not mean ending all of them. But they will still expect a serious discussion about the divorce bill.
The devolved nations
What we learnt
Theresa May said that she wants the Brexit deal to “strengthen the precious union between the four nations of the United Kingdom”. As part of that, she said, she will continue to hold meetings of a joint ministerial committee on EU negotiations involving ministers from the devolved governments, and ensure that after Brexit “no new barriers to living and doing business within our own union are created.”
She also said she would not return to Westminster any powers currently exercised by the devolved administrations.
What we didn’t learn
The prime minister said that as powers are repatriated from Brussels the government will have to decide which are kept in Westminster while passing the “right powers” through to the devolved administrations. The Scottish government in particular wants control of fisheries and farming, but there were no clues for them today.
And then there’s the far thornier question of the Irish border, which will become a land border between the UK and the EU. Mrs May pointed out that the UK and the Irish Republic have had a common travel area since either was a member of the EU (though both countries in fact signed up to the European Community on the same day).
Mrs May insisted she will “work to deliver a practical solution” that continues free movement between the Republic of Ireland and the UK without a “return to the borders of the past”, but there was no evidence that the government has any clearer idea of what form that may take.
And there was no mention of Gibraltar, which could prove even trickier.
How will Europe react?
The EU also wants the UK to maintain a travel area with Ireland, although some eastern European nations might kick up a fuss about preferential treatment for citizens of the Republic.
Spain remains insistent that Gibraltar should be on the table.
Transitional arrangements
What we learnt
The Prime Minister was more explicit on this than was expected.
She said it was “in no one’s interests” for there to be a “cliff-edge for business or a threat to stability”. Instead she said she wanted the UK and the EU us to have reached an agreement about their “future partnership” by the time the two-year Article Fifty process has concluded. However significantly she then added that from that point onwards Britain wanted “a phased process of implementation” in which both Britain and the EU “prepare for the new arrangements”. She added this would “give businesses enough time to plan and prepare for those new arrangements.
She said this phased approach would cover not just trade but “immigration controls, customs systems” and the “future legal and regulatory framework for financial services”. She added that for each issue “the time we need to phase-in the new arrangements may differ”. She also said that the interim arrangements “are likely to be a matter of negotiation”.
What we didn’t learn
The devil will be in the detail – and to be fair to the prime minister there was not much more she could have said as such arrangements are clearly a matter for the negotiations.
How will Europe react?
EU governments agree with this approach although the Commission is less keen. Some on the EU side favour different phasing for different sectors with a period of between one and five years being envisaged.
Parliament’s role
What we learnt
Before it comes into force, the government will put any deal agreed between the UK and the EU to a vote in both Houses of Parliament.
What we didn’t learn
The prime minister slightly avoided the question when she was asked whether the vote would be between the deal she agrees and leaving the bloc without any negotiated settlement – or between the deal she agrees and remaining a member. Most lawyers think it would have to be the former, since Article 50 is probably not revocable.
In light of that, a vote is more a chance for a rubber stamp than an opportunity for repudiation. So the most ardent Europhiles who disagree with the prime minister that a bad deal is worse than no deal will be squeamish about voting no.
And most crucially, Mrs May wasn’t explicit about whether such a vote would be binding. If her negotiating efforts were rejected by either chamber, she could take it as a vote of no confidence and put the new settlement before the British people in a general election.
How will Europe react?
The EU can’t really complain about this, not least because under the terms of Article 50 the members of the European parliament (who will be waging a re-election campaign at the time) will get their own ratifying vote. But it may become a factor in calculations about what might be acceptable not just to Mrs May’s team but to the parliamentarians who sit on the green benches behind her.
What if it all goes wrong?
What we learnt
Mrs May explicitly repeated the threat of Philip Hammond at the weekend that Britain was prepared to enter into an economic war of attrition with Europe if the EU tries to impose any kind of “punishment Brexit” on the UK.
She said a “punitive deal” would be an act of “calamitous self-harm for the countries of Europe”.
In such circumstances she said the UK would have the “freedom to set the competitive tax rates” and be “free to change the basis of Britain’s economic model”.
But for the EU, she added, it would mean “new barriers to trade with one of the biggest economies in the world” jeopardising investments in Britain by EU companies worth more than half a trillion pounds.
What we didn’t learn
Despite the tough language Mrs May was careful not to go too far and make any specific threats. Significantly she did not say – as some of her backbenchers have – that Britain would be just as well off by walking away entirely.
She seemed to acknowledge that such a hard Brexit would not be in Britain’s interests either and that she would look for compromise rather than brinkmanship.
How will the EU react?
Mrs May dressed up the threat with enough fraternal language not to cause too many problems in European capitals. They will be pleased at the way she distanced herself from Donald Trump, saying she did not want the EU to unravel and saying it was in the UK’s interests for it to succeed.