Following the unexpected general election result, there has been much speculation about a shift towards a "softer" Brexit, with higher priority being given to the possible impact on the economy. But now that the Article 50 clock is ticking, is there enough time for the UK government to change course? And what are the implications for your Brexit planning?
Phasing of the talks may provide some breathing space….
The UK government has accepted the EU's demand that progress will have to be made in agreeing the UK’s financial settlement, expat citizens’ rights, the UK/Irish border arrangements and other separation issues before serious negotiations on trade can commence. Given the UK government’s domestic difficulties, this may provide a useful "breathing space" for it to take stock and recalibrate its approach to Brexit.
Also on the positive side, aspects of the initial phase of negotiations could prove helpful in the next phase. For example, maintaining a "soft" border between Northern Ireland and the Republic will require both sides to be creative in their approach to customs checks – an issue which will also be relevant in the wider negotiations over the UK's post-Brexit trading relationship with the EU (particularly if the UK's focus is to minimise the impact on the economy – for more detail, see our Q&A on Brexit: Customs Arrangements). Similarly, agreement on how disputes over citizens' rights should be resolved could provide a useful precedent for dispute resolution on other issues, such as trade. In both areas, a key issue in the talks will be the extent of involvement of the Court of Justice of the European Union and how far its case law will be taken into account.
But formidable problems remain…
On the other hand, the EU cannot wait forever for the UK to decide what it ultimately wants out of the Brexit negotiations. For now, whilst the official line is that the government is sticking to its guns on its “hard Brexit” negotiating objectives, the Chancellor’s recent Mansion House speech did suggest a shift away from the “no deal is better than a bad deal” rhetoric, so there are clearly tensions in government over its Brexit strategy. There was also a greater sense of realism in the Chancellor's speech last week as regards some of the challenges posed by Brexit. For example, whilst indicating that the UK would "almost certainly" leave the Customs Union, he acknowledged that current customs border arrangements would need to remain in place "until new longer term arrangements are up and running" (this is significant because, for reasons explained in our Q&A on "Brexit: Customs Arrangements", the UK is very unlikely to be ready for the introduction of full customs controls by 2019 – but until the Mansion House speech, there had been no clear recognition of this from government). Meanwhile, the legislative programme contained in the Queen’s speech included eight Brexit-related Bills which anticipate the clean break the government is seeking:
- Repeal Bill: no longer the “Great” Repeal Bill but will, as envisaged, repeal the European Communities Act, convert applicable EU law into UK law on a transitional basis, and implement the changes to domestic law required to ensure it continues to operate appropriately following Brexit
- Customs Bill: to establish a standalone UK customs, VAT and excise regime, allowing flexibility to accommodate future trade agreements concluded with the EU and other territories
- Trade Bill: to allow the UK to establish and operate its own independent trade policy and trade remedies regime
- Immigration Bill: to give the UK new powers to implement its new immigration policy (when agreed) on the immigration of EU nationals to the UK
- Fisheries Bill: to enable the UK to control access to its waters
- Agriculture Bill: to provide stability to the UK farming industry and protect the natural environment
- Nuclear Safeguards Bill: to give the UK Office for Nuclear Regulation powers to ensure we meet international nuclear safeguards and meet our non-proliferation treaty obligations; and
- International Sanctions Bill: will establish a new sovereign framework enabling the UK to impose international sanctions on a multilateral or unilateral basis.
The proposed Data Protection Bill is also relevant to the Brexit process, as it is partly intended to ensure that after leaving the EU, the UK will have legislation in place which will be recognised by the European Commission as offering "adequate" protection for personal data from the EU (without this, exchange of such data between businesses in the UK and the EU could become more problematic).
Given the tight timetable, the government is right to press ahead with the legislative framework required to achieve Brexit. However, the election result suggests a lack of consensus in support of the government’s pre-election Brexit strategy. As even a cursory glance at the press will confirm, one year on from the referendum, views on Brexit remain polarised and little has been done to prepare the public for the compromises that are likely to be required if, for example, economic considerations are to take precedence over issues such as immigration and sovereignty. This may mean that in reality, talk of a "softer Brexit" essentially means a more generous transitional arrangement, so as to allow more time for negotiations on the longer term relationship with the EU (but with the exact shape of that relationship potentially remaining unclear for some time). Even then, the scope of any transitional arrangements is likely to depend in part on what the UK wants its future relationship with the EU to look like. So, if there is to be a significant change of course, the government will need to act quickly.
In addition, there are numerous issues over which the talks could break down – and the EU's insistence that "nothing is agreed until everything is agreed" means that significant disagreement in only one major area could result in a "no deal" outcome. Even if an agreed framework for a new UK/EU trade deal does emerge, the government’s precarious hold on power also increases the likelihood that Parliament will fail to sanction it.
Continue to hope for the best, plan for the worst
Given this background, our view is that it would be unwise to place significant reliance on post-election speculation about a "softer" Brexit; instead, businesses should continue to assess the risks they would face in a “no deal” scenario and make contingency plans, particularly in relation to matters over which they have some control. For a list of issues to consider, see our Brexit contingency planning checklist and for details of our commercial contracts Brexit review service, click here.
Over the coming weeks and months, our Brexit Latest posts will be monitoring the progress of the negotiations and looking in more detail at the options for the UK’s future trading relationship with the EU. Please do get in touch if you have any questions.
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