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03 November 2017

Brexit Transition – is there a Plan B?

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The latest ONS annual Pink Book on the UK’s balance of payments shows a further deterioration of the current account balance mainly driven by a “trade” deficit of a 7% of GPD. So the UK is becoming ever more reliant on the “kindness of strangers”, in BoE Governor Carney’s deft phrase.

Time is not on the UK’s side in these negotiations: The latest ONS annual Pink Book on the UK’s balance of payments shows a further deterioration of the current account to 6% of GDP (£114 billion) in 2016. The key driver was yet another widening in the UK’s net investment income deficit to 2.6% of GDP, and the trade deficit 2.2% of GDP – the largest in six years.

However, the trade deficit consists of a 7% of GPD deficit in goods, only partially offset by a 4.8% surplus on services– mainly financial. It is this financial surplus that is so clearly at risk from an inadequate transition, but any impact on goods exports will underline the UK’s precarious position as they only cover 70% of our imports. So the UK is becoming ever more reliant on the kindness of strangers- in BoE Governor Carney’s deft phrase. This acute vulnerability is only likely to be exacerbated by the debates on exactly what “transition” means, and how long it might last.

Some specific definitions were laid down in the EU27’s Negotiating Directive[1] (ND) that binds Michel Barnier’s hands. Prime Minster May – in her Florence speech – appears to be arguing for a different concept.

One date is quite clear from ND Para 8 “withdrawal date – at the latest 30 March 2019 at 00.00, unless the European Council, in agreement with UK, unanimously decides to extend this period”. So there are less than 500 days to wrap up all the details and enact the necessary legislation for somepossible transition scenarios:


I: No Brexit at all – the Article 50 notification of “intention” to quit can be rescinded, and all the evidence is that EU27 would still welcome that.

II: Prolongation: ND Para 19 “Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judicial and enforcement instruments and structures to apply.” This means everything remains exactly as it is today – but for a specified time.

III: Transition: EU27 has defined this term explicitly in ND para 19 “…to the extent necessary and legally possible, matters should be subject to transitional arrangements (i.e. bridges towards the foreseeable framework for the future relationship) and which are in the interest of the Union…. Any such arrangements must be clearly defined, limited in time, and subject to effective enforcement mechanisms”. So this cannot be agreed until the future relationship is already clear – with enough definition to enable the bridge legislation to be fully enacted in time.

IV: Implementation:  May said in Florence that “a period of implementation would be in our mutual interest. That is why I am proposing that there should be such a period after the UK leaves the EU. Clearly people, businesses and public services should only have to plan for one set of changes in the relationship between the UK and the EU…So during the implementation period access to one another’s markets should continue on current terms... the framework for this strictly time-limited period ... would be the existing structure of EU rules and regulations.”  So the Prime Minister seems to be suggesting a process matches what the EU27 currently calls “prolongation”


So far, so good.  A technically-feasible Plan B seems to exist for both sides and one that give business the certainty it craves. But is thispolitically feasible for the current UK government as Plan B requires continuing as a de facto EU member with the all budgetary obligations and recognition of the ECJ that are bedevilling the current divorce negotiations?

Then again, what is the purpose of this prolongation/implementation period? Both sides are clear that the UK will leave the EU on 30th March 2019 so the UK’s influence on new EU rules would automatically cease at that moment. Thereafter, a prolonged UK would be in a very similar situation to EEA members such as Norway. Barnier has already commented in glowing terms about the close relationship of the EEA as its members are part of the Single Market. It would be an easy model to adopt – and quickly.  (Has anyone asked the EEA states what they would think about a new member that is roughly 10 times their joint size?)

However, such a smooth move seems to have been unequivocally ruled out by PM May “European Economic Area membership would mean the UK having to adopt at home - automatically and in their entirety - new EU rules. Rules over which, in future, we will have little influence and no vote… Such a loss of democratic control could not work for the British people.” So Plan B seems to be dead in the water. Indeed, she went further “So the question for us now in building a new economic partnership is not how we bring our rules and regulations closer together, but what we do when one of us wants to make changes.”

She paid scant attention to the inconvenient fact that the EU27 is 6-7 times the size of the UK. Moreover, EU27 saw this one coming and the ND specified that the agreement must “fully respect the autonomy of the Union”. So every avenue towards Plan B seems to have been blocked off. But the Florence speech did hold out a possibility “If we adopt this vision of a deep and special partnership, the question is then how we get there: how we build a bridge from where we are now to where we want to be.” Was this grasping at a straw to build a “bridge”?

Have we turned full circle and come back to a formal transition with a bridge to a foreseeable framework – with the huge complexities pf reaching a deal, and then enacting the legislation in the dying months of the Commission and Parliament?  Unfortunately, Brexit is not the only item on the agenda of the EU27 – even if it dominates in the UK. A glance at President Tusk’s timeline of EU27 Summits in the Leaders Agenda illustrates the other items crowding in:

·         14-15 December: Defence, social issues, migration. Euro Summit on EMU

·         22-23 March 2018: Single Market, trade, climate, digital, research

·         28-29 June 2018: Decision on composition of European Parliament, defence, EMU concrete decisions on reform

Brexit does not even feature – except indirectly via the need to decide on what to do about the UK’s seats in the European Parliament. In the next couple of weeks, an agreement must be found on the divorce arrangements or there cannot possibly be time even to resuscitate Plan B. The cliff edge is clearly in sight. But if history is any guide, the “strangers” who are kindly funding our huge excess of imports are likely to panic well before we go over the cliff. The consequences of such a currency panic will bring Britain’s electors face-to-face with grim reality. Brexit may well not happen at all.


© Graham Bishop

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