22 September 2017

Today’s speech confirms the Prime Minister has successfully forged a grown-up Florentine consensus following a debate within Cabinet over Brexit policy. Her sensible way forward, with the UK essentially proposing a nothing-will-change time-limited standstill for around two years after we leave the EU, should allow talks to progress and calm business fears. She has confirmed that the UK will be able in future to diverge from EU regulations and rules (if it suits our own requirements), but promised unconditional cooperation on security and defence through a new treaty. With this offer on the table, Brussels and European leaders now need to move to help progress discussions towards trade and our shared future.

This speech marks her first formal intervention since the Lancaster House speech around 8 months ago (other than the letter invoking the Article 50 exit mechanism in March). And it is today’s confirmation of a (around) two-year transition period following the UK’s departure in March 2019 that is the clearest step forward from her January intervention. She previously said it was “in no one’s interests for there to be a cliff-edge for business”, and suggested a “phased process of implementation” in specific areas such as customs and immigration. Yet at Lancaster House, little detail was provided on how this would work, how long it would last, or whether it would maintain the status quo.

Today she made clear that “business and public services should only have to plan for one set of changes in the relationship between the UK and the EU.” So in an ‘everything changes for everything to stay the same’ manner, the UK will formally exit the EU as planned (and likely the European Economic Area Agreement, although this was not confirmed), but would continue to operate under “the existing structure of EU rules and regulations.” This will mean signing up during the transition to follow existing European court judgements, as well as essentially continuing to allow free movement – with the proviso that new arrivals will have to undergo a registration process.

The speech also marks the Prime Minister’s first major intervention on the subject of the financial settlement between the UK and the EU, promising the UK “will honour commitments we have made during the period of our membership.” Without providing an exact figure, she pledged that no member state would have to pay more into the EU budget, or receive less money from it, until 2020 – a net payment that would likely amount to around €20bn. However, the two-year pay-to-play offer is likely to fall short of the EU’s overall expectations. Brussels has been quick to draw a distinction between payments to facilitate a transition period, and the part of a final divorce bill that includes contingent liabilities, pension payments, and costs to relocate EU agencies. As one EU diplomat told the Financial Times earlier this week, “Transition payments do not cancel the bill.” However, this offer will be crucial in forging goodwill and easing a key concern of the EU27 that they face a looming hole in the budget.

Although the Prime Minister did not present a substantially new position on citizens’ rights, her positive tone towards EU nationals in the UK is welcome. She said, “We want you to stay; we value you; and we thank you for your contribution to our national life – and it has been, and remains, one of my first goals in this negotiation to ensure that you can carry on living your lives as before.” Equally, in contrast to her Article 50 letter, where she was criticised for drawing a link between future security cooperation and smooth trading arrangements, it is welcome that she today stressed “the United Kingdom is unconditionally committed to maintaining Europe’s security.”

The Prime Minister’s intervention on the future long-term UK-EU relationship was also important – although too much has been made of her rejection of both the EEA-minus model (a Swiss-style deal where the UK remains closely aligned to the single market and continued free movement) and a CETA-plus arrangement (a Canada-style comprehensive trade deal with additional arrangements for services). She has repeatedly stated that the UK won’t be seeking an “off-the-shelf model” for future relations, so it was easy for her to reject a strawman Norway or Canada option.

Attention should instead be focused on her messaging on future UK-EU regulatory divergence. While she recognised there will be some areas where the UK and EU share similar regulatory goals, May clearly laid the groundwork for the UK to diverge from EU rules and regulations in future in certain sectors where it is of national interest. This is more than the dull technical point that it appears – it is an important signpost that UK is angling itself closer to a Canada-style arrangement, where it won’t be as tightly bound by the rules of the single market. It is also significant that “no deal is better than a bad deal” did not feature in the Prime Minister’s speech, suggesting this position is largely behind us – although this will still depend on the EU’s capacity for compromise as talks move on.

There are several reasons behind today’s announcements for a status quo transition period and the continuation of financial payments. The speech has been pitched as an attempt by the Prime Minister to dissolve the deadlock in currently negotiations. The EU27 has made clear in past position papers that any transitional arrangements would require the UK to continue to sign up to EU rules and regulations. She is also well aware that a decision on whether “sufficient progress” has been made will be taken by EU-27 leaders at a Council summit next month.

But it is also an important marker of a newly built consensus within both the Conservative party and the cabinet. Brexiteers who essentially called to create ‘facts on the ground’ by ensuring the UK left the EU and the single market in March 2019 will be reassured that we are not signing up to be a rule-taker in the long-term. While those concerned about disruption will welcome today’s confirmation that the UK is backing a two-year standstill arrangement to allow sufficient time for adjustment. Of course, many questions remain unanswered – importantly, how will the transition look for policy areas that are not covered under the single market and customs union, such as agriculture and fisheries?

While many of today commitments could and should have been put forward earlier, it is welcome to see them outlined today. They are unlikely to be enough to unlock the current impasse in negotiations, but it is now for the EU to react to ensure discussions can continue to move forward.