Summer’s almost done, fun’s over, and the real world awaits – or at least that is the reality the Cabinet faced today at its first meeting – the much-vaunted “Brexit brainstorm” – since the recess. The task? Not so much to sort out a common negotiating position before any talks with Europe begin, though that has to be done and we have already had some turf warfare between ministers on that. It is more that the Government has to start thinking through what sort of relationship Britons really want, not only with Europe but also with the rest of the world. How can we be a better bridge between the rest of the world and Europe with our new semi-detached status?
These are very early days but a couple of things have become clear.
One is that the key debate will be whether this is going to be hard or soft Brexit. That ground is already being fought over, with the hard Brexiteers wanting a clean and early break. Lord Lawson, the former chancellor, has made this point cogently on the Today programme: “As soon as you stop wasting time trying to negotiate the un-negotiable – some special trade deal with the European Union – it is possible to have a relatively quick exit.”
Those arguing for a soft Brexit, on the other hand, focus on the complexity of the forthcoming negotiations and the impossibility of concluding them within the timescale. They are pressing for some ready-made solution, such as joining the European Economic Area (the Norway option), perhaps with some additional safeguards on immigration.
That debate will rage on a while – it has barely begun – but at least the arguments on both sides are there to see. However, there is something else that is also becoming clear, though it has been much less discussed.
It is that leaving the EU will be a drawn-out process that changes over time, rather than a single agreement. Yes, there will be a deal because there has to be. But the relationship initially defined by that deal, whatever it is, will change over the years, just as the UK’s membership of the Common Market was gradually transformed into its membership of the EU – but not the two key elements of EU membership, the euro and the Schengen Agreement.
In short, the deal we do in the next three years will not be the deal that defines the relationship between Britain and Europe in 30 years’ time. Britain will change, Europe will change, and the rest of the world will change.
A couple of stories in the past few days illustrate these uncertainties. One has been the flow of economic news. Again, these are very early days, but it seems that the expected adverse economic consequences of Brexit have been avoided, at least as far as the UK is concerned. You can see this in retail sales, in employment, and in house prices, though this last element – sky-high property prices – is very much a social disaster, even if it is also a sign of economic confidence. At any rate, it may even turn out that the economic impact of Brexit on the Eurozone is more serious than the impact on Britain, as the economics Nobel prize-winner Joseph Stiglitz believes may happen.
The other uncertainty is the EU’s relationship with the US. It now looks as though the controversial trade deal with America, the Transatlantic Trade and Investment Partnership (TTIP), will fail. It also looks as though relations between the EU and corporate America will sour, with the challenge to the Irish tax deal for Apple. Whatever you think of the deal – and on the face of it, the amount of tax that Apple has managed to avoid paying is stunning – the EU is challenging big US companies in a way that the US government has failed to do. Not many of us would want the UK to become an offshore tax haven, and we won’t. But there is an obvious opportunity to be a more welcoming place for inward investment than the EU by having consistent and predictable tax policies.
My own view is that Brexit will speed up a switch that was already taking place: a rebalancing of our economic relations away from Europe and towards the rest of the world. This will simply be a function of the relatively slow growth that is likely to continue in Europe and the faster growth elsewhere. You sell more to faster-growing markets than you do so slower-growing ones. But this will happen more effectively and swiftly if the UK uses this trauma, for it is that, to push it into looking outwards beyond our European borders. That is the prize that the Cabinet should be aiming for in their deliberations.
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