The EU, not Theresa May, will dictate the terms of Brexit. After Article 50 is triggered our fate is out of her control

The Prime Minister didn’t quite say, 'Do you really want a giant tax haven on your doorstep?' But that was what she meant, and what Philip Hammond said just days before her speech

Prime Minister Theresa May delivers her keynote speech on Brexit at Lancaster House (Getty)

The more the Prime Minister talked of avoiding the cliff-edge in her Brexit speech yesterday, the clearer it became that we’re going off the cliff. It was a remarkable speech. Everything has been clear since the day she took office in July, and yet she managed to make several statements of the obvious look like strong leadership.

We will not be members of the single market after Brexit, she said. Which has been unavoidable since she said she regarded the referendum vote as a vote to control immigration. We will not be in the EU customs union, she said. Which is what she meant when she set up a Department for International Trade. Members of the EU customs union cannot negotiate trade deals with other countries. (Even Turkey, which is in a special customs union with the EU, is limited in what trade deals it can negotiate with other countries.)

“No deal for Britain is better than a bad deal”, she said. Thus admitting that, once we have triggered Article 50, the two-year procedure for leaving the EU, our negotiating leverage is weak. We can ask for whatever we like, but the terms of our Brexit deal are whatever the other 27 countries are prepared to give us.

Hence the bit towards the end of the speech where she asked the rest of the EU not to punish us, with a mixture of cajolery – it’s not in your interests you know – and threat – if you do, we will hit back by undercutting your tax rates. She didn’t quite say, “Do you really want a giant tax haven on your doorstep?” But that was what she meant, and what Philip Hammond, the Chancellor, meant in his interview with a German newspaper on Sunday.

That is all she can do. She said: “I do not believe that the EU’s leaders will seriously tell German exporters, French farmers, Spanish fishermen, the young unemployed of the Eurozone, and millions of others, that they want to make them poorer, just to punish Britain and make a political point.”

Well, it is worth a try. But she may have misunderstood the thinking of other EU leaders. Indeed, the whole speech was a wonderful study in mutual incomprehension (reasons for Brexit “not always well understood among our friends and allies in Europe”; Britain “seen as an awkward member state”, but “there is a lesson in Brexit not just for Britain but, if it wants to succeed, for the EU itself”).

The other leaders do not want to punish Britain because we have offended them by voting to Leave, although we have. They have to punish Britain because they cannot allow their peoples to think that they, too, could leave the EU and still enjoy most of the benefits of membership.

Most of them are not as anti-EU as the British, but if the Hungarians, Czechs, Poles, Dutch and Danes thought that leaving the EU was a cost-free way of controlling immigration they might easily become so.

As she said: “I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path.” Those are not voices, though, they are impersonal historical forces, and much harder to argue with.

Hence the real purpose of May’s speech: to try to limit the damage. First, she wants to get the best deal possible in the negotiations, so she pointed out the disadvantages to them of overdoing the punishment. “German exporters” may all be good Europeans but they still have BMWs to sell and the American market is looking a bit tricky.

But second, she wants to prepare British public opinion for what she resolutely refuses to call hard Brexit. So when Parliament votes in 2019 to ratify the deal, she tried to drive home the point that its choice will not be between the punishment deal and some imaginary soft Brexit. Nor will it be a choice between the punishment deal and staying in the EU. It will be a choice between the punishment deal and no deal at all, which would be even worse. If the UK fails to agree a deal by the end of the Article 50 period, it will be out in the cold, and the EU would slap tariffs on our exports to it. Those tariffs would be limited by World Trade Organisation rules, but May did say yesterday she wanted “tariff-free trade with Europe”.

Perhaps she hopes that the EU27 will pretend to punish us, in order to impress their own electorates, while giving us what she called “frictionless” access to the single market as long as we don’t crow about it. That isn’t going to work. The choice is likely to be precisely that between a bad deal and no deal at all.