May delivered a hard message in soft tones, but with an underlying message of menace. Britain post-exit wants to remain on good terms with the EU; but if not, then it will be willing to launch a destructive race to the bottom, in terms of cutting corporation and other taxes – what she called changing ‘the basis of Britain’s economic model’.
On 17 January 2017, Theresa May, the unelected Prime Minister of the United Kingdom, delivered her long-awaited speech on how she envisages Britain to leave the European Union. Although perhaps not unexpected but surprising nevertheless, May has decided to pursue a hard Brexit, placing sovereignty and autonomy above economics and any residual commitment to the European ideal. It was after all her predecessor as Conservative Prime Minister, Margaret Thatcher, in her famous speech at the same venue, Lancaster House, in April 1988 who committed the UK to the single market, with the freedom of labour, goods, finances and services. Now, 30 years later, another Conservative leader plans to tear this all up and to launch Britain into the uncharted and perilous waters outside the EU.
Up to now the British position has been cheerfully optimistic – hoping to have its cake and eat it; refusing to accept that there will have to be some difficult trade-offs. If Britain restores full sovereignty over migration, then it cannot be a member of the single market. More surprisingly, in her speech May made it clear that the UK would also be leaving the customs union. This allows it to negotiate free trade deals with outside countries, but the government under-estimates how long and arduous such negotiations can be – that is, if the UK wants to get half-way decent deals.
May is looking for a Free Trade Agreement (FTA) with the EU, entailing access to the single market through sectoral industry-by-industry negotiations. She is hoping for such deals before the two-year Article 50 process has completed, which is very ambitious. May is hoping to avoid a cliff edge exit – with the UK failing over the precipice when it leaves the EU in spring 2019. In recognition of this, May now talks of an ‘implementation phase’ when Article 50 is concluded, and this undoubtedly will be needed. It is very unlikely that the details, not just over trade, but also over security and any residual payments that the UK will have to make to the EU for pensions and other provisions will be settled and ratified within two years.
May delivered a hard message in soft tones, but with an underlying message of menace. Britain post-exit wants to remain on good terms with the EU; but if not, then it will be willing to launch a destructive race to the bottom, in terms of cutting corporation and other taxes – what she called changing ‘the basis of Britain’s economic model’. In other words, to turn the UK into a low-tax, low-regulation economy, if not into an off-shore haven. This would entail the further destruction of the British welfare model in favour of weakened employee rights and further downward pressure on wages and conditions.
Already in response to the speech two London banks have announced that they will be moving significant parts of their operations to the European mainland, and undoubtedly many more will follow. The financial sector looks like losing its passporting rights – the ability to conduct business across the EU from a British-regulated base. May seems indifferent to the fate of one of the UK’s few world-class sectors – the financial services industry based in the City of London and some other regional centres.
The loss of the customs union will also affect industry, above all motor manufacturing and aerospace firms. Integrated supply chains will be disrupted as tariffs may well be imposed on some goods, accompanied by rules of origin, checks for compliance with EU-regulations and so on – in short, all the impediments to free trade that the single market was designed to overcome.
In sum, the speech did clarify one thing – the UK is going to try to go it alone, and that no existing model will apply. But this opens up a plethora of other questions that were unanswered, notably the status of the intra-Irish border, the status of Scotland in all of this, and above all, the fate of the three million non-UK EU citizens living in the UK, and 2.5 million Britons in continental Europe. The response of the EU to all of this is also unpredictable – although Britain’s hard line will undoubtedly be reciprocated.
The UK was always an awkward and reluctant member of the EU; always seeking the maximum benefits with the minimum of commitments. The UK never understood that the EU, at its best, was about more than the economy, or even peace, but it sought to create a new kind of transnational citizenship on a continental scale. This has profoundly enriched the whole community on the cultural level. Now the UK is turning its back on Europe and heading out into the world. It is not clear that the world is waiting for Britain.