Business Irish

Tuesday 16 January 2018

Five reasons to expect a softer Brexit ... and another five that say plan for worst

UK Brexit Secretary David Davis began talks with the EU earlier this week, but the British government’s stance may still be a major threat to firms here. Photo: Bloomberg
UK Brexit Secretary David Davis began talks with the EU earlier this week, but the British government’s stance may still be a major threat to firms here. Photo: Bloomberg
Richard Curran

Richard Curran

The machinations of the UK's exit from the European Union have left us all scratching our heads - or pulling out our hair at times. One year on from the UK referendum vote to 'Leave' the EU, the nature and timing of its future trading relationship is as clear as mud.

Taking the comments of Theresa May's government at face value over the last year, would suggest the position is very clear. The UK will leave the single market and the customs union. There may be some sort of trade deal with the EU or there may be a crashing out of the talks. Both scenarios would be bad for Ireland.

However, we have all tended not to take the British government's comments at face value and believe it is a combination of a negotiating position or some kind of temporary blindness that threatened to drive the British economy over a cliff.

Then came the inconclusive general election result earlier this month. On paper, it should have signalled the end of a hard Brexit. Yet, a couple of weeks on, there is no tangible sign of a softening of the UK's hard Brexit position.

Making predictions about what will happen is now about as scientific as reading tea leaves. So how should we read the leaves? Here are five reasons why we should logically expect a move towards a softer Brexit. These are followed by five pointers which suggest that so far at least, that isn't happening.

1. No Tory majority

The fact that the Conservative Party lost seats and failed to win an overall majority prompted many of us to believe that a softer Brexit would follow, simply because it implies a rejection of the hard Brexit rhetoric by the electorate. It seems logical that a government pushing for a hard Brexit, which then loses a parliamentary majority, would have to re-consider its stance.

'No' say the Brexiteers at the heart of British government. The Conservative Party increased its share of the vote and landed its highest percentage vote in an election in decades. Labour also secured a very high percentage vote with a more "nuanced" but somewhat "unclear" Brexit policy.

2. Remainers asserting themselves

Immediately after the election, British newspapers were running stories about how the Remain people in government were set to assert themselves more. A meeting was held between Greg Clark, the business secretary and the heads of the main employer groups, apparently to discuss ways of putting the economy at the centre of talks and examining a softer Brexit. This doesn't appear to have led to anything. Equally, Chancellor of the Exchequer and the most senior Remainer at the British Cabinet table, Philip Hammond, was expected to assert his perspective more in Government. Last week the 'Financial Times' reported that he was due to give a hard-hitting speech on Brexit, in which he would advocate putting the economy ahead of migration concerns.

3. Slowing economy

The UK economy is slowing down. The cost of living is rising by 2.9pc per year while wages are rising by an average of 2pc. This is reducing people's living standards and it looks set to get a lot worse. Once this happens, a softer Brexit will emerge. We will have to wait and see.

4. Minority government

One propped up by the DUP will not be able to pass the many pieces of Brexit legislation required to secure a full exit from the EU. Once a number of backbench Tories vote against it, the government will collapse. This may happen, but there are no guarantees the outcome of a second general election will bring about anything radically different.

5. The UK government will rely on the DUP and that party does not want a hard Brexit.

I wouldn't bet on that one either. Despite all of these theories and expectations, the rhetoric from the British government about Brexit is just as hard as it was before the election. The soft Brexiteers or Remainers in the party, are not surfacing.

Here are five things that point to a hard Brexit despite the election outcome.

1. The usual suspects are still in place.

Hard Brexiteers like Boris Johnson and David Davis are all still in situ in the same jobs. They have been joined by hard Brexiteer Michael Gove, who has been brought back as environment secretary.

2. Simple logic

There is a simple logic to the hard Brexit interpretation of the referendum result. The UK leaves the EU and then, as an outsider, negotiates a trade deal. Striking up soft Brexit scenarios, such as paying for access to the single market, or staying in the customs union, are easily batted back by Brexiteers as undermining the reasons people voted to leave in the first place. Wrong-headed and stubborn as it is, hard Brexit is a clearer message to sell to the public.

3. The DUP

Anyone who thought the DUP would use its leverage with the Conservatives to back a softer Brexit may have been wrong. So far, it appears the party is looking for additional funding for Northern Ireland and as a party it appears to be divided on key issues like staying in the customs union.

A joint letter to Theresa May from the Stormont administration led by Arlene Foster and Martin McGuinness advocated staying in the customs union. But the DUP has not been at one voice on this issue. Earlier this week Ian Paisley jnr articulated a view held by several senior DUP politicians that the UK should leave the customs union.

4. Silence of the lambs

The so-called soft Brexiteers or Remainers in the British government have not found voice. Philip Hammond's speech, in which he was expected to publicly question the hard Brexit emphasis of government policy, didn't deliver. He simply put forward the case for having a lengthy transition period after the deadline to leave ends, in order to ensure a smooth transition to the new arrangements.

5. The UK election wasn't about Brexit

The UK's recent general election was not actually about Brexit. It was about austerity, terrorism and security and resources for public services. It actually wasn't pitched as an election on the government's Brexit stance.

Those opposed to Brexit framed it that way when they say there was an inconclusive result, but it isn't necessarily playing like that with the public.

In the last two weeks there has been solid analysis by respected commentators saying completely different things about what will happen with Brexit in the future. Immediately after the election result several commentators predicted a softer Brexit. Yet, Martin Wolf, economics editor of the 'Financial Times', said the result showed the opposite - how unpredictable politics had become - and it had increased the chances of the UK crashing out in a chaotic Brexit.

For Irish businesses trying to plan for the future, the situation is utterly frustrating. For companies which have already had to reduce staff because of the fall in the value of sterling, it is deeply depressing. I have spoken to business people in Border regions who are expanding and cannot decide where to locate their new facility. Put it in the UK, at the expense of Irish jobs and discover in two years' time you didn't need to do that. Alternatively, do nothing, wait and possibly see your business deteriorate because you have left it too late.

The only thing that makes sense in all of the chaos, is to examine every aspect of your business and try to do it better. Irish companies have two years to "improve" their businesses by looking at exactly how they do everything - who they buy from and who they sell to and at what price.

Unfortunately, they are dealing with an utterly unpredictable political and economic landscape. They must plan for the worst while hoping for the best. Anything else is just gambling with what they have.

Indo Business

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