Monday 21 January 2019

Developments amid the noise - but anything can still happen on Brexit

The range of possible outcomes for the UK's future relationship with the EU has still not narrowed, writes Dan O'Brien

Britain's complicated Brexit politics continue to prevent a decision on a trade-off being made.
Britain's complicated Brexit politics continue to prevent a decision on a trade-off being made.
Dan O'Brien

Dan O'Brien

This column tries to avoid the subject of Brexit. There have been many twists and turns in the saga. There are many more to come. Most of what has happened, and most of what will happen, is noise. Filtering out what is important is not easy because there is so much noise.

Over the past week there have been developments that, at this juncture at least, appear to be more than noise. Below, I have incorporated these developments, along with many others, into the seven scenarios for how Brexit will turn out, set out in these pages last June. Each scenario has been ascribed an updated probability.

Among the biggest changes since last June has been the coming to the fore of the Irish Border as a divisive issue. It was one of the three issues prioritised in the first phase of the negotiations, which concluded last December, along with money and the future rights of EU citizens living in the UK and vice versa.

Until last November, the Irish Border issue was not thought to be a deal-breaker. That changed when the Irish Government sought to end British fudging on the issue. Despite claims before Christmas that there would be no Border in any circumstance, that has not been achieved. An end to the British fudge on the North would require London to decide on the totality of its future relationship with the EU.

As the Border has now become central to the Brexit negotiations, it has become a central issue in British politics. The leader of the one in six Conservative MPs who want a quick and clean break with the EU, Jacob Rees-Mogg, was prominent on the matter in the pro-Brexit media last week.

Writing in the Daily Telegraph last Thursday, the day the British cabinet met to try to agree an overall position on Brexit, he described the Irish Border issue as 'imaginary', 'a fable' and 'a myth". It was, he wrote, not "an impassable obstacle to a genuine Brexit" because "the UK could simply refuse to have any additional border controls". From a British perspective, he is correct: a state that is not part of a deep free trade arrangement with other states can decide not to police its borders.

If Britain ends up outside those EU arrangements it could choose to forego some loss of tax revenue that would result from not policing the Border on this island. Given that the costs associated with protecting customs posts - financial and political - would likely be greater than any revenue raised, it is perfectly possible that a British government could decide against policing the Border.

Matters are different for the Republic. Ireland will remain in the EU's deep free market arrangements, both the customs union and the single market. As such, it will have obligations to the rest of the bloc to police its collective external Border.

As both prices and product standards will be lower in the UK after it leaves, for some products at least, Ireland will have to police the Border actively under a Rees-Mogg-style exit.

The extent to which EU and UK prices and product standards diverge in the future was the subject of last week's meeting of the British cabinet held outside London.

The British government is pushing a "three basket" approach to regulating different categories of goods and services, with the British deciding into which basket each product goes. EU negotiators rubbished the idea, describing it as yet another case of "cherry picking". The Taoiseach said much the same.

The Conservative minority government has struggled to decide how it trades off diverging from EU laws and regulations on the one hand and the maintenance of as much access to the European market as possible on the other.

Although the details are complicated, the trade-off between control and market access is simple enough. Britain's complicated politics continue to prevent a decision on that trade-off being made.

Scenarios:

Despite all that has happened over the past week, since last June, and since the British voted to leave in June 2016, the range of possible outcomes has still not narrowed. At one extreme, Brexit could yet be scuppered. At the other, there could also be a breakdown in talks between the UK and the EU, ending up with the hardest possible Brexit.

1. No Brexit

Probability remains at 10pc.

The parliamentary arithmetic at Westminister does not bode well for Theresa May. If as few as seven Conservative MPs vote against her government, she could be facing an election. There are a number of scenarios in which a new government could agree to holding a second referendum and for that referendum to reverse the June 2016 vote.

2. The softest possible Brexit, which includes staying in both the single market and the customs union

Probability falls to 4pc from 7pc.

Staying in the single market would require Britain to accept unlimited migration from the rest of the EU. It is increasingly hard to see that happening in any circumstance, short of the entire Brexit enterprise being abandoned.

Rees-Mogg has said that leaving the EU but staying in its market mechanisms without any say in the making of laws would reduce Britain to the status of a "vassal state". This position has gained ground among Remainers, who believe that a G7 country which holds one of the five permanent seats on the UN Security Council could not be reduced to having its laws faxed to it.

Malcolm Rifkind, a former Conservative foreign minister who opposed leaving the EU in the 2016 referendum, wrote recently in the Financial Times "a permanent requirement to accept into our law obligations that had never been accepted by our parliament or government would make references to Britain becoming a 'vassal state' very persuasive".

3. EEA membership

Probability down to 1pc from 3pc in June.

For the UK to join Iceland, Liechtenstein and Norway in the European Economic Area has never been a runner. It involves accepting EU laws in many areas without having any input to their drafting. As described above, that is not palatable to a wide range of British opinion. The added ignominy of being placed on a par with micro-states makes it all but unthinkable.

4. Britain leaves the single market but stays in customs union

Probability rises to 30pc from 25pc.

Giving up the right to do bilateral trade deals with other countries remains an article of faith for the Brexiters led by Rees-Mogg - in yet another opinion article, this time in last Friday's Sun newspaper, he gave it the highest priority for his grouping.

But opinion on the issue is polarising. Other Conservatives are backing an amendment to legislation currently before the Commons to allow de facto membership of the EU's customs union. Tomorrow the leader of the Labour Party, Jeremy Corbyn, is expected to change his party's position and announce it will support customs union participation.

5. Hard Brexit with an agreed transition period/delayed exit

Probability rises to 30pc from 25pc.

In this scenario, Britain leaves the single market and the customs union, but the de facto departure date is pushed out. Since last June this has been accepted in (broad) principle by both sides. However, as there are many outstanding differences, the probability of this outcomes rises only slightly.

6. Hard Brexit with no transition period

Probability falls to 15pc from 20pc.

Britain leaves the single market and the customs union in March 2019. No agreement is reached about the new arrangement as hard-line Brexiters fear the transition period becomes permanent.

7. Worst-case scenario

Probability remains at 10pc.

The negotiations break down acrimoniously over the next year. The hardest possible Brexit happens with even the most basic matters, such as flights, grounded.

Sunday Independent

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