Britain to leave Customs Union, says PM – but she’s flexible on timing and budgets

By on 18/01/2017
Theresa May sets out her Brexit plan (CC Image courtesy of Jay Allen/Number10 on Flickr)

UK prime minister Theresa May has set out her vision of a future relationship between Britain and the EU, whilst warning that the UK is willing to walk away without an agreement if the EU seeks to inflict a “punitive deal”.

The PM made clear that Britain will be leaving the Single Market and the Customs Union – essential if May is to realise her goals of repatriating control over immigration, minimising the influence of the European Court of Justice, and securing trade deals with non-EU countries.

But she set out her aim of creating a comprehensive new free trade agreement with the EU, and her desire to forge some kind of future customs agreement – minimising the imposition of tariffs on goods moving between Britain and Europe. “Whether that means we must reach a completely new customs agreement, become an associate member of the Customs Union in some way, or remain a signatory to some elements of it, I hold no preconceived position,” she said. “I have an open mind on how we do it.”

May added that although Britain’s withdrawal from the EU will free it from any obligation to contribute “huge sums” to the EU budget, there may be instances in which Britain chooses to participate in specific EU programmes. “If so – and this will be for us to decide – it is reasonable that we should make an appropriate contribution,” she said.

Importantly, the PM also signalled her readiness to negotiate transitional arrangements on a sector by sector basis – ensuring that crucial sectors of the economy aren’t left high and dry if, as expected, the complex set of negotiations required cannot be completed within the two-year deadline. “We will seek to avoid a disruptive cliff-edge, and we will do everything we can to phase in the new arrangements we require as Britain and the EU move towards our new partnership,” she said.

In a keenly anticipated speech, the PM sought to bolster her negotiating position by warning of the potentially damaging consequences if the EU – in a bid to deter other countries from leaving – attempts to punish Britain. May said that although her principle aim is for Britain to remain a “good friend and neighbour” to the EU, she is aware of the many calls for a deal that punishes Britain.

She said Britain would not accept such an approach, and that any attempts by the EU to impose a deal of this nature would be a “calamitous act of self-harm for the countries of Europe”.

May highlighted that on key areas such as trade and defence, it was as much in the EU’s interests to maintain good relations with Britain as vice versa.

While some observers have said the EU is unlikely to give Britain such a deal, May highlighted the potential benefits to Europe if it did.

“Trade is not a zero sum game: more of it makes us all more prosperous. Free trade between Britain and the European Union means more trade, and more trade means more jobs and more wealth creation. The erection of new barriers to trade, meanwhile, means the reverse: less trade, fewer jobs, lower growth,” she said.

Similarly, on security, May underlined Britain’s strategic importance to the EU – both as one of only two European countries with nuclear capabilities and a permanent seat on the UN Security Council, and as an important contributor to the bloc’s military and intelligence capabilities.

“With the threats to our common security becoming more serious, our response cannot be to co-operate with one another less, but to work together more,” she said.

In an analysis of the speech, Institute for Government senior researcher Oliver Ilott said May had shown a clear understanding of her “bargaining chips” and how to play them.

“Knowing what the other side wants, and what you might offer, is crucial to successful negotiations. While the speech focussed on what the UK would want from negotiations, there is also plenty of material on what it might offer – or what it might threaten to withhold. The PM clearly sees the UK’s security capability as an asset and, crucially, does not rule out some form of future payments to the EU budget.”

But while May sought to increase the UK’s bargaining power by indicating a willingness to walk away from negotiations, Ilott said convincing EU negotiators that it would follow through on this threat “may take more than just words”.

“There are major questions about how the UK would manage customs, immigration and licensing arrangements in the event of a ‘sudden Brexit’ as a result of a failure to agree a deal. Whilst negotiations are taking place in Brussels, Theresa May needs to be solving these problems at home, not just as a matter of contingency planning but also as a way of strengthening her hand at the negotiating table,” he said.

May’s speech represents a recognition by the UK government that the consistent signals from EU nations – which have been warning that Britain cannot remain in the Single Market whilst imposing major new controls on EU immigration – do represent key countries’ real red lines, rather than a bargaining position. German premier Angela Merkel appears to have the backing of most EU nations for a tough line in defence of the EU’s ‘four freedoms’ – which include free movement of labour – and the Brexiteers’ belief that the EU has more to lose from constraints on free trade than the UK is viewed as eccentric by most EU politicians and commentators.

The UK PM has promised to trigger Article 50 – kicking off a two-year process of negotiations – by the end of March.

One area the prime minister did not touch on is what civil service resources and capabilities would be put in place to implement her ambitious Brexit agenda. This is an area on which she has faced criticism in the past, with one report last year – robustly dismissed at the time by the government – suggesting tens of thousands of new officials would be needed to deliver Brexit.

Dave Penman, general secretary of senior public servants’ union the FDA, said: “The prime minister has set out an ambitious agenda for Brexit negotiations, which will necessitate a complex free trade agreement, new immigration controls, new devolved powers and, in some respects, phased implementation.

“This is, as the prime minister stated, a defining moment for the country and its future success. The task of delivering that success will rest, to a large extent, on the capacity and capability of the civil service, so it is disappointing that she has once again failed to deliver any further investment in it. Every government department will be affected by Brexit and if the prime minister really wants a 21st century global Britain, then she has to recognise the investment in the resources and skills of the civil service that is required to deliver it.”

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See also:

Ripples around the world: Brexit’s implications for Europe and beyond

Responding to the Brexit challenge: a round table debate

UK government allocates over £400m to key Brexit departments

About Ben Willis

Ben Willis is a journalist and editor with a varied background reporting on topics including public policy, the environment, renewable energy and international development. His work has appeared in a variety of national newspapers including the Guardian, Daily Telegraph and Times, as well as numerous specialist business, policy and consumer publications.

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