Why the Government’s Brexit deal is bad for British financial services

The City for Britain represents the views of practitioners from across the financial services industry. Our members have direct hands-on experience in the sector and many are currently involved in Brexit implementation projects for institutions in the City. We initially came together before the referendum to campaign for Vote Leave, and our sole concern is […]

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The City for Britain represents the views of practitioners from across the financial services industry. Our members have direct hands-on experience in the sector and many are currently involved in Brexit implementation projects for institutions in the City. We initially came together before the referendum to campaign for Vote Leave, and our sole concern is the future prosperity of UK financial services – unlike so many (often conflicted) multinational groups whose voices are loud but whose bases and shareholders are largely overseas.

Below I set out, on behalf of The City for Britain, key points which we hope will be considered with respect to the upcoming “meaningful vote” on the Prime Minister’s proposed Withdrawal Agreement (WA), which we are urging MPs to oppose – for the future prosperity and protection of Britain’s largest and highest employing and exporting industry.

1. Most financial firms have already implemented the changes they will need for a WTO-based deal

During the referendum, much was made of the impact to the City in the event of a “Leave” vote. Since then, however, the noise has been conspicuous by its absence.

There are good reasons for this.

Financial institutions have been reviewing their operating models and by now most have already implemented the changes they will need in the event of “no-deal”. Estimates of job losses have been drastically revised down as banks have dealt with the realities. The focus has been on establishing EU27 legal entities. Job relocations have been few as EU employment laws and lack of local talent motivated firms to make minimal operational changes.

Furthermore, conversations between UK and EU regulators to minimise systemic risks have sensibly made good progress. For example, on 13th November 2018 the European Commission released a paper setting out how EU firms will be able to continue to access UK clearing houses, which stated:

“Should no agreement be in place, the Commission will adopt temporary and conditional equivalence decisions in order to ensure that there will be no disruption in central clearing and in depositaries services. These decisions will be complemented by recognition of UK-based infrastructures which are therefore encouraged to pre-apply to the European Securities and Markets Authority (ESMA) for recognition.”

The Bank of England has issued similar advice on how it will recognise non-UK CCPs, subject to reciprocity.

We can expect further agreements in the coming months, as there is now insufficient time for the EU to prepare the necessary legal framework or build the required capacity to support the moves that had been feared. Smaller financial firms (both in the UK and in the EU) are more likely to have deferred changes and will benefit most from such agreements. These agreements will be both with the EU and with individual member states. For example, the French Government is currently implementing legislation that will allow UK financial firms to continue their activities in France and also ensure French firms may work with UK firms as a third-country entity.

2. The current Withdrawal Agreement poses major risks for UK financial services

Conversely, there would be costs to the UK financial services industry should Parliament accept the WA.

It is widely recognised that the WA has the effect of giving the EU a veto over the UK’s departure from the Single Market. The WA negotiations have shown that the EU would have no incentive to ever waive that veto, since the UK is unlikely to propose a deal that the EU would prefer over the new status quo that would arise.

The UK’s financial institutions would, then, be forced to adhere to EU regulations – both now and in the future – but without any input or veto into their formulation. Whilst this plight would be shared by all UK businesses, it poses a particular threat to the financial services industry due to the EU’s history of continually increasing and centralising regulatory oversight. Moreover, due to the size of the financial sector as a proportion of the overall UK economy, the UK is particularly exposed to financial risk but would have no control over the EU policy-makers.

The Markets in Financial Instruments Directive (MiFID II) is a good example. Intended to enhance transparency, the increased regulatory burden led to ICE moving 245 futures and options contracts from London to the US. Thus it had the perverse double whammy of driving business overseas and reducing oversight within the EU. While the relocation of business from the UK to the US is unlikely to be of concern to the US investment banks, it should be a concern to Her Majesty’s Government.

Another example of regulation-gone-wrong is the bonus caps. These were ostensibly introduced to curb excessive risk-taking and encourage bankers to take a long-term view. Instead they drove talent overseas and increased fixed salaries for the firms, increasing costs and reducing any future “claw back” for misdemeanours. Under a WTO deal the UK would be free to scrap this regulation and instead place more emphasis upon the Senior Manager Regime, something supported by Mark Carney.

The biggest threat to the City, however, would be the EU’s proposal for a Financial Transaction Tax (FTT), first put forward in 2013 by the European Commission. The idea was revived in December 2017 as a pet project of French Finance Minister Bruno Le Maire and raised yet again by French President Emmanuel Macron in July 2018. More recently Olaf Scholz, German Finance Minister, called for a FTT in a speech in November 2018 (the same speech in which he is reported to have called for France to relinquish its UN seat to the EU, a Eurozone budget and an EU army).

Although there has been a lack of consensus between the EU27 on the matter so far, under the WA the UK would be powerless to object to it. The tax would increase costs (ultimately born by pension funds) and have the effect of driving business offshore, with the US again being the likely beneficiary.

3. The emphasis on “equivalence” for financial services in the Political Declaration will be drastically undermined by prospective EU measures currently in train

The Political Declaration contains encouraging words about the prospect of equivalence between the UK and the EU, which would enable financial institutions of one jurisdiction to provide certain services in the other. What it doesn’t mention is that, even if the UK were ever able to escape the WA, a French proposal to reduce the scope of equivalence is now working its way through the European Parliament. These changes would render equivalence virtually worthless.

4. The balance of advantage for the City is now firmly in favour of a WTO-based deal, or similar

The story hasn’t really moved much since 2016, and where it has, it is in the favour of leaving. The most dangerous part of the WA for financial services is the damage that would be caused by a Financial Transaction Tax that the UK would be powerless to prevent. The forecasts of a mass exodus from the City have been revised down considerably as the institutions and regulators have got down to the business of actually working out what is necessary to manage the change. Meanwhile the potential prize from a more competitively-focused regulatory framework is still very much there for the taking.

The post Why the Government’s Brexit deal is bad for British financial services appeared first on BrexitCentral.

Mark Carney

DOER #6 — CANADA

If Brexit doesn’t capsize the British economy, it’ll be in no small part thanks to Mark Carney. The governor of the Bank of England has been one of the loudest voices warning about the dangers of the United Kingdom crashing out of the European Union without an agreement. Although he so far has shied away from any solid forecasts about the impact of a no-deal Brexit, he warned it is “quite an extreme” and “highly undesirable” scenario that would result in a hike in inflation worse than that caused by the post-referendum dive in sterling, thanks to the added impact of higher trading barriers and possible supply disruptions. All that would translate into a squeeze on real household incomes. “Parties should do all things to avoid it,” Carney said last summer.

Warnings like these have put the 53-year-old Canadian economist on the political front line — his assessments dismissed by his critics as scaremongering. The Tory Brexiteer Jacob Rees-Mogg has called Carney “the enemy of Brexit” and “the high priest of Project Fear.” The Bank of England was lambasted after the Brexit vote for gloomy forecasts predicting a recession that never happened. But Carney’s defenders point out that it is likely the Bank of England’s forceful intervention into the economy that prevented the bank’s predictions from materializing.

Once the U.K. leaves, it will be again up to the Bank of England to smooth the journey to any sunny uplands of Brexit. Even if the U.K. benefits from the freedom to make new trade deals, there will inevitably be a period of adjustment as the economy reorients itself, which Carney has highlighted as a big job ahead. At the request of the government, he has extended his term to January 2020, having previously announced he’d step down in June.

Bank of England Governor Mark Carney during a press conference in the City of London | Victoria Jones/AFP via Getty Images

And if the U.K. does leave the EU without a deal, it will be up to Carney to guide the economy through the choppy waters. In preparation for such a scenario, Carney has worked with European officials to make sure financial firms don’t face a cliff edge and that contracts can continue to be serviced. He also required British banks to run stress tests to ensure they’re prepared for “severe, but plausible” financial turbulence. “The financial system will be ready for that undesirable and still unlikely possibility,” Carney said last summer.

Check out the full POLITICO 28 Class of 2019, and read the Letter from the Editors for an explanation of the thinking behind the ranking.

George Bridges: The Prime Minister’s Brexit deal. The choice facing Parliament is compromise or chaos.

If you want to be sure that Brexit happens, however much you might dislike this plan, there is only one course of action – vote for it.

Lord Bridges of Headley was Parliamentary Under Secretary of State at the Department for Exiting the European Union until June 2017, when he resigned. 

Do you think that Parliament should honour the result of the referendum and withdraw from the European Union? This is the simple question at the heart of the debate over the Government’s deal.

If your answer is “no”, then don’t bother reading any further. Obviously you can’t support any deal – you want the UK to remain in the EU. If you’re a Leaver, I suspect your answer is a resounding, deafening “yes”. I agree – as a Remainer, and a Conservative whose party was elected on manifesto that clearly stated “the United Kingdom is leaving the European Union”. (Labour MPs were elected on a manifesto that stated “Labour accepts the referendum result”.)

This then begs the next question: “is it in our national interest to agree to the deal on offer?” To answer that you need to examine both the deal itself, and then the consequences of Parliament rejecting it.

There is much to dislike about the deal – especially the vice of the backstop in the Withdrawal Agreement, and the vagueness of much of the Political Declaration. But this outcome should not have come as any surprise to anyone. It is the result of multiple failures. Failure to be honest about the need for compromise. Failure to answer clearly the question “what matters more – our sovereignty or access to EU markets?”, and then to create a clear consensus in the Cabinet before triggering Article 50. Failure to prepare effectively for no deal. Failure to reject the concept of the Irish backstop. Failure to win a majority in the last general election, making it much more difficult to secure Parliamentary backing for an agreement, or for no deal.

The product of all this is a deal which, once signed, will enshrine the backstop in law, give the EU the “divorce” cheque, and thereby strip us of much of our negotiating leverage in the next phase of the negotiations. And yes, that could mean us falling into the customs union backstop, from which we could only escape with the EU’s permission.

That said, consider what the deal would deliver. The core, fundamental point is we will leave, period. We will enter a transition agreement. We will be out of the EU’s political union. Today’s payments to the EU will stop. More than that, amidst the verbiage the political declaration, the silhouette of the final deal is becoming clear. It amounts to something that the EU has long resisted: splitting up the four freedoms. We would have complete control over immigration. The UK would – it seems – remain close to the EU on the regulation of goods, but would have more control over our services, which amount to 80 per cent of the economy. The supremacy (but not the entire role) of the ECJ would be over. We would be out of the Common Agricultural Policy and the Common Fisheries Policy.

The scale of criticism directed at this approach reflects an obvious point: like most compromises, people on both sides of the debate dislike it. But if we want to leave with an agreement, compromise between Leave and Remainers, and with the EU, was always going to be inevitable. And this compromise appears to deliver on the priority for Leavers and Conservatives: immigration. YouGov asked Leave voters to say whether trade policy or control over our borders were more important to them in assessing the Brexit negotiation: 55 per cent said immigration, 28 per cent trade.  Among Conservative voters, 49 per cent said immigration, 34 per cent trade.

So yes, there is devil in the detail of this agreement. But it is a devil we know. The same cannot be said for what happens if this deal is voted down. The only outcome we can then be certain about is uncertainty.

Option one – asserted by many Leavers – is the UK leaves without a deal. Put aside whether the UK is ready for this outcome (which is highly dubious): the key point is the majority in the Commons appear to oppose a no deal Brexit. True, the Commons cannot pass a motion that binds the Government’s hands. But on an issue of this scale, the Government cannot ignore a motion as if it were graffiti. It will need to act.

And so we get to option two: the Government tries to renegotiate the deal with the EU. Some claim the Government could modify the backstop, or get it dropped entirely. Dream on. The EU have always seen the backstop as a solution that cannot be ended by one party – that would defeat its purpose. They are unlikely to scrap it even if we were to say now “let’s join the EEA”: that’s our future relationship, which is for the next phase of the negotiation. (And that’s before one considers whether the Conservative Party would accept not taking back control of immigration.)

Enter option three: we extend the Article 50 negotiating period and delay Brexit. Parliament and all the EU member states would have to agree to this. Would they? How long would the extension period last? And unless the deal were to be radically revised (unlikely, as I’ve said), why would the result not also be rejected by Parliament?

The signals from Brussels suggest that the EU would only extend Article 50 if there were to be a material change in the political situation here. And so that brings us to option four: we have a general election. This still seems unlikely, given the only thing on which there is a Parliamentary majority is a wish to avoid one.

So that leaves option five: a second referendum, now apparently seen as “inevitable” by Labour if there is no general election. And this is what should really concentrate the mind. For if you agree with the very first point – that we must honour the referendum and leave the EU – then do you want to risk this?

If the answer to that question is “yes”, and you want a second referendum, is there a majority in Parliamentary to extend Article 50 (as we would need to time to get the legislation through Parliament)? Is there a majority in Parliament to vote for another referendum? What would the questions be? Would voters be asked to support this deal – even though we are not clear on the final destination? And imagine the public voted again to leave: given Parliament does not support leaving without a deal but does not agree on this deal, what is to say we won’t land up back precisely where we are now?

This deal is not perfect. Compromises rarely are – and this Government has exacerbated the situation by its handling of the negotiations. But the time for debating preferences and options is over. Now we have to make a decision and choose. The devil you know or the devil you don’t. Compromise or chaos. If you want to be sure that Brexit happens, however much you might dislike this deal, there is only one course of action – vote for it.

Mark Carney: UK businesses not ready for Brexit

‘It is in the interests of the country to have some time to transition,’ BoE chief says.

Less than half of the U.K.’s businesses have initiated their contingency plans for a no-deal Brexit, Bank of England chief Mark Carney warned Thursday.

“The core of this financial system is ready, the Bank of England is ready, for whatever form of Brexit this country chooses to take,” Carney told the Today program in an interview. But “less than half of the businesses in this country have initiated their contingency plans for a no-deal Brexit.”

The BoE chief said: “All the industries, all the infrastructure of the country, are they all ready at this point in time? Best as we can tell, the answer is no.”

Carney said that while he doesn’t have a position on what sort of deal, if any, the U.K. should strike with the EU, “It is in the interests of the country to have some time to transition to whatever relationship it is.” He added that 18 to 24 months should be sufficient to get businesses and infrastructure up to speed.

The Bank of England on Wednesday released an 87-page report in which it found that the U.K. would be economically worse off under any scenario of Brexit.

“In the end Brexit is a unique situation where there is a substantial change potentially in the trading relationship with our biggest trading partner,” Carney told the Today program. “In a situation like that, the best thing the bank can do is to make sure the financial system is there to help it [make] that adjustment.”


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Best case Brexit scenario means 2.5 percent hit to UK growth over 15 years

Under a no-deal scenario, the government expects the GDP would be 9.3 percent lower over 15 years.

The U.K. would be worse off after 15 years under all Brexit scenarios, according to a U.K. government analysis.

In an 83-page document published today, analysts from several Whitehall departments estimated that, in a scenario in which Theresa May’s negotiating position for the U.K.’s eventual economic relationship with the EU is achieved in full,  GDP would be 2.5 percent lower over 15 years compared to remaining in the EU.

But May is unlikely to achieve everything she wants in the negotiations over the U.K.’s future relationship with the bloc. The analysis projects that were May to achieve a future deal halfway between her desired outcome and a Canada-style free trade deal, GDP would be 3.9 percent lower over 15 years.

Under all scenarios, U.K. GDP is projected to continue growing. Brexit’s effect is predicted to be a check on growth, rather than leading to a downturn. Under the no-deal scenario, GDP would be 9.3 percent lower over 15 years compared with a continuation of the status quo.

These figures assume zero net migration from the European Economic Area, but other projections in the document assume no change to EEA migration, reflecting the continuing uncertainty around the U.K.’s post-Brexit immigration policy. The analysis  sets out other scenarios and also contains a number of assumptions – reflecting the uncertain nature of the future relationship between the U.K. and EU, which has only been agreed in a non-binding political declaration.

Speaking on the BBC’s Today Program this morning, the Chancellor Philip Hammond acknowledged that Theresa May’s Brexit deal would entail a cost to the economy compared with staying in the EU.

“If you look at this purely from an economic point of view, there will be a cost from leaving the European Union because there will be impediments to our trade,” Hammond said. He said the prime minister’s deal “minimizes those costs.”


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Was the Withdrawal Agreement drafted by civil servants seeking to make remaining in the EU look attractive?

The Withdrawal Agreement has been drafted by a small number of Remain-inclined civil servants under the direction of a Prime Minister who campaigned for Remain. It will pay £39bn in reparations without any agreement on a future economic relationship with the EU. It isolates Northern Ireland as a colony in preparation for its future absorption […]

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The Withdrawal Agreement has been drafted by a small number of Remain-inclined civil servants under the direction of a Prime Minister who campaigned for Remain.

It will pay £39bn in reparations without any agreement on a future economic relationship with the EU. It isolates Northern Ireland as a colony in preparation for its future absorption into the EU. Martin Selmayr, the European Commission’s secretary-general, known as the “Monster of Brussels”, admits that this will be the “price” that the UK must pay for Brexit.

It locks the UK into a “single customs territory”, where the UK is subject to the laws of a foreign power without having any influence on how those laws are determined and without any unilateral right to leave – thereby protecting the EU’s trade surplus in goods with us of £95bn. This foreign power would determine the regulations for goods sold in Northern Ireland and for the UK-wide labour markets and would also set common rules for the environment, social standards and state aid “with the aim of ensuring the proper functioning of the single customs territory”.

During the transition period – which could be extended indefinitely – there would still be free movement, we would not regain control of our fisheries, the EU would still send us bills, and it can veto our foreign policy. Parliament would be required to pass laws to ensure public authorities and judges follow EU rules during the transition. The European Court of Justice (ECJ) would have supremacy over not only UK judges, but over the UK government transposing its EU obligations, and would also be the final arbiter of the Withdrawal Agreement.

And it gets worse: the EU can inhibit us competing against it, while it remains free to compete against us. Take financial services, one of our most important industries. For every £1 of financial services we buy from the EU, we sell £6 to the EU.  It will now seek to force significant parts of our financial services industry to move to the EU. Further, it has refused to agree a guaranteed enhanced equivalence declaration, so we will have to negotiate that in the transition period, while it continues to poach our business. Indeed, the agreement covering services – where we currently have a trade surplus with the EU of £28bn – will have to be negotiated during the transition period.

In terms of defence, the UK would be required to collaborate on future projects of the European Defence Agency, under conditions of EU law, with a European Army as the ultimate objective. Indeed, it is much more serious than this. The Prime Minister has secretly given away control of significant aspects of UK defence policy to the EU in a way that undermines NATO and our Five Eyes intelligence and security alliance with the US, Canada, Australia, and New Zealand. The clear intention by the EU is to destroy the UK’s relationship with the US and the Commonwealth.

And to top it all, the “single customs territory” will form the basis of our future trading relationship with the EU, thereby blocking any of the trade agreements that Liam Fox’s International Trade Department has been negotiating from ever coming into force. The “backstop” is permanent, thereby locking the UK into certain EU laws indefinitely.

And if we dared to defy the EU on any of this, it has threatened to block our planes flying into and out of our country and stop Eurostar trains from running.

All this amounts to little more than unconditional surrender. Yet the Prime Minister believes with “every fibre of my being” that the Brexit deal is the “right one for the country” – a country with the sixth biggest economy in the world, where only 8 per cent of companies trade with the EU, and where we buy £67bn more in goods and services from the EU than it buys from us.

The Withdrawal Agreement is so full of absurdities that neither Leavers nor Remainers could possibly accept it. It is not just a bad deal, it is the worst possible deal. The clear purpose of the British civil servants who drafted it is for people to think that, if this is what Brexit means, we’d be better off remaining in the EU.

In short, the Withdrawal Agreement is not intended to be the final stage of a transition to a “softer Brexit”, but rather the next stage in the establishment’s campaign – which began the day after the referendum – to reverse Brexit. Confirmation for this comes from comments made by senior EU officials heard by Patrick O’Flynn, the UKIP MEP for the East of England.  The plan – fully endorsed by British officials – is to get the UK back into the EU in time for the European Parliamentary elections in 2024, as he recently explained on BrexitCentral:

“Further comments suggested that a ‘purgatory backstop’ would be used to persuade the UK to reapply for membership rather than languish in the equivalent of EU solitary confinement on a diet of bread and water. Far from having left the prison, we would have to beg to go back on the wing and probably only get accepted on inferior terms – no budget rebate, fewer national vetoes – and possibly an undertaking to be absorbed into the euro and Schengen in due course too”.

This clearly has a ring of truth – and it means that the entire British negotiation has been an elaborate charade. Yet this deliberate deception is dangerous and delusional because of the way that the EU is heading.

The EU is an increasingly protectionist trading bloc with big business lobbying Brussels for more regulations to make it more difficult for small companies to enter the market and compete, and a Customs Union which imposes more than 13,000 tariffs on imported goods. As a result, EU consumers are paying an average of 17 per cent above world prices on food.

The EU is a political project that is fundamentally anti-democratic, as a whole range of European leaders have made abundantly clear. Jean Monnet said:

“Europe’s nations should be guided towards the super-state without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation.”

The “purposive” nature of EU law allows the ECJ to interpret and reinterpret the wording of EU laws in line with the European Commission’s (often changing) intentions. 

The euro currency is a disaster – and has led to unsustainable trade and capital flow imbalances between the southern and northern states, as well as wrecking the economies of the former. Most of the EU’s big banks are in very serious financial difficulty. There is increasing euroscepticism in the EU – dismissed as “populism” by europhiles – demonstrated by the East/West split over the immigration and internal security crises.

And to top it all, there is massive corruption in the EU, with the EU’s accounts not having been approved for the last 20 years by the EU’s chief auditor in respect of around €100bn of expenditures.

The EU, far from uniting Europe in an ‘ever closer union’, is slowly destroying Europe.

It is now quite obvious that the Prime Minister’s deal would not mean a meaningful Brexit, despite the clarity of her Lancaster House speech and the promise that “Brexit means Brexit”. Indeed, the deal shows complete contempt for the clearly expressed wishes of the British people in the referendum.

And what does a meaningful Brexit look like? Given the fact that the EU is not willing to cooperate in delivering a deal that is in the best interests of all the citizens of Europe, then the only solution is a non-cooperative one based on World Trade Organisation (WTO) rules. This is not “no deal”. It is precisely how we conduct around half of our international trade with the rest of the world. And it works.

According to the IMF’s Direction of Trade Statistics, 15 of the 22 largest exporters to the EU trade under WTO rules and increased their EU exports by 135 per cent between 1993 and 2015. The other seven had bilateral trade agreements and increased their exports by 107 per cent. The 12 original EU members increased their intra-EU trade by 70 per cent, while the UK increased its trade with the EU by just 25 per cent. UK goods exports to the 111 countries with which it trades under WTO rules have grown at 3 per cent pa, three times faster than UK trade with the EU.

In due course, a “Canada plus plus plus” deal might be agreed which involves services, and especially financial services, as well as goods. But none of this can be done under the terms of Theresa May’s Withdrawal Agreement.

The post Was the Withdrawal Agreement drafted by civil servants seeking to make remaining in the EU look attractive? appeared first on BrexitCentral.

Draft text aims for ‘ambitious, wide-ranging’ post-Brexit partnership

Political declaration document considered by EU27 ambassadors.

The U.K.’s future relationship with the EU post-Brexit will be an “ambitious, wide-ranging and balanced economic partnership,” according to a draft copy of the political declaration document seen by POLITICO that will accompany the Brexit divorce treaty.

European Council President Donald Tusk tweeted that the text had been “agreed at negotiators’ level and agreed in principle at political level, subject to the endorsement of the [EU] Leaders.”

The text has grown from a seven-page summary published last week alongside the 585-page draft Withdrawal Agreement, but negotiations on its content are expected to continue right up to the eve of an EU leaders summit on Sunday. After their meeting last night, the Theresa May said she would return Saturday for further talks with Commission President Jean-Claude Juncker.

Provisions in the political declaration include:

— A commitment on goods trade for the EU and U.K. to negotiate “a free trade area, combining deep regulatory and customs cooperation, underpinned by provisions ensuring a level playing field for open and fair competition.” That is a nod to the “near-frictionless” trade promised by May, but appears to fall short of her proposal for a common rule book that would mean the U.K. effectively remaining within the EU Single Market for goods.

— On the Northern Ireland backstop, the document says “The Parties recall their determination to replace the backstop solution on Northern Ireland by a subsequent agreement that establishes alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing.” That is likely designed to help Theresa May sell the deal to her MPs, many of whom are deeply unhappy about the backstop.

— A plan to “build and improve on the single customs territory provided for in the Withdrawal Agreement.” That will be controversial with U.K. Brexiteers because it suggests that customs arrangements included in the Northern Ireland backstop will form the basis for the future relationship — providing severe restrictions on any future trade deals. But, the draft agreement states that the future customs union will “build and improve on the single customs territory provided for in the Withdrawal Agreement which obviates the need for checks on rules of origin.”

— A commitment to “explore the possibility of cooperation of United Kingdom authorities with Union agencies such as the European Medicines Agency (EMA), the European Chemicals Agency (ECHA), and the European Aviation Safety Agency (EASA).” The EU has been resistant to the idea of associate membership for the U.K. of EU agencies. This looks like a softening of that line.

— On customs, the document says that “facilitative arrangements and technologies will also be considered in developing any alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing.” This leaves open the possibility of using new technology to prevent a hard border in Northern Ireland in future.

— On financial services, both parties pledge to begin proceedings to assess “equivalence” of each others rules immediately after Brexit day.

— On services, the EU and U.K. want to “conclude ambitious, comprehensive and balanced arrangements on trade in services and investment in services and non-services sectors, respecting each Party’s right to regulate.”

— On movement of people, there is a commitment to “establish mobility arrangements … based on non-discrimination between the Union’s Member States and full reciprocity.” These would allow visa-free travel or short-term visits and both sides “agree to consider conditions for entry and stay for purposes such as research, study, training and youth exchanges.”

— On fisheries, there is a no clear mention of an EU demand that access to EU markets for U.K. fishermen in a future trade deal should be contingent on access to U.K. waters. The text is pretty vague and says that “within the context of the overall economic partnership the Parties should establish a new fisheries agreement on, inter alia, access to waters and quota shares” adding that “the Parties will use their best endeavours to conclude and ratify their new fisheries agreement by 1 July 2020 in order for it to be in place in time to be used for determining fishing opportunities for the first year after the transition period.”

— On security, the document envisages a “broad, comprehensive and balanced security partnership” including data sharing of Passenger Name Record data and DNA, fingerprints and vehicle registration data for combatting crime.

— On data, the document envisages a deal by 2020: “In view of the importance of data flows and exchanges across the future relationship, the Parties are committed to ensuring a high level of personal data protection to facilitate such flows between them. The Union’s data protection rules provide for a framework allowing the European Commission to recognise a third country’s data protection standards as providing an adequate level of protection, thereby facilitating transfers of personal data to that third country.”

— On the European Investment Bank the two sides say they will “explore options for a future relationship with the European Investment Bank (EIB) Group.”

— The document does not mention Gibraltar.

Businesses call for state bailouts if UK crashes out of EU

Firms argue Brexit is a political crisis and no fault of theirs.

LONDON — A no-deal Brexit could require U.K. government bailouts like those following the financial crisis to prevent businesses from going bankrupt.

That’s the view of some in industry who see Brexit as a problem created by politicians that threatens to destroy British businesses and bring about an economic crisis.

Even if negotiators in Brussels craft a Brexit divorce deal in the coming days, it is far from certain that any agreement will be ratified by MPs in Westminster, and the U.K. could still leave with no deal at all, even though many among the country’s traders, manufacturers and in town halls say it is probably already too late to prepare adequately for it.

If the U.K. does fall over the Brexit cliff edge, ministers must leverage the government’s “financial muscle … in rather the way they did for the banks during the [2008] crash,” said Ian Wright, director general of the Food and Drink Federation, which represents 7,000 firms.

“If the government was to say no [to that] now there would be a very big question from British industry: ‘You were prepared to fund the banks who brought the crisis on themselves … but you’re not prepared to support British business which is completely innocent of any fault in the current circumstances?’”

Local councils have also expressed dismay at gaps in no-deal planning.

“Very few businesses in the U.K. asked for this to happen,” he added. “This is a crisis entirely created by politicians.”

While discussion of no-deal preparations has focused on what the government is doing — from re-engineering motorways to serve as lorry parks, to hiring more customs officers — industry and local government has also had a role to play.

They are closer to the day-to-day reality of U.K.-EU trade and their message is simple: At this late stage, there’s not much more that can be done to prevent major disruption.

In such a scenario some firms won’t survive, many predict.

Anti-Brexit demonstrators form a chain along Whitehall in London | Tolga Akmen/AFP via Getty Images

“If you’re an exporter and a significant proportion, say 30 percent or above, of your business is with the EU, or if you’re an importer and you have critical ingredients or products that you bring in from the EU — maybe you import feta cheese or salami — I think there’s probably relatively little you can do to be prepared for a no-deal Brexit. And for those businesses it’s perfectly possible that the disruption could be terminal,” said Wright.

A U.K. government spokesperson said in response: “It is in the interests of both the EU and the U.K. to strike a good deal and we are confident this will be achieved. But as a responsible government we are making plans for all possible outcomes, including the unlikely event that we reach March 2019 without an agreement.”

“This comprehensive no-deal preparation includes informing businesses through a series of technical notices what practical steps they need to take,” the spokesperson said.

Too late

When Whitehall published more than 100 “technical notices” over the summer giving advice to businesses, public authorities and citizens on what to do in the event of no-deal, the U.K.’s business lobby was unimpressed.

“We still don’t know exactly what no-deal would look like on the day it takes effect, whether the government would relax import controls or cut tariffs as a mitigating response,” said Allie Renison, head of Europe and trade policy at the Institute for Directors, which represents business leaders. “Even its own technical notices don’t suggest this, and much of the advice on import and export with EU has been fairly general.”

Only a third of the IoD’s more than 30,000 members have done contingency planning for a no-deal Brexit, Renison said.

Businesses using the ports could turn up the day after Brexit without the right paperwork or licenses.

Those that have not are often smaller firms that have struggled to afford the investment in staff, IT systems or outsourcing needed to ensure they are prepared for an EU third-country customs regime. With continuing uncertainty about whether there will or won’t be a deal, many have gambled on there being a deal rather than make an investment they can ill-afford.

“They can only prepare when they know the exact direction of travel,” said Renison. The IoD is also calling for financial support for business, in this case to assist with the cost of professional advice on no-deal planning. The Irish and Dutch governments have offered such schemes to businesses in their countries.

“As long as it remains government policy to potentially walk away, it is incumbent on them to make further provision to help firms be fully ready for the consequences of that outcome,” Renison said.

Local councils have also expressed dismay at gaps in no-deal planning. A report prepared for a meeting of the Local Government Association’s leadership board on October 17 said the government’s technical notices do not deliver essential practical guidance — or cash — for council-run port authorities that might be required to dramatically step up operations.

A lorry arrives at Dover Ferry Terminal on April 26, 2018 in Dover, England | Dan Kitwood/Getty Images

Pauline Bastidon, head of European policy at the Freight Transport Association, one of the U.K.’s biggest business groups, representing transporters, retailers and manufacturers, tells a similar story.

“Maybe three-quarters of the things that could have been done, if companies are waking up and deciding to do it now, it’s probably too late for March 2019,” she said.

At the moment U.K. government officials are considering waiving additional customs checks for all but security purposes in the event of no-deal. To alleviate snarl-ups at the ports of Dover and Holyhead, freight that needs thorough inspection will be sent inland to one of two clearing centers in southeast England at Milton Keynes or Heathrow. But there remains uncertainty at the very top of government about the stance French authorities on the other side of the Channel will take.

The problem is not just what the port authorities will do, but that businesses using the ports could turn up the day after Brexit without the right paperwork or licenses.

Concerns about food and medicine availability are well-documented.

“That’s quite probable,” said Bastidon, “certainly in the first few weeks. But should we really blame these companies? All these things come at a cost. When it comes to expenditure, companies have to ask: ‘Is it needed now?’ … The uncertainty around whether there is going to be a deal or not, all of this means that for industry it is a gamble [to spend on no-deal contingencies.]”

The government is aware of the risks.

Appearing before the House of Commons public accounts committee on November 5, Jon Thompson, chief executive of Her Majesty’s Revenue and Customs, listed “customer readiness” as one of the greatest no-deal risks.

“We are not going to be naïve about whether businesses will be ready for day 1, no deal,” he said. “That is currently rated red. To some degree, customers will not be ready for what would happen in the event of day 1, no deal.”

The consequences

In other words, the risk of no-deal disruption is real, and so therefore is the risk of goods shortages.

Concerns about food and medicine availability are well-documented, but even in these vital areas there remains uncertainty that enough has been done.

Representatives of pharmaceutical firms and the NHS warned Health Secretary Matt Hancock on October 31 that if a damning National Audit Office report on the state of government planning was correct, then “we will have widespread shortages if we do not respond urgently.”

British Prime Minister Theresa May leaves 10 Downing Street | Jack Taylor/Getty Images

As for food, the shelves will not be bare, Wright said, but added he is aware of firms already stocking ingredients from Europe that might become temporarily inaccessible in the event of no deal.

If the disruption lasts longer than a month or so, he said, there are “very, very few businesses which could stockpile enough of their ingredients or products this side or the other side of the Channel to be able to bulletproof themselves.”

“I think there will be businesses who through no fault of their own will be put at very serious risk,” he said.

Brexiteers fear price rises, not return of Irish border

Poll for POLITICO finds nearly half of voters believe that Brexit’s economic legacy will be positive a decade hence.

LONDON — Few things are likely to change the minds of the British public on Brexit — and the Irish border almost certainly isn’t one of them.

While the debate in Westminster, Brussels and Dublin is now almost solely focused on efforts to avoid a hard border between Northern Ireland and the Republic of Ireland, most U.K. citizens appear largely apathetic. According to an exclusive poll for POLITICO by the consultancy Hanbury Strategy, they are far more concerned about the possible effect Brexit will have on prices in the shops.

The data suggests that some potential negative outcomes of Brexit are more likely than others to make voters change their minds. And the responses of Leave supporters to the poll indicate they are particularly resistant to having a change of heart if things get rough — whatever the outcomes.

Presented with a list of possible consequences of Brexit, 35 percent of Leave voters said prices going up in shops would be likely to change their opinion — the highest of any potential negative outcome. In second place, 32 percent of Leavers said staff shortages in the NHS could make them think again.

But less than 22 percent of these voters said that the creation of a hard border between Northern Ireland and the Republic of Ireland would shift their stance on Brexit, while 42 percent said that it was unlikely to.

The figures are based on a poll of more than 3,000 people, including 1,236 Leave voters, carried out between October 29 and November 2, which was weighted to be representative of the U.K. population.

Notably, no single negative scenario — not a major recession (27.5 percent), millions of job losses (29 percent), food shortages (28 percent) or medicine shortages (30 percent) — is likely to prompt a majority of Leavers to change their mind.

Economic impact

Overall, respondents were much more positive about the long-term outlook for the U.K. economy after Brexit, but with some significant concerns — even among Leave voters — about the short-term impact.

Asked whether Brexit would have a positive or negative impact on the economy, 45 percent said that the weeks immediately after Brexit would be negative and only 26 percent thought the opposite (the rest expect a neutral impact). Even among Leave voters, 26 percent expect the impact weeks after Brexit to be negative for the economy.

However, 38 percent of people believe that a year after Brexit the U.K. will doing better economically. The exact same number believe things will have gotten worse.

Ten years down the line, 48 percent of people believe that Brexit’s economic legacy will look positive, compared to just 26.5 percent who think the effect will still be negative.

All that though depends on the U.K. government getting a divorce deal in the short term. Amid continuing uncertainty that Theresa May will be able to secure a Withdrawal Agreement that will satisfy the U.K. parliament, respondents were asked to choose from a range of options for next steps should MPs reject May’s plan.

Reflecting the continuing Leave/Remain split in U.K. opinion, the most popular options were to leave without a deal (34 percent) and stay in the EU (26 percent). Eighteen percent back the opposition Labour Party’s preferred option of a general election.

Given this range of options, only 9 percent said they want a second referendum on EU membership and only 8 percent back a referendum where the options would be May’s deal or no deal. Six and a half percent went for none of the above.

However, when asked the second referendum question in a different way — “When the negotiations with the EU are over, would you support or oppose a public vote on the outcome of the negotiation?” — 43 percent support the idea, 35 percent oppose and 22 percent don’t know.


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Alexander Temerko: The relationship between business and government has never been as meaningless as under May

The key to a good Brexit is empowering UK entrepreneurs to talk to their European counterparts and become ambassadors for Downing Street’s plan.

Alexander Temerko is an industrialist and a Conservative Party donor and activist.

Never has the relationship between business and Number Ten been as meaningless or fruitless as under Theresa May. She continues to repeat the mantra that she is leading a pro-business government, but that is an exaggeration. Hers is not an anti-business government – that would be a more accurate way of putting it.

A pro-business government is what Margaret Thatcher and David Cameron led in their day; it’s what Donald Trump, Xi Jinping and Angela Merkel are leading today. Despite her soft-spot for SMEs, our Prime Minister is undeniably afraid of global business.

Globalisation has shown that big business and public-private partnerships (something we hardly see in the UK anymore) are the real long-term drivers of a steadily growing modern economy. The presence of global business centres is what makes the difference between a country that’s prosperous and one that’s merely surviving. Indeed, such business is the powerful locomotive, pulling along SMEs and much of the socio-economic activity in the regions.

Business leaders have always been there to support May’s Government at the most critical times. Yet our “strong and stable” leader has repeatedly shunned any direct engagement with business in favour of sporadic consultations with the trade lobby, whose academic experts’ interests have long since been prioritised over representation of any actual economy sectors.

The Prime Minister has a presidential style of leadership. Her talent is for forming small, quasi-familial groups of trusted advisers. While David Cameron was comfortable working with big diversified teams, she seems reluctant to engage with the broad meritocratic audiences whose praises she so often sings. This desire to keep discussions tightly controlled has had a negative impact on almost every key policy decision taken to date. It is time to change.

Today, not only the country’s economy but also its integrity hinges on the UK business community backing the Brexit plans proposed by the Prime Minister and her Cabinet. No-one wants Brexit to be a disaster – but how to avoid it without break-through ideas and bold compromises?

The British economy will quickly lose its appeal should financial, industrial and services majors, driven by impending uncertainty and the fear of mounting responsibility to shareholders, relocate their headquarters and investment capital to more profitable jurisdictions with more predictable regulations. This could, in turn, trigger almost instant separatist rhetoric and action by the country’s subsidised regions.

Inside the eye of the Brexit storm, this outcome would be increasingly irreversible. People will start going by the saying “Better a painful ending than endless pain”. One person will certainly be delighted with a “painful ending”: his name is Vladimir Putin. Are we willing to afford him the pleasure? The answer is clear even to Jeremy Corbyn and Jacob Rees-Mogg, both of whom have been aiding this “painful ending” by holding on to his very own wrong end of the stick.

Europe would suffer, too. Take just one example from my industry: 70 per cent of our utilities are owned by European firms. Machinery and metal products are another trade goldmine for European business. At a time of escalating conflict with the US and sanctions or restrictions in trade relations with China, Russia, Iran and others, this is key. Europe just cannot lose Britain with its import-oriented economy as well. If that happens, countries right at the heart of Europe – France, Germany, Portugal, and to some extent Belgium and Holland too – will feel the pain.

However, in these countries, business is much more influential and integrated with the operation of Government. European business wants to live and wants to live well – which makes it our best ally in promoting a sensible responsible Brexit.

Businesses talk best with other businesses. They will not waste time talking when they don’t know if they are being heard by the Government, though. Hence, the key to a good Brexit is empowering UK entrepreneurs to talk to their European counterparts and become official ambassadors for the Government’s Brexit plan.

The other key piece of the puzzle is for May to accept the Irish border backstop – provided that the EU undertakes to guarantee our country’s integrity. This would restrain any spontaneous separatist movements in the UK, at least for as long as the EU continues to exist. If accession to the EU is all but impossible for any breakaway state, withdrawal from the UK would be pointless.

What happens if our Government does not create the broad coalition of business it needs and push bold compromises through? Quite simply, if there is no deal hammered out by December, a new election will be the only option to avoid the catastrophe of no deal.

If the Chequers plan falls through, it clear to almost everyone today that Parliament will not accept any other plan – be it Canada-plus, Australia-minus or a No Deal. The European Commission for its part, will not consider any new proposals, since none of them could get a majority in the UK Parliament and Europe will itself be moving into EU Parliament elections.

All that’s left are two options. They are both domestic – either a new referendum or another snap election. It is up to Parliament and our political elites to choose. They have to choose between their two great fears: the fear of a new election which is highly likely to mean a coalition government, and the fear of a new referendum that goes against Brexit.