Avoiding the Brexit cliff edge
Carolyn Fairbairn tells The Sunday Times why businesses want pragmatism in EU negotiations to save jobs and investment
Businesses are deeply concerned about Brexit and getting more so by the day. Not about the fact that Britain’s exit from the European Union is happening — they’re fully committed to making it work. The concern is how we do it.
After three rounds of Brexit talks marked by hardball headlines and snail’s-pace progress, the prospect of “no deal” in March 2019 feels all too real. The costs of this are serious. The countdown is on and businesses in the UK and on the Continent are making investment decisions now, the impact of which will be felt for years to come.
According to a recent CBI survey, 40 per cent of UK firms are reducing or delaying investment in response to Brexit uncertainty. Though we should celebrate record employment, official data shows flat investment by businesses over the year to the second quarter.
This matters because spending on new factories, headquarters and digital technology today fuels the careers of tomorrow and raises living standards. It’s time for both sides to be pragmatic, break the deadlock and move on.
The top priority is to open talks on a “status quo” transition for business, lasting two to three years. That will clear a path to discussing the main prize: trade between the UK and the rest of the EU, worth well over €600bn (£528bn) a year.
The type of transition also matters. Keep it simple. The UK should stay inside the single market and a customs union until a final deal is in force. This means only one set of changes, not two, for businesses on each side of the Channel. Two transitions would be wasteful, costly and would prolong negotiations.
The CBI proposed this approach in the summer, and the government’s increasing support for a single transition is welcome. The next step is to cast it in stone as UK policy and build backing for it within the negotiations.
In a letter this weekend, the CBI was joined by more than 100 businesses from across the UK in emphasising the importance of agreeing a transition deal as soon as possible. These companies, from Ford and Wagamama to Fuller’s pubs and Manchester Airports Group, employ more than 1m people in the UK and on the Continent.
Their message is clear: removing the cliff edge for business, sooner rather than later, will save jobs and investment, protecting prosperity across the EU.
The prime minister is due to give a speech on Brexit in Italy on Friday. This is an important opportunity to move forward — a chance to put proposals on transition at the centre of government strategy. Businesses will work with all our partners to accelerate consensus.
The EU should allow transition proposals to be discussed early to unlock other vital issues. Ireland is among the most pressing. The UK has put forward ideas on the future of the border with Northern Ireland, some principles have been agreed, yet a solution cannot be found until agreement is reached on transition and trading arrangements.
A status quo transition for business has been characterised by some as a back-door route to retaining EU membership. This could not be further from the truth. Once the two-year period for article 50 is over, the UK will no longer be a member. Any transition must have a clear end point of no more than three years. Perpetual postponement would only create more uncertainty.
Just over half of the UK’s goods trade is with the EU, and all sectors would be affected by a cliff-edge outcome. “No deal” would affect many areas of life, from holiday companies being unable to sell breaks on the Continent to big delays at ports for people and goods. The UK would face tariffs on 90 per cent of EU-bound products as well as a growing swell of non-tariff barriers as regulations diverge, adding further cost and complexity.
The impact would also be felt heavily in the EU. For example, the introduction of World Trade Organisation tariffs on imports would hit the German car industry and French agriculture.
Much more binds us than divides us. Our negotiators should work to ensure substantive progress is achieved as soon as possible. An unconditional guarantee to EU citizens of their right to stay in the UK would help break the deadlock. Then the aim should be discussion of transitional arrangements from October, with an agreement by the year end.
British businesses are resolute in their ambition to make a success of Brexit. As the political temperature rises, it is more important than ever for leaders from business and politics to focus calmly on the main goal. Now is the time to move the negotiations on to a new phase of pragmatism and solutions, for the benefit of generations to come.
This piece was original published in The Sunday Times on 17 September.