Brexit negotiations: evidence not ideology

26 January 2018

As CBI director-general Carolyn Fairbairn calls for a customs union after Brexit, trade associations and businesses offer their support

By March next year, the UK will be out of the EU. And in a speech at the University of Warwick on 22 January, CBI director-general Carolyn Fairbairn called for a fundamental change in approach to the Brexit negotiations.

With time running out to secure a good Brexit for Britain, she argued that clarity, flexibility and urgency were vital. 

“The current debate isn’t delivering clarity, it’s delivering contradiction and confusion. To move forward, we must consign the labels ‘Leave’ and ‘Remain’ to history. The overriding goal now is a good Brexit,” she said.

“Instead of ideology, we need facts and evidence to make the hard choices.”

She called for both sets of negotiators to revisit red lines, putting economics before politics to protect jobs and communities on both sides of the Channel. And in the CBI’s strongest intervention since calling for a transition deal ahead of the Prime Minister’s Florence speech, Fairbairn stated the case for a customs union after transition.

She reasoned that a customs union was a “practical, real-world answer” that could help resolve some of the complex issues raised by the UK’s exit from the EU.

Drawing on conversations with thousands of CBI members, these issues include the damaging prospect of a land border for Northern Ireland; the highly integrated European supply chains for businesses in the aerospace, automotive and chemical sectors; and the difficult decisions SMEs are facing as they try to grow their business, when they might be confronted by trade barriers for the first time in their existence.

The reaction

The CBI received strong statements in support of the speech, from the TUC, trade associations and individual businesses.

Building on Fairbairn’s explanation of why neither a Canada- or Norway-style deal would work for the UK or the EU, TUC general secretary Frances O’Grady argued a Canada-style deal “would be bad for jobs, bad for public services and bad for rights at work”. She also called on the government to “put all options on the table”, going further to include single market membership.

"Unless we have a customs union and rules of origin stay as they are, there will be a significant drop in foreign investment

Professor Nigel Driffield of the University of Warwick’s Business School, who was in the audience for the speech, referred to his own research on foreign direct investment after Brexit. “It’s all very well and good talking about Canada and Norway, but there is one big distinction: you do not invest in Canada or Norway to serve the European market, which is the reason why so many businesses have invested in the UK.” he said. “Unless we have a customs union and rules of origin stay as they are, there will be a significant drop in foreign investment.”

That could have serious consequences for companies in the energy sector, said Michael Lewis, chief executive of E.ON UK. The current confusion in both the UK and the EU are “a particularly unwelcome development to the energy sector,” he continued. “The sector is already undergoing a period of drastic change and reform, and still requires significant and long-term capital investment to deliver, for example, the smart meter rollout, intelligent networks and the rapid growth of e-mobility and other low carbon transport solutions.”

As the UK head of a pan-European business, he said it would come as no surprise E.ON wants to remain as close as possible to our largest trade partners and continue to share European expertise. But he also spoke of the benefits to EU and UK consumers if the UK continues to contribute to overall European energy policy as part of an interconnected energy system “which will be essential as we continue decarbonisation”.  

Interconnected sectors

Other sector representatives told a similar story. In the aerospace sector, Paul Everitt, CEO of ADS, agreed that “a customs union between the UK and EU is essential to ensure our supply chains remain globally competitive”.

Likewise, healthcare could also suffer with any change to existing customs arrangements, explained Mike Thompson, CEO of the ABPI. "With the UK importing 37 million medicine packs of medicine from the EU every month, and the UK exporting 45 million packs to the EU, it could create border chaos, cause damaging delays and ultimately put patients and public health at risk,” he said. “This entire system is highly integrated and interconnected – and we support a Brexit deal that can secure the most frictionless trade arrangements possible, ideally preventing friction entirely. Every option needs to be on the table.”

Every option needs to be on the table

And offering a retail perspective, Sir Charlie Mayfield, chairman of the John Lewis Partnership said: “A clear transition period and maintaining the free flow of goods from the EU and beyond need to be the top priorities for the government. This is especially important for the retail sector – the UK's largest private sector employer which is so reliant on importing goods to the UK to meet consumer demand."

Impact already being felt

The impact already being felt on investment and hiring decisions was again made clear.

Kevin Green, CEO of the Recruitment and Employment Confederation (REC) argued that businesses have been “kept waiting too long” for clarity. Its data shows that employer confidence in the economy is suffering as a result. “It’s starting to impact hiring plans,” he said. “Recruiters tell us that their clients are already moving jobs abroad and this will increase if they don’t feel reassured.”

He also reiterated the importance of certainty for EU workers – but businesses in the room highlighted the need for access to skills abroad was something that had yet to be widely understood by the media – and, in turn, the general public.

Business needs to work hard to make that case, said Fairbairn, adding: “We must also talk in parallel about investment in homegrown skills”.

Is government really listening to the logic of a factual argument?

But labour is just one issue already posed by Brexit for Michael Choules, director of financial control and planning at Tarmac. The company has seen input costs rise, thanks to the weak pound and inflation, and he’s seen investment decisions slowing across the construction sector and more big projects being phased as a hedge against the uncertainty.

“Clarity and urgency are absolutely important,” he said after the speech. “But is government really listening to the logic of a factual argument?”

A pragmatic approach

Even though Jonathan Duck, CEO of Amtico, said his business has benefited from the currency devaluation that has followed the Brexit vote – and he ranks the UK’s split with the EU as low on his list of top five business concerns – he agreed with the message that both sides should stop messing around and take a realistic approach to securing a deal.

And this applies to future trading relationships too, said Anthony Walker, deputy CEO of TechUK.

“While staying in a customs union would prevent future trade deals with others, the reality is that the most important trade deal of all, for both goods and services, is the one we have with the EU. With the clock ticking, the price of not being able to create new trade deals may be a price worth paying.”

With the clock ticking, the price of not being able to create new trade deals may be a price worth paying

As businesses pointed out during the Q&A after the speech, the UK is also more than capable of improving its trade with markets outside the EU, while part of a customs union. Germany, for example, does more than 10 times as much trade with China as the UK.

And as Fairbairn herself said, the 11 countries in the Trans-Pacific Partnership account for only 7 per cent of our trade, while Germany alone accounts for 11 per cent.

It’s why she urged negotiators to “start with the rules we already share and move on from there. They have been 40 years in the making and support millions of jobs and communities across the UK and Europe.”

She explained the idea of a customs union as a simple one, which brings no obligations over freedom of movement, or payment and removes some of the heaviest trade barriers. “Importantly, it would go a long way towards solving the border problem in Ireland,” she said.

But most vital of all, she concluded: “Decisions must be taken fast, or firms will have no choice but to trigger their Plan Bs – more jobs and investment will leave our shores and future generations will pay the price.”

Read more about the facts behind the call for a customs union

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