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The Business View and the Prime Minister's Speech – How do they match up?

In her speech on 17th January 2017, the Prime Minister set out her most detailed plan yet on the Government’s intentions for the UK-EU negotiations.

Businesses will take a keen interest in what the speech could mean for the UK’s future trading relationship with the EU and the rest of world. This piece analyses the Prime Minister’s speech using 6 key principles the CBI set out in its Making a Success of Brexit report in December 2016.  

1. Business wants the Government to achieve a barrier-free relationship with our largest, closest and most important trading partner 

Single Market - We now know for certain that the UK will be leaving the European Single Market and seeking a comprehensive Free Trade Agreement. Ruling out membership of the Single Market does narrow down the options that Government has, and raises many questions. However, the Prime Minister’s ambitions are to keep trade tariff-free and barriers to trade as low as possible, and for the deal to cover both goods and services. These are the right ambitions, and very welcome. 

The important role financial services play in our economy was recognised with an explicit mention of an agreement on mutual trade in financial services. However, no other services industries were named in the same way, so UK business must ensure that – where preferential trade in services is important – the case is made clear. 

Customs Union - The Prime Minister recognised that leaving the customs union entirely could mean the return of tariffs, non-tariff barriers like Rules of Origin paperwork, and disruption for supply chains. The Government wishes to avoid these barriers to trade through a bespoke customs deal. This was very welcome. 

The challenge will be to negotiate a customs deal that minimises any new trade barriers while regaining control of the trade tariff which the UK sets on its external trade, as the Prime Minister has committed to doing. The EU has not negotiated a deal which decouples these aspects before, but this is an unprecedented situation and could be part of a comprehensive trade deal. 

No deal – The Prime Minister did not rule out a situation where the UK and EU might fail to reach a deal, stating that a “no deal” scenario is better than a “bad deal” scenario. Business is clear that trade falling back under WTO rules without a deal would be disruptive and damaging to both the UK and the EU, and is to be avoided. The CBI will continue to make this case. 

2. Business wants the Government to set out a clear plan for regulation that gives certainty in the short-term, and in the long-term balances influence, access and opportunity 

Certainty of regulation - The Prime Minister reiterated that the Great Repeal Bill will carry over the bulk of regulation from the EU, to create as much certainty as possible. This ambition is welcome but the questions businesses have about the practical challenges this presents have yet to be answered. However, the Prime Minister’s commitment to proper parliamentary scrutiny of the deal is helpful to ensure we get important pieces of regulation right.

Access through regulation - To achieve the ambition of keeping trade with the EU as barrier-free as possible, there will be areas where the UK and EU will have to cooperate on regulation. There are many areas in which we need mutual recognition, equivalence, or adequacy negotiated to secure preferential trade. The Prime Minister stated that laws will be set in the UK, but did not supply any further information on how cooperation with Europe will be achieved. UK business must ensure that – where regulatory cooperation is important – they work with the CBI and other trade bodies to explain the importance of it to the government. 

Influence over regulation – The Prime Minister did not give any further information about how the UK will continue to influence regulation that it may cooperate on or might still apply. Single Market membership has so far meant that the UK has had influence over these rules, but leaving the single market will mean it no longer has MEPs to do this, or an automatic right to sit on committees. Some method of regulatory influence could be considered as part of a comprehensive trade deal, so this is likely to be a matter for the negotiations.  

3. Business wants to see the Government establish a migration system which allows businesses to access the skills and labour they need to deliver growth 

Migration – The Prime Minister reiterated her intention to control and reduce EU migration. In an important and very welcome step, the Prime Minister recognised the contribution that migration makes to growth – filling skills shortages, delivering public services and making British business world-beating. This was particularly focused on high-skilled immigration. The CBI will continue to make the case for the important contribution that non-graduate labour also makes to our economy. 

It was also positive to hear the Prime Minister commit again to securing the status of EU nationals already in the UK early-on in the negotiations. We would, however, like to see this issue sorted unilaterally, rather than as part of the negotiations. 

Overall, we learnt little new about the government’s approach to migration post-Brexit. 

4. Business wants to see the Government set out a renewed focus on global economic relationships, with the business community at their heart 

International Trade – The Prime Minister's ambition to deepen trade with old friends and new partners was very welcome. The business community wants to see the UK being open and outward-looking, and to show leadership in making the case for free trade. Businesses will need to be consulted carefully on priorities for these new trade arrangements as they are considered, and the CBI will work with the government to achieve this.

5. Business wants to see the Government set out an approach that protects the social and economic benefits of EU funding 

Flexibility – While ruling out substantial payments to the EU budget, the Prime Minister stated the government’s openness to negotiating payments for access to certain programmes. This was a very welcome step, as continued involvement in the European Investment Bank and the EU’s research programmes should be explored. 

EU research programmes – The Prime Minister signalled her ambition for the UK to be one of the best places in the world for science and innovation. This includes continued collaboration with European partners on major science, research and technology initiatives – which the business community would support. 

6. Business wants to see the Government ensure a smooth exit from the EU, avoiding a “cliff-edge” that causes disruption

Implementation – The Prime Minister set out the government’s ambition to seek a phased approach to the implementation of a new deal with the EU, to avoid disruption for businesses wherever possible. The CBI has been making the case for an implementation phase for some time, and welcomed this commitment.

Timing – The Prime Minister stated that the government’s intention is to negotiate a new trade deal with the EU within the 2-year Article 50 timeframe, which is an ambition business shares. However, if this is not possible, the Prime Minister made mention of negotiating potential time-limited interim arrangements where necessary. This was a positive step. 

 

The Prime Minister also made important points about the relationship between Westminster and the devolved nations. While reiterating the Government’s commitment to maintaining the Common Travel Area and free flow of goods between the UK and the Republic of Ireland, there was no more information about how that would work in practice. A commitment was made to ensure there were no new barriers put in place between the UK’s nations, while acknowledging the Scottish Government’s options paper that called for further devolution.

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