A business plan for a good Brexit

It’s good to be back at the University of Warwick.

A great friend of business…

…and a highly valued member of the CBI.

A very warm welcome to everyone here today.

My starting point is three cheers for the UK economy.

There’s a lot to be positive about.

We’re seeing strong global growth.

In the US, China, India, and Europe – that’s a great boost for British firms.

We are doing so well in many industries of the future…

…from tech and creative industries

…to life sciences and advanced manufacturing

Indeed, in many of the fields that the West Midlands and your firms are famed for

What we produce is in demand the world over.

Yet while UK businesses are optimistic…

…they are also apprehensive.

Firms are not looking for a referendum re-run.

But they do need a good Brexit deal – and speed really matters.

Two years of uncertainty is taking its toll

We forecast the world’s economy to grow at 3.7% this year.

And UK growth to be just 1.5%.

We have slipped from the top of the G7 league table in 2015 to near the bottom in 2018.

The UK economy could - and should - be growing faster.

And without the handbrake of Brexit uncertainty, it would be.

We warmly welcomed the agreement in December...

Which meant talks can begin on a transition period…

…and on our future trading relationship.

But January has brought a cold dose of reality.

Transition talks don’t begin until next month.

Trade talks only in late spring or even summer.

And negotiators seem a world away from agreement.

The EU is adamant that the only options are existing models…

…that don’t serve either side.

The UK team can’t agree with itself.

Let alone with the EU.

There’s too much ideology.

Too little urgency.

But it doesn’t have to be like this.

It’s not too late to take a different approach

One that secures mutual prosperity…

…opportunity for the next generation…

…while respecting the result of the referendum.

This afternoon I will set out what we believe needs to happen to achieve a good Brexit.

It’s informed by our members.

Firms large and small, from all parts of the UK. And from all sectors.

Business doesn’t have answers to everything.

But if there’s one thing we do know well, it’s negotiation.

About reaching deals that work for both sides.

And our themes today to achieve this are clarity, flexibility, and urgency.

It’s about being clear on what we want.

Clear on the consequences if we get it wrong.

And on the opportunities if we get it right.

The current debate isn’t delivering clarity.

It’s producing disunity fuelled by ideology.

Now, business isn’t interested in ideology.

We’re interested in evidence, facts, analysis.

Impact assessments of hard choices.

And in this spirit we’d like to see the labels “leave” and “remain” consigned to history.

2018 has to be about pulling together to get a good Brexit.

Now we’re not naïve.

We understand the need to set strong opening positions…

...present stark choices…

…draw red lines.

BUT negotiation should aim at agreement.

What matters is not the opening position.

But the closing position.

And if we do look at the evidence…

…it’s clear that the options on the table don’t work for anyone.

Not for the UK.

Not for the EU.

And certainly not for our prosperity.

Let me start with no-deal – still an option advocated by some.

The CBI has been clear about the damage this would cause, but it bears repeating.

Most people now agree a no-deal scenario would be an act of great economic self-harm.

No deal – ie trade on WTO terms - would increase costs on UK goods sold to the EU by between £4bn and £6bn per year.

Tariffs paid by UK consumers and businesses on imported goods could be more than double this, between £11-£13bn.

And the cost of non-tariff barriers – including extra checks and form-filling – would be significantly more.

We’d face:

confusion over everything from contracts to chemicals regulation

Uncertainty for 4 million citizens;

Blocks to our biggest services: financial, aviation, broadcasting

Disruption at ports and airports.

Today, up to 10,000 trucks will pass through the Port of Dover.

The Port has said that even a two-minute delay would mean 17-mile tailbacks.

This isn’t just a UK problem.

Those trucks would be queuing at Calais, Antwerp and Rotterdam too.

A Belgian study found that a no-deal Brexit could destroy over half a million jobs in the UK.

And 1.2 million jobs in the EU.

So, the evidence is clear.

The UK and the EU need a deal.

But the question then becomes: what kind of deal?

And at the heart of this question lies a genuinely hard choice.

It’s the choice between control on the one hand…

…and access on the other.

For the UK it’s control over immigration, trade policy and rules at home…

…versus access to smooth trade with European markets on the other.

The EU is proposing a binary choice for the UK – between Norway’s deal with the EU

Or a Canada-style free trade agreement.

The trouble is that neither of these options is the right answer for business or for the UK.

Take the Canada option.

Yes, a Canadian model delivers high levels of control.

Over immigration, regulation and trade policy.

And yes, a Canada-style deal works well for Canada.

But it would be a bad Brexit outcome for the UK.

And for the EU.

Because the Canadian deal was built around a single premise.

Of taking two economies that are currently wide apart…

…in geography, standards and trade…

And bringing them closer together.

For instance, Canada does less than 10% of its trade with the EU.

We do half of our trade with the EU – 43% of our exports and 53% of our imports.

And what for Canada represents a lowering of trade barriers…

…would for the UK represent a raising of trade barriers.

And when the EU is our largest trading partner…

…we can’t afford higher barriers to trade.

And neither, in our view, can the EU.

Let me give you a few more of the facts.

Trade with the EU matters to thousands of UK firms.

Three in four firms who export do so to the EU.

And over 95% of these firms are SMEs.

The firms who can least afford red tape and barriers.

At the moment, they need only complete a simple form.

But with a Canada-style Free Trade Agreement, firms exporting to the EU would face customs declarations…

…filling out a 12-page form for each consignment of goods they send to customers.

Every consignment would also need a VAT registration and certificates of origin…

…declaring how much of each product has been made where.

The Canada-deal rules of origin are as long as The Lion, the Witch and the Wardrobe.

And a lot less fun to read.

And it’s not just goods.

Services, too, would be hit by a Canada-style deal.

Broadcasting and financial services are not included

Our creative industries and legal services would be hit hard.

And it would cut both ways.

8,000 European financial services firms would find their cross-Channel business disrupted or blocked.

I could go on.

I could talk about the two sets of product tests that would be imposed on manufacturers here and in the EU.

I could talk about the 3 months it takes for European-made drugs to be cleared for sale in Canada.

Or what would happen if mutual standards diverged over time.

Perhaps requiring different production lines on factory floors.

But I think the point is clear.

A Canada deal is an ocean away from what we need.

And the numbers bear this out.

Studies generally suggest that a Canada deal would lower our GDP somewhere between 2% and 5%.

Now, it’s only by focusing on the evidence in this way…

…that we achieve clarity on what’s at stake.

Thousands of jobs.

Complications for our firms.

On both sides of the Channel.

We’d have control, but at great cost in terms of access.

So what about the Norway model?

It would give the UK great market access.

Norway’s businesses say it’s worthwhile.

And Norway’s politicians can influence EU rules.

A Norwegian-style solution could work for businesses here.

But for the UK, the Norwegian model’s lower level of control is a political problem.

There’s the obligation to permit the four freedoms, including freedom of movement.

Not to mention the substantial contribution Norway pays to EU countries.

And there are some business problems too.

Such as the delay in the transposition of EU regulations.

For instance, when Norway hesitated over EU chemical rules…

…investment in the sector came to a halt.

And a delay applying rules on salmon sourcing…

…meant trucks containing fish were stopped at the border.

So while…a Norway deal would provide valuable access we can and need to do better than this.

So…if this was a hard-headed business negotiation…

…these facts would prompt both sides to think again.

It would be time for revising those opening positions.

And revisiting red lines.

And that, I suggest…

...is precisely what needs to happen here.

That both sides should examine red lines through the lens of evidence and the test of prosperity.

To find a solution to the shared challenge of barrier-free single market access - in both directions - after Brexit.

And that brings me to our second theme.

Flexibility.

Because with flexibility

…a solution can and must be found.

It would be a solution that delivers a good measure of access and control.

A solution that’s neither Canadian, nor Norwegian.

But one focused on prosperity.

It would reflect the size of our economy.

Its value as a marketplace next-door to Europe.

And would build on 40 years of economic integration.

And on both sides of the Channel…

…new kinds of solutions are beginning to be sketched out.

They share a vital point of principle.

Let’s start with the rules we already share and move on from there.

This is welcome thinking.

It starts with what we have.

Yet recognises that if future divergence makes sense…

…both sides could have the choice to do so.

For many sectors of our economy, this approach could make all the difference.

UK firms are certainly not clamouring for deregulation.

Our aerospace, automotive and chemical sectors, for instance, have highly integrated European supply chains

Each business in that supply chain benefits from consistent regulation.

And most will want to maintain it.

We know future divergence might come at the expense of smooth access to EU markets…

But if that is right for jobs, living standards and prosperity…

…then that’s a choice to be made.

This creative approach deserves serious thought.

The EU has already set useful precedents

Turkey, Ukraine, Switzerland, even Norway.

All these were new solutions once.

Of course we’d need new ways to manage disagreement and exert influence.

Perhaps through a new, independent court or joint committees to discuss rule changes.

A flexible solution of this kind could preserve many of the benefits of barrier-free access to the single market.

While respecting the referendum call for more control.

A pragmatic alternative to single market membership…

…that just might meet the needs of business and politicians on both sides of the channel.

…while safeguarding the prosperity of our nations.

Leave customs union on table 

And I’d like to make a final proposal from business about what should happen next.

And that is about the UK’s customs arrangement with the EU.

The idea behind a customs union is simple.

A single set of tariffs for goods imported from outside the EU…

…enabling tariff free trade within it.

It brings with it no obligations over freedom of movement, or payment.

It removes some of the heaviest trade barriers.

Yet it did not appear as an option in the government’s customs paper.

Here, again, we ask: what does the evidence say?

What is best for jobs, wages and living standards?

Particularly with regard to Northern Ireland?

Northern Ireland is the only part of the UK that shares a border with the EU.

And the Island’s economy is deeply integrated.

Some have suggested that the Irish border be kept seamless…

…by establishing a customs border in the Irish sea.

But that just moves the problem.

And makes it worse.

Because exports from  Northern Ireland to Great Britain are 4 times greater than to the Republic of Ireland.

Solving this very serious problem has been deferred.

But it can’t be forever.

Now we recognise this isn’t easy.

Of course it’s worth looking at the alternatives.

Yet unless and until we find one that works…

… or a convincing evidence based case is made to the contrary…

…a customs union should serve as a practical, real-world answer.

Now, there may come a day…

… when the opportunity to fully set independent trade policies…

…outweighs the value of a customs union with the EU.

But that day hasn’t yet arrived.

Take the Trans-Pacific Partnership proposal.

It’s worth considering.

But the 11 countries in the Trans-Pacific Partnership account for only 7% of our trade.

Yet Germany alone accounts for 11% and the whole of the EU 49%.

And there is plenty of scope to build global trade within current deals.

Germany exports 4.7 times more than the UK to China – from within the European Union.

So – we are recommending that the UK puts forming a customs union with the EU back on the table.

Subject to negotiating a good deal, of course

It’s a practical proposal that would..

…build on lessons learned from others…

…is consistent with the result of the referendum

…and would take us at least halfway to solving the border problem in Ireland.

To be crystal clear, a customs union is only one part of a compelling Northern Ireland solution and future EU-UK agreement.

On its own it’s not enough.

The other vital part Is a deep relationship with the single market.

But it is an important step along the way - for peace, as well as prosperity.