Daily Coronavirus Webinar: Update on UK-EU negotiations

Overview:

Today's webinar was very CBI affair, as we were joined by our Deputy Director-General, Josh Hardie; our Head of EU Negotiations, Nicole Sykes; and the Director of our Brussels office, Sean McGuire. But we also welcomed Professor Anand Menon, the Director of the UK in a Changing Europe, to the conversation.

As you might guess from those job titles, the main subject was Brexit, although we did also alight on a few other topics. Here are the key takeaways:

• The restart – and its difficulties
• The latest on access to finance
• Where we’re at with Brexit
• The need for political involvement
• What it means for business.

The restart – and its difficulties

The Business Secretary, Alok Sharma, laid another significant milestone on the road to recovery yesterday: he announced that, as of next Monday, non-essential retail will be able to reopen.

However, as Josh pointed out, “this is not totally straightforward for many firms” – not least because they will need to reopen in line with Covid-secure guidelines. This means “risk assessments, customer communications, hygiene measures, the handling of goods…”

Josh also highlighted a number of other difficulties surrounding the restart. One is the question of when schools will be reopened, for which the timings have already been pushed back. “It’s vital”, he said, “to think about the educational inequality that can be opened up [from classrooms remaining closed], and for business the childcare issues are absolutely huge.”

Another difficulty is the 14-day quarantine period for people arriving in the UK. The CBI is determined that when this policy is reviewed, in a few weeks’ time, it is reviewed seriously and empirically – and should be withdrawn if it is found to be of limited effect. Thankfully, the Department for Business, Energy and Industrial Strategy (BEIS) appears to be properly considering the effects of the quarantine, including by setting up a ministerial taskforce.

The other issue that Josh mentioned – and described as “an example of the tensions” that sometimes exist between economics and healthcare – is the debate over one-metre and two-metre distancing. He pointed out that there are different views around the world, although “the WHO is sympathetic to one metre”.

The latest on access to finance

Today, 10 June, is a big day for one of the government’s main support measures: the Job Retention Scheme (JRS). Under the government’s new provisions, this is the last day for employees to start their first three-week furlough if they are then to be eligible for further furloughs in July and beyond.

But the conversation also dwelt on the government’s loan schemes, for which the latest figures were released yesterday. Almost £24 billion has been lent through the Bounce Back loans scheme (at an 81% approval rate), while around £10 billion has been lent through the Coronavirus Business Interruption Loan Scheme (CBILS, a 51% approval rate) and just over £1.5 billion through CLBILS (39%).

Josh said that there are a “number of concerns” surrounding these financial schemes. One is the matter of when – and how – smaller firms will be expected to repay the Bounce Back loans. Another is whether businesses are relying on the Bounce Back scheme because they simply cannot access the larger loan schemes, even when they need to. And the third is what’s going to happen as employees come off furlough and businesses face new financial challenges – will other support measures become available?

“This is going to play out very differently for different businesses within different sectors,” warned Josh.

Where we’re at with Brexit

As Nicole explained, “we’ve had about four-and-a-half rounds of negotiation” between the UK and the EU. “And time and time again,” she continued, “we’re coming up against the same issues.”

Nicole described some of these issues. The biggest one is the “level playing field”: the EU is adamant that the UK must stick to certain EU laws and standards – around, say, the environment or workers’ rights – if it wants continued access to the Single Market, whereas the UK is adamant that it shouldn’t have to stick to those laws and standards. There are also smaller but “very emotive” issues, such as fishing, that are separating the two sides.

Some progress has been made in some areas – for example, very technical discussions have taken place about everything from financial services to “oven gloves”. But these technical considerations are not going to pass through to the next stages until there is agreement on, in Nicole’s words, the bigger “gateway issues”.

And time is running out to reach that agreement. The CBI’s expectation, as Nicole explained, is that “the UK will not ask for an extension” to the transition period. That keeps the end of this year, 31 December, as the end of negotiations.

The upshot, in Anand’s view, is that “No Deal is more likely than it’s ever been” – and not just because of the limited progress that’s been made so far, but also because of the ongoing coronavirus crisis. “What,” he wondered, “if there’s a second spike in the autumn?”

The need for political involvement

How can this deadlock be broken? All of the participants called for greater involvement from political leaders – in fact, Josh described this as the CBI’s “main call”.

Nicole described the dilemma that civil servants face currently: they have negotiated in line with the instructions they were originally given, but can’t go any further without “a discussion at the political level about the compromises and where they could happen”.

As a solution, Sean emphasised the need for a “high-level meeting [between EU leaders] in June…. Until that high-level meeting takes place, and there are some signs of compromise, we are stuck.”

But Sean also accepted that EU leaders have their minds on other things at moment – specifically, the pandemic and the continent-wide recovery package. This is going to be “Merkel’s priority” in the first few weeks, at least, of Germany’s EU presidency, which starts in July.

For this reason, Anand was sceptical of what can be achieved with one meeting in June. He called for more: another high-level meeting of the EU Council to determine, again, its negotiating mandate, and then a series of individual meetings between the UK’s leaders and the leaders of other EU member states.

What it means for business

When it comes to what’s best for business, Anand said that “politics has already won”. The UK’s chief negotiator, David Frost, has said that he wants most of the deal fleshed out before the end of September – but this date, continued Anand, is “far from sufficient time” to allow for proper preparations, “even if it’s met”.

Even so, businesses do need to start preparing – “what we do know is that, in most cases, they’re going to have to change their ways of trading with the EU, deal or no deal. That relationship is going to change drastically.”

Although, as Josh pointed out, it will be easier for businesses to prepare for some outcomes ahead of others. “Businesses are in absolutely no state to prepare for a chaotic exit right now,” he said.

One thing that businesses can do is voice their views and concerns through organisations such as the CBI. As Nicole suggested, when talking about the possibility of tariffs, the stakes are high: “We do 50 per cent of our trade with the EU. That matters. We need to preserve as much as can. [After the pandemic,] we’ll be clawing back every decimal point of growth that we can find.”

Key questions we answered:

1. Josh, what’s happening in the Brexit negotiations right now?

• Last week, the fourth round of negotiations concluded, and we’re at a crossroads.
• For the last three months, businesses have been focused on surviving this crisis. But the end of the Brexit transition period is still looming.
• An ambitious deal with the EU will be a cornerstone of UK’s recovery, and firms are looking for an injection of pace and political leadership to strengthen confidence.
• But the signals so far are not encouraging. Both sides have rigid mandates – which they’re following to the letter.
• The UK continues to point at the EU’s insistence on a level playing field (compliance with EU laws and standards in exchange for access to the Single Market) as a major obstacle. And the EU is accusing the UK of not entering into a real discussion on the level playing field, governance, and fisheries – which are key issues for the EU.
• In response, the UK government published three key documentss, to ramp up pressure and drive forward – the UK Draft FTA, the UK Global Tariff, and the Northern Ireland Protocol.
• This crisis places the negotiations in a new context, and reshapes the political pressures on both sides, such as the debate around whether the transition period should be extended beyond 2020 to give the talks more time. That said, the UK government is adamant the transition period should not be extended
• But the lack of progress is concerning for business on both sides, whose ability to deal with the current crisis alongside another no-deal cliff edge is significantly stretched.

2. Nicole, what are the substantial points of difference that need to be resolved, and what’s the timeline for 2020?

• Time and time again, we're coming up against the same issues around the level playing field.
• At the end of transition and on state aid, the EU would like the UK to remain in lock step with all EU rules for the future. That is something the UK rejects.
• Another big issue is fishing. Fishing is quite a small industry in the UK, but it's of great importance to a number of EU member states and every free trade agreement.
• These are two of the biggest issues that need to be passed through before we start getting into some of the more technical negotiations. That's not to say that those technical negotiations aren’t happening – but none of these areas are going to get signed off until these issues have been resolved.
• The timeline is that the 30 June deadline will come and go, and the UK government will not ask for an extension, but our expectation is that little progress will be made on issues like financial services and fishing.
• To break through the logjam political pressure will be needed. Currently, there are no negotiations booked in, and the diary is empty.

3. Sean, can you give us the interpretation from Brussels?

• Brexit has been down the list of priorities for EU leaders as well. Given the current crisis, it is only David Frost and Michel Barnier who are meeting and discussing this issue.
• EU leaders are very much preoccupied by the recovery plan, the €750bn package, and the multiannual financial framework.
• I think when you listen to press conferences, there is an element of finger pointing on both sides.
• There needs to be a high-level meeting in June after the European Council next week and before the deadline. Only when that high-level meeting takes place, and there's some leadership from both sides, will we see signs of compromise.
• The EU have not responded to the UK demands of an accelerating or intensifying the negotiations over the summer.
• For Chancellor Merkel, who will take over the presidency of the EU on the 1 July, the priority is to agree a budget for the EU going forward, and the recovery package to get Europe out of the current crisis.

4. Anand, we’ve heard that there are two different timetables, one for businesses, who want a deal done early, and one for politicians, who want to run down the clock. Which side will win?

• Quite simply, politics has won.
• We still don't know whether or not there are going to be tariffs. We still don't know many of the details. The implementation of the Northern Ireland Protocol hinges on the kind of deal we get with the EU, as that will determine how intrusive the checks are on the border.
• There is so much uncertainty that it seems to me that this is purely political.
• Brexit has just fallen off the list of issues that EU leaders are thinking about. I see no prospect of progress in June because, as Sean says, they've got that €750bn to talk about.
• At the moment, the fundamental problem is that the European Commission (EC) is fighting on two fronts. It's fighting with us and what it sees as our rigidity on the issues that Nicole was talking about, but it's also fighting with the member states, who often reject the mandates the EC proposes.
• So, Covid-19 is massively reducing the bandwidth for this, and so I think a no deal outcome is more likely than it's ever been, partly because of time, partly because of the pandemic.

5. Nicole, what outcome would the CBI like to see from these negotiations?

• The CBI can clearly say that we want a deal. That is what we’ve been pushing for.
• The deal that we are now heading towards is a lighter touch deal than perhaps we would have wanted. We know that it's pretty good on tariffs, although that is now under question.
• We know that businesses will be facing some significant barriers coming out of this because of the type of trade deals that we're going out to negotiate. But it is better than no deal. And that has come back pretty and comprehensively from the business community.
• Some of the fundamentals have not changed. This is 50% of all the trade that we do, and we need to be able to preserve as much as we can, because particularly coming after this crisis, we're going to be clawing back every decimal point of growth that we can find.
• It’s going to matter directly to how many jobs we can create coming out of this process because millions will be lost. And that's ultimately what we're facing. We need to do everything in our power to make sure we can grow.

6. Nicole, what’s the relationship between the UK/EU negotiations and the UK/USA negotiations? And when should the government restart Operation Yellowhammer to plan for no deal?

• I know the UK government has worked hard to ensure that any conflicts between those deals are reduced as far as possible. The UK has tried to keep potential asks for the US that could come into conflict with the EU deal off the table.
• I think the Coronavirus has changed some of the timetable around the US deal, and it is now looking much more like a post-election decision.
• The question on Operation Yellowhammer is very interesting. We know that the government, just like business, is focused on the pandemic, and we know that civil servants within some of the negotiating task force teams for Brexit got pulled over to go work on the Coronavirus.

7. Sean, what is the feeling in Brussels on the key issues of aviation and financial services?

• On the aviation point, there were quite positive negotiations. But they have stalled or perhaps rolled back in last week's round. There are two sticking points:
  • Ownership – the EU is very insistent that it is U ownership and it won’t be exported to a third country
  • The fifth freedom – which is around intra-EU flights.
• What has been proposed from the EU side is that a British carrier could fly from London to Madrid, but it couldn't then fly from Madrid to Lisbon.
• The insistence from the EU on a level playing field for the UK has frozen all the positive negotiations on a passport for financial services. It is very clear that the UK will not have passports. On financial services, this is not something that the UK is not offering and that's something that the EU will not offer back. And it is very much around the area of equivalence. Until we move on this issue of a level playing field, there will not be much progress.
• The level playing field means different things to different people. It has become a political hot potato. But actually, when you look at the technical level, there is a lot of equivalence that has been discussed and negotiated. But due to a lack of political leadership, we have not been able to move past the broad issue of a level playing field.