Keynote speech of Philip Rycroft (former Permanent Secretary of the Department for Exiting the EU): "Where are we at? The EU-UK negotiations so far and future challenges" (NEXTEUK Conference, 10 September 2020)
Keynote speech of Philip Rycroft (former Permanent Secretary of the Department for Exiting the EU):
"Where are we at? The EU-UK negotiations so far and future challenges" (NEXTEUK Conference, 10 September 2020)
Thank you for the invitation to speak to this conference. I’m delighted to have been asked and I look forward to working with Sarah and the Centre for European Research.
My basic proposition that I want to put to you is that Brexit as it has shaped up is more or less on course to deliver the key goals that underpinned the commitment to take back control. But the force of this revolution is by no means spent. The UK has reclaimed sovereignty but what the effect of that will be on the future of this country remains far from clear. The publication of the Internal Market bill on 9 Septemner is a perfect illustration of my proposition. More of that later.
To illustrate my theme, I will do two things: to reflect firstly on the state of the negotiations; and secondly, and more substantively, to attempt some sort of stock take on where we have reached on the Brexit prospectus and what might lie ahead in terms of future challenges.
First to the negotiations.
We don’t know yet whether we will get a deal or not. But some things we do know.
Whatever the outcome, we know the broad nature of our future trading relationship with the EU. Deal or no deal, there will be a trade border between the UK and the EU for both goods and services. Goods will face border controls – customs, regulatory and security checks; services will, broadly, have to learn to adapt to home state rules. There will be minimal regulatory alignment. The UK’s trading relationship with the EU will be squeezed right down to the hard end of the spectrum of possibilities envisaged in the aftermath of the 2016 referendum.
This leads some to claim that as a consequence the difference between deal and no deal is insignificant. I don’t agree with that. No deal is evidently consequential for those industries that would face tariffs, in particular agri-food and automotive. Tariffs would seriously impact trade volumes and consumer prices. No deal would exacerbate the huge logistical challenge of adjusting to a new trade border. Without the good will of a deal, there would be a sharply increased risk of short-term disruption at the border.
More widely, failure to achieve a trade deal would sour relations across the piece, making it much harder to get agreement on other aspects of the UK-EU relationship. In a no deal scenario, how quickly would the EU move to grant equivalence status for financial services or adequacy for data flows? What would survive of the formal security relationship? What would be the impact on continued foreign and security policy cooperation and on the many other areas where a codified relationship is to the mutual advantage of both the UK and the EU, from civil judicial cooperation to participation in research programmes?
A no deal outcome would be the ideal recruiting sergeant for the SNP ahead of the critical Scottish Parliamentary elections next year and would make even more complex what is already a complicated and difficult situation in Northern Ireland, with unpredictable consequences.
Nor is it credible to claim that the impact of the coronavirus crisis will somehow render the economic effects of no deal insignificant. The general uncertainty may throw some dust in the air, but the two crises – coronavirus and no deal – hurt different sectors in different ways. In the short-term, coronavirus did not disrupt cross-Channel trade; a no deal outcome will. In the longer-term, sectors such as hospitality, retail and tourism will quickly bounce back once the effect of the pandemic wears off; a no deal outcome will reduce the competitiveness of UK-based businesses in trading with the EU for the foreseeable future.
A no deal scenario would be unstable and uncertain. The trading and wider relationship between the UK and the EU is so extensive, and to such mutual benefit, that negotiations on big issues and small would be bound to resume at some point. But they would do so in an atmosphere of distrust. Political pride being as it is, neither side would want to blink first, so the damage of no deal could persist for some time. No deal land would not be a comfortable place to be.
It clearly remains in the interests of both sides to conclude a deal. But trust was already low, with both sides camping on principle and no sign yet of the high-level political intervention that would be required to unlock a deal. The admission by the UK government that it is prepared to renege on elements of the Northern Ireland Protocol is hardly designed to rebuild trust. Whether it is a prelude to a walk out or another cack-handed attempt to bludgeon the EU side into concessions, we don’t fully know. There is no doubt at all, however, that the prospects of a deal have slipped even further; no deal must now be more likely than a deal.
Whether we get a deal or not, we already know enough about the shape of the future relationship to take at least a preliminary view of what will be delivered on the Brexit prospectus.
Four broad domains have always been at the heart of the Brexit project. They were immigration, money, regulation and trade policy. I will look briefly at each in turn.
Free movement of people between the UK and the EU ends on 31 December this year. That much is clear; the UK has taken back control of immigration policy. Under the new rules, citizens of EU member states will be assimilated into the approach the UK takes to immigration for the rest of the world. There is no doubt that concern about immigration was one of the big drivers of the ‘leave’ vote in the referendum; according to Ipsos Mori polling, between June 2015 and June 2016 immigration was consistently cited as the most salient issue facing the country, peaking at 56%. By November 2019, that number had dropped to 13%. On the face of it, then, taking back control has contributed to a significant decrease in concern about immigration and attitudes to it appear to have softened among both leave and remain voters.
Once it has defrayed the obligations it accepted in the Withdrawal Agreement, the UK is vanishingly unlikely to be paying significant sums into the EU budget. This will save, net, just under £190 million a week – coincidentally, more or less the same as the current fiscal transfer to Scotland. The sort of Brexit that this government is committed to will deliver on the commitment to extricate the UK from the EU budget.
The third major promise of Brexit was to give the UK freedom to conduct its own trade policy. The UK will once again speak for itself in the WTO. Negotiations are under way, or soon will be, with the US, Japan, Australia, New Zealand and Canada. There are ambitions for the UK to join CPTTP (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership). As of July, the UK has succeeded in rolling over 19 out of the 40 existing EU free trade agreements, accounting for about 8% of UK trade, out of the total 11% covered by the deals. The UK has got its independent trade policy back.
The final domain of potential opportunity for the UK post-Brexit is in the broad regulatory sphere. Any deal now done with the EU will leave the UK with considerable flexibility to diverge from EU regulation and create its own regulatory space. Even in domains like competition and state aid, where the UK was always amongst the most hawkish in ensuring a robust EU regime, we know that the UK is looking for the loosest possible relationship.
Already the legislative machine is grinding away at those bills, on agriculture, trade, fisheries and immigration, which are essential to ensure the UK has a competent statute book at the end of the transition period. These will presage many future opportunities for Parliament to shape regulation from financial services to management of waste in a way that is more directly tailored to UK interests. The UK in theory will be better able to move swiftly to create new regulatory regimes for the technologies of the future, thereby carving out a competitive opportunity.
So the government is well on track to deliver substantively on the promise to take back control. Seen from the perspective of the options still under discussion in late 2016, including whether the UK might stay in the single market and customs union under some form of EEA-type relationship, this is the full fat version of Brexit. Mrs May’s aversion to free movement and ECJ jurisdiction substantially reduced the options available, even if she later appeared to regret the consequences of her early red lines. But this government has shown no doubt; the reassertion of sovereign choice has been the goal and that goal will be achieved.
But at what cost? Here the scorecard is opaque. The UK is not yet out of the transition period. Those new trade deals are not yet struck. Those new regulatory freedoms are not yet feeding into increased UK productivity. Nevertheless, we are now over four years since the referendum. The world has not stood still. The shape of Brexit has been evident for some time. A preliminary reckoning of the challenges that Brexit brings in its wake is possible.
Economically, Brexit has yet to usher in a bright new dawn. Pre-Covid, some estimates have it that the UK economy had already lost about 3% of growth compared to a basket of similar countries. That is consistent with the economic modelling, including the government’s own, that showed that the sort of Brexit now contemplated will lead to lost growth of around 5% of GDP over a 15-year horizon. With no trade deal, that could rise to up to 9%. Lost growth to date is probably mainly due to cancelled, postponed or diverted investment; lost growth in the future will be largely down to the increased barriers to trade with our main market.
Those great trade deals that are on offer will not compensate for the impact of coming out of the most extensive and successful free trade area the modern world has seen. A good US deal will increase GDP by only 0.16%, a Japan deal by 0.07%, an Australian deal by 0.02%, a New Zealand deal by next to nothing.
Lost growth means lost revenue to the Exchequer. Estimates suggest that revenue will be down by about £10 billion for each percentage point of lost GDP. That has to be set against the saving from our EU budget contribution.
Moreover, while we wait on the easements from more effective, UK-focused regulation, the burden and cost of regulation actually increases. The government recently committed another £700 million for border preparations. This is deadweight cost; it adds no economic value. More British bureaucrats – over 25,000 – is the price of saying goodbye to Eurocrats. HMT has to date committed something like £8 billion in total for Brexit preparations.
In addition to that, there will be direct administrative costs to businesses; HMRC estimated that customs declarations alone would cost businesses around £6.5 billion annually on the UK side of the border.
Deal or no deal, the effect of all this will be somewhat blurred by the fallout of the pandemic. There will be some potentially quite severe sectoral effects and so lost jobs. But for most people, the impact will be less evident. The UK will still grow, just more slowly than it otherwise would have done; and we are all less likely to miss something we never had. Doubtless conferences such as this will debate long into the future the precise economic impact of Brexit.
Brexit will not be the economic disaster that some have feared, but nor will it be vindicated by great economic liberation. For many, Brexit was never primarily an economic project. The UK may end up being a bit less well off, but that has to be set against the over-riding goal of Brexit, the taking back of sovereignty.
Sovereignty can, of course, be an end in itself; it is the answer to its own question. But even the most ideologically driven would perhaps accept that the assertion of sovereignty is intended to have an effect and that effect is in some ways measurable. I would like to test the impact of Brexit against three yardsticks: the UK’s place in the world; the sense of unity in the country; and the cohesion between its component parts. It is in these domains that we see how the shockwaves of the Brexit revolution continue to create turbulence, making it very difficult to foresee what the future might hold for this country.
On the first, the UK’s place in the world, it remains unclear how this government will seek to assert its international ambitions now the UK is out of the EU. Still the sixth biggest economy with substantial military and diplomatic resources, the UK continues to have the capacity to wield serious influence. Some of the pipedreams of a post-Brexit future have fizzled and popped on encounter with reality; neither Commonwealth sentiment nor the undoubted amities of CANZUK relations appear to be likely vehicles for a reinvigorated British global presence. Nor is it clear how far the UK will continue to seek cooperation with the EU on foreign policy and security issues.
The UK will inevitably carry less weight in the affairs of the European continent. Can the UK compensate for that loss? Can the UK use its post-Brexit position to optimise its role as the cross-Atlantic go-between? Or will Brexit reveal the mismatch between inflated perceptions of the UK’s post-imperial status and the realities of life for a middle-ranking power off the north-west European continent in a world of competing power blocs? Far from settling the matter, Brexit has flung wide open again the question of the UK’s role in the world.
What about the sense of unity within the UK? There is, for the foreseeable future, no going back on Brexit. In what was a coruscating debate, one side of the argument won and has relentlessly pushed its advantage to deliver the hard version of its truth. Will that mean that those on the losing side of the argument reconcile themselves, however reluctantly, to this version of the country’s future?
There is some evidence of buyer’s remorse; the latest YouGov poll to ask the question found that 49% thought the UK was wrong to leave, 39% right to leave and 12% did not know. Most polls which re-ask the referendum question show a majority now for remain, but polls which ask a direct question on re-joining show a majority for staying out. None of this suggests much of a shift in opinion either way; the division engendered by the referendum remains with us.
As a question driven by sovereignty and identity, opinion on Brexit cannot of course be cauterised from wider cultural leanings. The referendum settled the proximate question of whether the UK should remain a member of the EU; it did not thereby resolve the divide it has come to encapsulate. That is shown by the demographic split in the 2019 election. While the Conservatives won more votes than Labour in every social class, the age profile was very different. 57% of 60 to 69 year old’s voted for the Conservatives, but only 21% of 18 to 24 year old’s. As was evident in the EU referendum itself, the young are more likely to be pro-European. They are more likely to cite the environment as a key concern. They are more likely to hold socially liberal values. This demographic division is evidenced too in the geography of the election, with the Conservatives doing relatively less well in London and the other metropolitan cities and university towns.
In short, the young hardly seemed reconciled to the trajectory the country has taken. The first past the post system flattered the Conservatives with an 80-seat majority. Beneath that apparently stable surface, political futures remain highly uncertain.
As for the cohesion of the UK itself, support for independence in Scotland is now around 55% and edging over 30% in Wales, and there is no sign of a reversal of the long-term trend of increasing support for unification in Northern Ireland. Most polls also show that support for independence or unification is strongest among the young; nationalists, it would appear, have time on their side. Certainly in Scotland, Brexit is the main driver of the increase in support for independence; Remain voters are favouring their Scottish and European identities over their British identity.
If, as current polls predict, the SNP and its nationalist allies win a majority of seats in next year’s Scottish parliamentary elections, more so if they win a majority of the popular vote, the pressure for another independence referendum will be intense. If the UK government refuses to cede to that demand, as it says it will, the pressure in the cooker will only increase further. As for Northern Ireland, deal or no trade deal this year, adjustment to life outside the EU will be complex and difficult; that will be an unpredictable driver of opinion on the long-term future of Northern Ireland within the UK.
The Brexit vote settled narrowly one of the most divisive issues that has bedevilled British politics for decades. The momentum of that victory has carried those responsible for it to the hardest end of the Brexit prospectus; when the UK leaves the transition period, it will do so at best with a thin free trade agreement.
The UK government will then be free to carve its path in the world loosed from most of the shackles and constraints that came with EU membership. To that extent, the UK has indeed taken back control. But, on the evidence we have to date, the cost of that is high. Obscured by coronavirus though it might be, the UK economy will for the foreseeable future perform less well than had we stayed in the EU. The public purse will be the poorer for it.
What price sovereignty? Perhaps the short-term cost will be vindicated, by the long-term achievement of a country that is more at ease with itself and its place in the world. But if Brexit was a step towards that goal, the route forward remains obscure. The divisions made manifest by the referendum have by no means healed, the debate about what sort of country the UK aspires to be by no means settled, the future of the UK itself is in doubt.
Meanwhile, this UK government doubles down. In publishing its Internal Market bill, it sought to stamp the future with its own divisive agenda. By rejecting its international obligations, it proclaims the return of Perfidious Albion. By so blithely ignoring the rule of law, it re-opens the wounds of the referendum debate by egregiously, and no doubt deliberately, cocking a snoot at all those who care about the principles that underpin liberal democracy. By its assault on the devolution settlements, it invites full on conflict with the democratically elected governments of Scotland and Wales. The aftershocks of Brexit will be with us for some time to come.
 In 2018 19% of 18-34 year olds in favour of leaving compared to 49% of 55+ British Social Attitudes 36 The EU Debate