8 Dec 2017

Cabinet committee to hold talks on future relationship with the EU on Monday

The European Council President Donald Tusk said early this morning as the divorce agreement was signed off that the UK had to come up with its approach to the future relationship.

The Brexit Cabinet Committee is now expected to get down to discussing the government position on the future relationship on Monday afternoon.

Ministers on that committee can expect their Red Boxes for the weekend to contain some DEXEU papers setting the framework for the discussion.

Despite a recent flurry of concern among some Tory MPs about words on regulatory alignment and a secret plot to keep the UK tied to EU regulations, pro-Brexit Cabinet ministers seem more sanguine.

Some of them sense that the wind may have gone out of the sails of Philip Hammond’s project to embrace what Treasury folk call a “top down” approach to the future relationship with the EU, accepting the EU’s existing rules across economic sectors and only deviating from them where absolutely necessary (the so-called “Norway minus” approach).

Some officials think that approach still has important and weighty support and that battle is about to be joined with the Brexiteers’ wish for a “bottom up” approach – the so-called “Canada plus” template in which the UK is free to re-think regulatory frameworks in all sorts of areas of the economy and, as Brexiteers see it, thereby reap the benefits of taking back control.

The full Cabinet on Monday morning will not be looking at this topic but will, no doubt, be full of complimentary remarks about the Prime Minister’s achievement in getting agreement on a divorce bill. It could get its own look at the future trade relationship in a meeting the week after.

Today though, the focus is on that divorce bill. Eight months after the EU27’s negotiating guidelines laid down their view of where the divorce negotiations should go, Britain and the EU27 have got an  agreement to put to the heads of government.

UK business has been pulling its hair out over the cost of uncertainty from protracted negotiations. The October European Council deadline was missed. Monday’s grand unveiling had to be abandoned. Was it worth the wait?

The government, of course, insists it has been necessary and fruitful. Overall, you have to say that we have ended up closer to the EU’s demands than the UK ones. And we are a long way from some of the Brexiteers’ referendum rhetoric. But there have been some government wins.

Divorce bill

The government argues that it has kept the divorce bill to 40-45bn euros or £35-39bn – wouldn’t you like that rate of exchange at the airport

That’s 100 per cent more than anyone from Vote Leave talked about during the referendum but less than much bigger figures that have floated around.

The truth is that some of the larger figures of 80 to 100bn euros were gross figures and Vote Leave veterans have understandably lost their taste for gross figures in this context.

The European Commission is convinced that the liabilities that the UK have acknowledged will actually come in at a higher rate and you can see that all explained exquisitely here by Alex Barker of the FT .

So we have the clever wheeze of the EU giving cover to the UK to sign a commitment which the EU thinks will be higher than the UK estimate.

Mrs May didn’t think she could get political support at home for more than £40bn and the EU doesn’t dispute that as a reasonable estimate.

But if you hacked into European Commission computers you might discover a bigger net estimate for the same commitments lurks there (up to 65bn euros perhaps).

One key variable is whether the transition period ends up more expensive than current estimates. EU figures consistently suggest it could be 4 or 5 years, not the 2 years currently in the costings.

The agreement requires the UK to pay its subs for the next two years (totalling 17-18bn euros) but doesn’t specify that is the deal done on transition costs. Could the annual rate of transition deal membership climb, particularly if the transition goes on longer than planned?

Citizens’ rights

There were hardline Brexiteers among those who wanted this issue settled a long time ago with a big and generous offer to EU citizens living in the UK. Theresa May would not agree with the characterisation, but from the outset of her leadership campaign, she identified this issue as a bargaining chip that should not be thrown away.

There’s been give and take on both sides here. The government believes it has successfully pushed back on EU demands for rights flowing from EU law and their insistence that documentation was unnecessary.

It can also claim to have pushed back on ECJ jurisdiction, a red line for some cabinet ministers, and the ECJ has a discreet, restricted role under an 8-year sunset clause and only when the Supreme Court chooses to refer up (“or sideways,” as one Whitehall official preferred to put it).

Northern Ireland

“No hard border” remains a commitment in search of a policy.

The agreement parks the issue in the hope something will turn up.

The hope in some UK government quarters has been that Ireland will put pressure on the other EU 26 members in Phase 2 of the Brexit talks which will see them adopt a frictionless border for UK/EU trade that obviates the need for customs monitoring of any kind. It’s far from clear that hope is justified.

Ireland remains deeply concerned at the lack of a clear UK plan. It’s important to remember that the plans for “full alignment” of Northern Ireland with the rules of the Single Market and the Customs Union (paragraph 49 of the agreement) apply only in the event of ‘no deal.’

‘No deal’ takes you to a number of unknowns in which pieces of paper like this one could have little meaning. As the preamble to the agreement says: “Nothing is agreed until everything is agreed.” Except paragraph 49?

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