* The UK government is taking a ‘harder’ line on Brexit
* Immigration control appears a higher priority than full Single Market access
* Hard exit could mean tariffs on UK-EU trade, but non-tariff barriers are the bigger concern for us
* Article 50 by March 2017 and the ‘Great Repeal’ to follow
The UK’s Prime Minister has announced that she intends to trigger Article 50 (which
starts the two-year EU exit process) by the end of March 2017. Assuming no delays
or extensions, this means that Britain will be out of the EU by April 2019. She has
also announced that the government will repeal the 1972 European Communities
Act, and re-write EU legislation as domestic law. The ‘Great Repeal’ Act will not take
effect until the UK has formally exited the EU and so there is no immediate impact.
* Hard talk from the ‘Brexiteers’
Perhaps emboldened by a run of strong data showing the UK economy did not grind
to a halt in the immediate aftermath of the referendum, some of the UK ministers
charged with delivering Brexit have started talking about a more distant relationship
with the EU, positioning the UK instead as a hub of global competition and leader in
global free trade. This is not a vision that will necessarily chime with Brexit voters
disaffected by globalisation.
* Soft vs hard
We first categorised Brexit options into ‘soft’ or ‘hard’ back in February 2015 in our
report A very British Dilemma. Theresa May recently suggested that the UK should
control its borders and seek “the best possible deal” for Single Market access. This
indicates a ‘harder’ Brexit than the Swiss or Norwegian models, for example. Indeed,
the UK’s Minister for International Trade has proposed that the UK should not enter a
customs union, implying a more distant relationship than the EU has with Turkey.
Being outside a customs union – and in the absence of a bilateral UK-EU free-trade
agreement – could mean tariffs on many goods. Also, outside of the Single Market,
UK services may find it harder to compete – particularly if financial sector firms
cannot replace their EU ‘passport’ with something equivalent.
Goods trade tariffs have been falling for decades, thanks to successive rounds of
global agreements. But non-tariff barriers and uncertainty about future trading rules
can pose huge barriers to trade. If left unaddressed, these could be equivalent to a
tariff of 10-15% on UK trade, according to some studies.