The Brexit column: The hard truth about a soft option

The Brexit column: The hard truth about a soft option

Goodwill on all sides could deliver a positive result for business says Mark Essex

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Director, Public Policy

KPMG in the UK

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An hour now feels like a long time in politics. This analysis might well be superseded by events between now and our next column. After all, even the pollsters who predicted last week’s result were caught off guard when their forecast came good. But where do the seismic developments in Westminster leave Brexit – the spur for the election and yet often strangely absent from the debate? What kind of exit can business now expect?

The first point I’d make, in this potentially bewildering new landscape, is that the somewhat lazy shorthand of ‘soft’ and ‘hard’ Brexit no longer applies, if indeed it ever did. Those terms have always meant different things to different people: some say hard Brexit represents ‘no deal’, whereas others describe the Lancaster House objectives, from the prime minister's speech in January, as hard Brexit, with soft Brexit being more like a Norway deal.

But despite the loose language, it seems as if the tide is turning. Ruth Davidson, leader of the Scottish Conservative Party, has talked of an ‘Open Brexit’ that prioritises free trade and the economy over cutting immigration. Some leading figures in the Labour Party have argued for a ‘jobs first’ Brexit. Other senior Conservatives have also called for a Brexit that priorities the economy, perhaps by remaining in the Customs Union.

Is government listening to voices from business and elsewhere demanding a less confrontational approach – one which takes ‘no-deal’ off the menu? I’d agree that we may well be moving towards a more conciliatory tone. There has been talk of a national consensus and also calls from City figures for a cross-party initiative, ‘tapping all the talents’.

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Keeping a sense of perspective

Yet, without wishing to dampen the mood, I also believe it’s essential that businesses, as ever, keep their feet firmly on the ground. A quick glance at their manifestos will tell you the Conservatives, Labour and DUP all proposed exiting both the Customs Union and the Single Market. There may be some nuance between them, but the overall picture is not the one of frictionless trade and unencumbered free movement of people that many business leaders may have preferred.

While I detect a definite change in mood, if you follow the logic, the facts remain the same: there is no off-the-shelf alternative. The UK’s core demands still boil down to the ability to cut our own trade deals, to take back control of our borders and to step away from the jurisdiction of the European Court of Justice. The Norway model, with its insistence on the free movement of people, wouldn’t work. Nor would the Turkey option of staying in the Customs Union, as that would stop Britain striking its own free trade deals.

But – and this is a game-changing ‘but’ – I believe this shift in mood could be encouraging news for business. A warmer tone, both within the UK and towards our partners across the Channel, sends out positive signals from which we may well benefit. 

What British voters made possible last week is far greater latitude for negotiators on both sides. Wriggle room, if you like, for the UK to compromise in important areas. All the following could be up for grabs: concessions on the exit bill and timing; the 'tens of thousands' immigration target, or at least excluding students from the count; allowing some limited jurisdiction for the ECJ where necessary; and, as a first priority, confirming the rights of EU citizens in the UK. 

An imaginative solution

So if the destination can’t change, what next for Brexit? Let’s go back to first principles: there remains a zone of potential agreement for a ‘jobs first’ Brexit that preserves jobs and supply chains and is compatible with already declared red lines. It needs a bit of flexibility and imagination – and the new softer mood might persuade both sides to work towards this common ground.

You don’t need to be in the Customs Union to have frictionless borders. It is neither a necessary nor a sufficient condition. Although Britain became a member of the Customs Union in 1973, it was not until 1993 that truly frictionless trade arrived with the Single Market. It’s the systems and processes that count here. Agree to maintain customs cooperation and the supply chains need not be disrupted. Zero tariffs are a separate consideration, but clearly would be an added bonus for business.

Is there sufficient goodwill in Europe for such a deal? The negotiation game has flipped on its head in less than a week. French President Macron’s strongly pro-Europe stance has delivered a thumping majority in parliament, running counter to the Eurosceptic feeling there just a month ago. Alongside an increasingly powerful German Chancellor Merkel, that means talk of 'no deal' and 'bad deal' must now give way to charm and persuasion. We need to be much more accommodating, listen hard and be generous in divorce.

While a deliberate walkout looks much less likely, failing to reach a deal remains a possible unintended consequence: there’s still a lot to do in a very short time. Businesses must continue to prepare for cliff-edge Brexit, so the timescales and decisions set out in the KPMG Navigator still stand.

If the voice of business is going to be heard, let’s not waste this opportunity revisiting scenarios which won’t work. Let’s instead promote good negotiation practice: find the zone of potential agreement and pursue a win-win outcome.
 

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KPMG Brexit

Brexit: A catalyst for businesses to reset their futures.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.

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