22 September 2017

Transition means transition – but what happens next?

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Prime Minister Theresa May has given a major speech in Florence, updating the government’s approach to the Brexit negotiations with the European Union.  The government will seek a transition phase of around two years on leaving the European Union, while seeking to negotiate a new bespoke partnership deal. In this extract from British Future’s new publication, ‘Time to get it right’, Sunder Katwala, Jill Rutter and Steve Ballinger set out the pragmatic case for a transition phase, while arguing that the key question is how to use the extra time is used more productively and avoid simply postponing a cliff-edge by a couple of years.

Transition means transition: how to leave the EU safely

The 2017 General Election result has changed the Brexit debate. It still remains extremely likely that the UK will leave the European Union – but quite how it does so has been thrown open to question.

The public refusal of Theresa May’s request for a personal mandate considerably weakened the Prime Minister. Senior Cabinet ministers, notably the Chancellor of the Exchequer and Home Secretary, have sought to assert considerably more authority over key issues. The hung parliament puts the government in a more precarious political position, meaning small groups of government backbenchers could challenge government policy in alliance with opposition MPs.

The biggest early sign of these new political realities was that a new word moved to the centre of the post-election Brexit debate: transition.

Within a month or two of the election, the idea of a transition period moved from being a contested hypothetical scenario to an idea reported to have secured broad support across different wings of the government, and across the government and opposition parties too.

Many questions remain about whether there will be a Brexit transition in 2019 and what form it may take. Transitional arrangements might mean many different things in different areas. The British political and media debate tends to underplay the fact that the transition arrangements are not something that Britain can decide – but something that would have to be negotiated between the UK and the EU.

The core case for a phased Brexit is practical. The two-year Article 50 timetable gives little time to agree on the ‘divorce’ terms dissolving the UK’s membership of the EU and to negotiate a new post-Brexit partnership, including the detail of how that would work in practice.

Where Brexit involves significant changes to the status quo it would be challenging for new arrangements on trade, migration or other issues to be introduced on Brexit day itself.

The government’s 2016 White Paper expressed support for a ‘phased implementation period’, though the preference to avoid the language of a ‘transition’ signalled an intention to negotiate any full future deal by March 2019. However, the strong political emphasis placed on stressing that “no deal is better than a bad deal” – based on the theory that the UK’s negotiating strength depended on a credible threat to walk out – made the government’s appetite for any form of transitional phase harder to predict.

Though a ‘no deal’ Brexit in March 2019 remains a possibility, the political decision to seriously pursue a viable transition relegates the ‘no deal’ outcome back to a worst-case scenario. This is particularly true because of the significant increase in post-election pressure from business voices – not just about the need for a transitional period, but also the importance of securing this well in advance of Brexit day itself.

As the Institute of Directors noted, in its short study setting out the menu of potential transition policy options, planning to have a transition only delivers reassurance and time to prepare for change once it is clear what that transition arrangement is, and indeed what will follow beyond it. Securing a transition deal at five minutes to midnight in the negotiation timescale will be far too late to prepare properly – and so would fail to avert the ‘cliff-edge’ scenario that businesses are keen to avoid. If the case for a transition is practical, the objections are political.

Some pro-Brexit voices worry about a transitional deal becoming a trap to remain in the European Union, delaying Brexit not temporarily but interminably. The allegation that transitional arrangements are a ‘Remain conspiracy’ does rather overlook the long Eurosceptic pedigree of this case. A range of arguments for leaving the EU via a period in either the European Economic Area (EEA) or European Free Trade Area (EFTA) were made across the last two decades by the Bruges Group, by Eurosceptic writers including Richard North and Christopher Booker, who advocated a ‘flexcit’ approach to Brexit, by the Adam Smith Institute and others. But those arguments played little role in the 2016 referendum campaign – where the Vote Leave campaign consciously sought to duck the question of what ‘out’ would look like because it would expose differences among Leavers about the future, and complicate the case for exit.

Ex-Remain advocates have paid more attention to the EEA model – but this view is also contested. The most committed Remain advocates hold the contrary fear to that of their Brexit counterparts: that a transitional, phased Brexit can make Brexit possible, leading some to prefer the high-risk scenario of crashing out without a deal as one way that might persuade the public to crash back in instead.

The Evening Standard greeted the emerging consensus on a transition across the Cabinet with the splash headline, ‘Does Brexit still mean Brexit?’. This was an interesting example of a pro-EU newspaper promoting an argument primarily associated with pro-Leave critics of anything that sounds like a softer Brexit. Yet the answer is that Brexit does still mean Brexit, as long as transition means transition.

That suggests three key aspects to ensuring that a transitional deal works.

Firstly, the transition should take place with the UK outside the European Union, rather than extending the Article 50 negotiations, which would mean the UK still remained in the EU after March 2019.

This could well be technically more complex, but a transition outside of European Union membership would make political sense for both Britain and the EU27. Under the terms of Article 50, Britain will leave the European Union on 29th March 2019, with a deal or without one, unless there is mutual agreement between the UK and the EU27 governments to extend the negotiating period. The European Elections of 2019 would take place, without the election of British MEPs. The

UK would not participate in meetings of the EU heads of government, though ad hoc summits could be held between the UK and the EU by mutual agreement. If communicated effectively, this could do a good deal to allay concerns about a transition period becoming a ‘stealth’ route to staying in the European Union.

That fact of Brexit need not necessarily end the argument in Britain about EU membership. But politicians or parties who believed in that cause would no longer be campaigning to ‘Remain’ but to ‘Return’.

There may be fewer technical barriers to a subsequent UK return, if there had not yet been significant regulatory divergence during a transition period, but that overlooks the high political hurdles to a post-Brexit re-entry to the EU. UK ‘returners’ would have to shift their legal focus from Article 50 – which sets out how a member state could leave the European Union – to Article 49, the process by which any European state that respects the values of the EU can apply to join the club. Indeed, Article 50 states clearly that the standard application process applies to ex-members: ‘If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedur referred to in Article 49’.

The (unlikely) event of the UK changing its mind about Brexit would be welcomed, in principle, by EU governments, but with some wariness about a half-hearted, deeply politically contested reapplication, if that led to a semi-detached UK returning but keeping half an eye on the exit door again. So most EU experts, both in Britain and on the continent, agree that an application to Return would be very likely to depend on an acceptance that the era of British rebates and opt-outs was over.

This would present British returners with a considerable political headache – having to persuade the British public to accept EU membership on terms considerably less attractive than the deal rejected by a majority in the 2016 referendum. Paying a greater net contribution into the EU budget, without the rebate, would be controversial; as would agreeing to drop the British opt-outs, joining the Schengen area or, especially, agreeing in principle to adopt the Euro in the future. Such a deal would be unattractive for a significant proportion of the 48% who had voted Remain, even before trying to convert those who voted to Leave.

Secondly, a transition needs to be time-limited rather than indefinite. A period of not more than three years fits both a strong political interest in the UK – that the transitional period should end by the time a General Election is due in 2022 – and the preference of the EU27, that a transitional phase should not become a device for indefinitely postponing Brexit decisions.

Liam Fox’s comments, that 24 months could be considered a ‘rounding error’ after four decades of EU membership provided the transitional period was concluded during this Parliament, demonstrates how a time limit would play an important role in generating broad political support across different strands of the post-referendum political debate. The time limit is important because it is likely that transitional arrangements will involve only minor changes to the current trade and migration relationship between Britain and the EU, for the duration of the transition period, mirroring the rights and responsibilities of members of the European Economic Area. In principle, bespoke transitional  arrangements are possible, if negotiable and agreed on both sides,  but that quickly runs into the core practical problem of securing an agreement in time to communicate it.

Thirdly, the most important use of a transition must be to open and then to resolve the debate about the final settlement. There are many important questions about the content and nature of the transitional deal itself, but it is important that the Brexit debate in the Autumn of 2017 does not get stuck only discussing the precise details of the bridge. It is imperative that it moves onto deciding what it is going to be a bridge towards. Otherwise, a ‘kick the can down the road’ approach to a transitional phase does nothing to deal with the cliff-edge risks of Brexit, other than to reschedule them from 2019 to a couple of years later.

On immigration, there is a strong practical case for maintaining freedom of movement during the transition period, while designing the post-free movement system of an eventual settlement. The most detailed public articulation to date of the future approach, in Amber Rudd’s July 2017 letter commissioning the Migration Advisory Committee to report on post-Brexit policy options, is clear that the government ‘do not envisage moving to a future system in a single step’. The Migration Advisory Committee has been asked to report in September 2018; that would be rather too late if the new system was meant to be designed and implemented by March 2019. It becomes a practical timescale if reforms are debated and designed in 2019, and implemented in 2021-22.

The government has risked continuing to send mixed messages about what a transitional period means for UK immigration policy. Claims that freedom of movement ‘would end’ in March 2019 clash with Rudd’s account. There may be a technical defence, in that freedom of movement would no longer take place under the EU directives. New arrivals would need to register in the UK. There would also be a substantive difference, in that the Government has indicated that those who arrive after Brexit day will have no guarantee of the rights to freedom of movement and settled status7 as enshrined under the freedom of movement directive of 20048.

The UK government’s proposals to safeguard the position of existing EU nationals in the UK includes a ‘grace period’ after Brexit day, during which those in the UK before the cut-off date do not need to have documented their status. This is a sensible response to the practical capacity demands of processing what might be three million cases. It is another reason why a transitional period makes sense in getting immigration reform right. Even if it were possible to implement a new system between 2019 and 2021, it would be extremely difficult in practice to enforce a post-free movement system between 2019 and 2021 – because it would be very difficult for employers or landlords to differentiate between pre- and post-Brexit arrivals during any grace period.

Trying to do so would create significant risks of discrimination against EU nationals in the UK. Getting this wrong could further damage public confidence in the government’s ability to manage migration competently, when a core task of post-Brexit migration reform should be to rebuild public trust in an effective and fair system. It should be clear that the transitional phase is not a magic bullet for any of the key choices about Brexit. It does not, in itself, do anything to resolve the choices and trade-offs involved in creating a new partnership between the UK and EU, whether they are over the nature of a future trade relationship or Britain’s post-Brexit migration system.

What a transition can do is to create the time and space to get the future right – but only if the time is used rather more productively than the first year after the referendum has been.

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