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The UK is leaving the European Union – now the real work begins

Laura Hutchinson, Head of UK Political Intelligence | Dods Monitoring

4 min read

10 months on from the date the UK was meant to leave the EU, the UK will leave the European Union after almost 50 years of membership tonight at 23:00 GMT. Dods Monitoring's Laura Hutchinson considers the next steps. 

A year on since Theresa May suffered the largest parliamentary defeat of a British Prime Minister over her Withdrawal Agreement, and 10 months on from the date the UK was meant to leave the EU, the UK will leave the European Union after almost 50 years of membership tonight at 23:00 GMT. 

The electorate delivered Boris Johnson and the Conservative mandate an unequivocal mandate on 12th December 2019 to “Get Brexit Done” and many will be hopeful that the end of the parliamentary paralysis will put an end to the uncertainty that has constrained the UK for the last few years.

However, the reality will not be as straight forward. The UK now enters into a transition period with the European Union - a period in which the future relationship of the two sides will be decided. This agreement will need to encompass everything from security and trade to fisheries and financial services.

The decision to not extend the transition period is purely political

Under the terms of the Withdrawal Agreement, the transition period is due to end on 31st December 2020, but there is the option to extend for up to two years if both sides agree more time is needed by 1st July 2020. This clause was deemed necessary due to the complexity of the negotiations ahead, and the expectation that they cannot be completed in under a year.

Boris Johnson, however, emboldened by his new majority has removed this extension clause from his Withdrawal Agreement Bill and replaced it with one explicitly forbidding the Government from extending the period beyond 31st December 2020.

The Government is misguided if it believes that this strategy of working against the clock will incentivise the EU to make concessions and agree a deal faster than they usually would. Throughout the first stage of the Brexit negotiations, both May and Johnson insisted that keeping “no deal on the table” was critical if the UK was to secure a good deal with the EU, arguing it presented a threat that would incentivise the EU to offer concessions.

Leaving without an agreement in place at the end of the transition period is not in the interest of either side, but the sting of no-deal has been cauterised now with the agreement of the Northern Ireland Protocol. This protocol, which prevents a hard border on the island of Ireland by placing one in the Irish sea instead, will be active regardless of whether an agreement is reached by 31st December 2020. The key risk of no deal therefore, namely the political and economic impact on Ireland, has been removed.

Bad for business?

The reality of this self-imposed deadline means that the Government will have less time, not only to negotiate a deal, but to implement the terms of one. The terms of a deal are unlikely to be known until much later in the year, which means that businesses will again have to prepare for multiple scenarios simultaneously and potentially have just a matter of weeks in order to implement new systems and processes.

It will not be possible for the Government to advise businesses on how to prepare for Brexit until precise detail on the deal is agreed. For instance, there can be no understanding of what checks or tariffs will be in place until both sides reach an agreement on the extent of regulatory alignment.

After four years of uncertainty, the Government need to give businesses the confidence to begin strategically planning for the long term again. This can only be accomplished by the Government being upfront, transparent, and open to extending the transition period if necessary.

Option of divergence means losing market access

Both sides will be required to make key concessions in order to reach an agreement in 11 months, and the EU may be hopeful that Boris Johnson’s majority will free him to make them. A key area which will decide much of the agreement is the extend of divergence.

Businesses largely favour close alignment, but the UK Government have removed the commitment to build on level playing field arrangements from the political declaration and indicated that the option for divergence is an objective for them in any agreement.

The UK cannot simultaneously request unfettered zero tariff/zero quota market access and greater scope for divergence – the two are trade-offs. If the EU allowed the UK to have both then it would, amongst other things, jeopardise the integrity of the Single Market and Customs Union – which are red lines for the EU. The UK Government will need to decide what to prioritise: sovereignty or market access, the more you have of one, the less you have of the other.  

To read an exclusive Briefing on Brexit by Dods Monitoring CLICK HERE. 

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