Brexit ‘cliff-edge’ doesn’t guarantee transitional deal

Britain’s prime minister, Theresa May, tried to reassure business leaders at the Confederation of British Industry’s (CBI) annual conference in London yesterday that they wouldn’t be left on a “cliff edge” when leaving the European Union (EU). But her attempt to soothe fears about a sudden change in rules after the UK enacts Brexit ended up sparking unwarranted talk of a transitional deal.

“I understand … people don’t want a cliff-edge; they want to know with some certainty how things are going to go forward,” said PM May amid calls for more guidance about the government’s Brexit plans. “That will be part of the work that we do in terms of the negotiation we are undertaking with EU.”

CBI president Paul Drechsler had warned that businesses do not want a “sudden and overnight transformation in trading conditions” upon leaving the EU which could leave them “stranded in a regulatory no man’s land”, prompting May’s remarks during a Q&A session .

The PM also said she wanted “an early agreement on the status of UK nationals [working] in Europe” and vice versa, so that businesses can “plan with certainty.”

However, her remarks sparked speculation that this could mean a transitional deal was possible to try to ensure a smooth Brexit, no “cliff face” and a continuous trading environment for UK businesses – particularly if negotiations to exit the EU aren’t completed in the two-year timeframe mandated under the Article 50 exit mechanism.

Article 50 is expected to be triggered by next March, so debate is raging in the UK about how best to leave without damaging the economy.

Carolyn Fairbairn, the CBI’s director-general, later told her members’ annual gathering that: “With only two years for such a complex negotiation, the government rightly has on its radar that we should seek a smooth transition which gives firms time to adapt.”

May, however, did not commit to a transitional deal that would elongate the two-year Brexit process, reiterating that she would “not provide a running commentary on every twist and turn” of the exit negotiations with the EU. “Where I can set out our plans without prejudicing the negotiation to come I will,” she added.

Sweetening the pill

This still didn’t give the CBI business leaders the certainty they are – perhaps optimistically – seeking in order to make investment, staffing and other decisions in a post-Brexit environment ahead of the negotiation.

May did unveil several other measures, however, designed to try to reassure business. There were pledges to:

  • Invest £2bn annually in UK research and development by 2020.
  • Deliver the “lowest corporation rate in the G20”, which is a restatement of a preannounced policy to cut UK corporate tax to 17% in 2020. However, May’s loose language at the CBI conference in promising to match president-elect Trump’s pledge to cut US federal tax to 15% could require the UK Treasury to talk about state taxes to avoid further reductions.
  • Launch an ‘industrial strategy’ to spur UK-wide economic growth outside of London.
  • Examine how innovative UK startup firms can get long-term investment to scale up with a “Patient Capital Review” chaired by the former head of buyout firm Permira, Damon Buffini. The aim is to see if the next DeepMind, recently bought by Google for its data and artificial intelligence (AI) machine learning capabilities and still resident in the country, can scale up instead. A small business research initiative was also unveiled to look at how more innovators can get their first break.
  • May also promised to “consult” on plans to reform corporate governance, including executive pay, accountability to shareholders and worker representation on boards. The latter represents a downgrading of an earlier hard pledge made back in July when May became PM to create worker-directors.

Jeremy Corbyn, the leader of the opposition Labour Party, addressed the CBI conference at the end of the day, labelling May’s earlier talk of matching Trump’s corporation tax plans “a race to the bottom”. He added they were “reckless” and represented “short-term grandstanding.”

Corbyn accused the PM of overseeing a “mishandled and chaotic exit from the EU.” He warned against a Brexit that doesn’t provide access to the EU single market, while explaining his own plans for a smooth Brexit conference early next year, and reiterated his belief that the UK “government doesn’t appear to have a [exit] plan at all.”

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Mark Carney Bank of England

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