Brexit: Proposals for the future UK-EU relationship

Article 50 extension and indicative votes

The UK-EU Withdrawal Agreement (WA) and the accompanying Political Declaration (PD) on the framework for the future UK-EU relationship have together been rejected twice by the House of Commons, on 15 January and 12 March 2019. On 21 March, the EU agreed to the Prime Minister’s request for an extension to the Article 50 period. Brexit would be delayed until 22 May if the WA was approved by the House of Commons by 29 March, to give time for adoption of the necessary implementing legislation. In the event of the WA not being approved, Article 50 would be extended until 12 April.

The Government sought approval of the WA for a third time on 29 March (this time without the PD), but it was rejected by the House of Commons again, meaning 12 April became the default Brexit date. The EU held out the possibility of a longer extension being agreed beyond 12 April if the UK came up with an alternative plan and decided to participate in the EP elections. The EU has repeatedly said it will not re-open discussions on the WA, but is willing to consider changes to the PD.

On 25 March, the House of Commons approved a motion suspending precedence for Government business on 27 March and allowing for motions on indicative votes on alternative approaches to Brexit to take precedence instead. This was intended as a way of enabling a majority of MPs to coalesce around a future model for UK-EU relations that could break the current impasse. In the first set of indicative votes on 27 March, no motion won majority support. Another indicative votes session took place on 1 April, but again no motion won majority support.

On 2 April, the Prime Minister proposed talks with the Leader of the Opposition to agree a deal enabling the UK to leave the EU by 22 May. This would involve approval of the WA and an agreed approach to the future UK-EU relationship. If an agreed approach is not possible, the Government would seek to agree with the Opposition on a number of options to be put to the House of Commons and the Government would be ready to “abide” by the decision of the House. The plan envisaged that the WA would be approved and legislation to implement it would be passed by Parliament by 22 May in order to avoid UK participation in the European Parliament (EP) elections. The Labour party leader agreed to talks and these are ongoing.

On 5 April, the Prime Minister requested another Article 50 extension from the European Council. She said the UK would prepare to take part in EP elections on 23 May, but would cancel participation if the WA was ratified before then. On 10 April, the European Council agreed on an Article 50 extension until 31 October 2019 (rather than Mrs May’s proposed date of 30 June), with the possibility of the UK leaving earlier if the WA is ratified (on the first day of the month after ratification). The UK will however have to leave the EU on 31 May if it does not hold EP elections.

Norway or Canada?

In the Brexit negotiations, the EU’s offer on the future UK-EU relationship has been presented as a binary choice between a conventional free trade agreement, similar to that recently negotiated between the EU and Canada (CETA), or a Norway-style relationship with the EU whereby the UK remains a part of the EU Single Market (possibly as a member of the European Economic Area (EEA) bringing together the EU, Norway, Iceland and Lichtenstein).

Neither of these options on their own would prevent the emergence of a hard border on the island of Ireland (a priority for both the UK and the EU), as they involve the UK no longer being part of a Customs Union with the EU and the border between Northern Ireland and Ireland therefore becoming part of the UK-EU customs border.

The Canada-style option would also mean checks on goods crossing the border between Northern Ireland and Ireland to ensure compliance with EU regulations. The EU proposed that this could be resolved by separate arrangements for Northern Ireland, whereby it remains in a common regulatory area for goods and customs with the rest of the EU. This was deemed unacceptable by both the Government and the Democratic Unionist Party.

Norway Plus?

The EU has also indicated that it would consider a Norway-plus option, whereby the UK joins the EEA and also forms a new customs union with the EU (at least temporarily), thereby eliminating the need for both regulatory and customs checks on the Northern Ireland-Ireland border. This option is supported by a cross-party group of MPs and has also been backed by the Scottish and Welsh First Ministers.

The Norway-style EEA option on its own crosses a number of the ‘red lines’ set out by the Government, including continuing application of EU Single Market rules, free movement of people and substantial financial contributions. The Norway-plus option crosses another red line as a Customs Union with the EU would prevent the Government from pursuing its objective of an independent trade policy for the UK.

A UK-EU Customs Union?

The Labour party has stated its support for a “new comprehensive UK-EU customs union”. But it says that this would require the UK to have “a say” in future EU deals rather than being a passive recipient of decisions elsewhere. The EU already has a separate customs union with Turkey, but Turkey does not have a say in the EU’s trade deals and is obliged to follow the EU’s agreed trade terms for imports from other countries without any guarantee that these countries will reciprocate. The EU has indicated it would be willing to consider an EU-UK customs union, but trade experts have suggested the EU would be unlikely to give the UK a say in its trade negotiations.

The Labour party has also advocated a “strong Single Market” relationship, involving alignment with the Single Market and shared institutions. The only non-EEA country that participates in the Single Market is Switzerland. It has a bespoke deal based on over a hundred agreements with the EU, covering commitments to follow Single Market rules including the free movement of people. The EU is negotiating with Switzerland to establish more institutional control over this relationship and is unlikely to want to replicate it with another country.

Or No Deal?

A UK exit from the EU without a deal remains the default outcome if the House of Commons does not approve a withdrawal agreement by 31 October (or on 31 May if the UK does not take part in the EP elections). A no deal Brexit is predicted to result in significant short-term disruption and have a negative economic impact in the long term (more so than any other scenario modelled). But it is also viewed as providing for a clean break from the EU.

Economic impacts of different scenarios

In November 2018, the Government released its long-term economic analysis of Brexit, comparing the level of GDP in 15 years’ time under different Brexit scenarios. The main outcome was that the higher the barriers to UK-EU trade, the lower GDP is expected to be. This is in line with other studies examining the potential economic impact of Brexit.

The results show that of the five Brexit scenarios modelled, the one based on the Government’s preferred future relationship with the EU described in the July 2018 White Paper – the ‘Chequers proposal’ – results in the smallest long-term negative impact on GDP, compared with staying in the EU. Under the more restrictive migration scenario, ‘Chequers Minus’ – based on the Chequers plan with additional trade frictions with the EU – results in GDP being 3.9% lower. This figure has been used by some economists and commentators as the scenario closest to what is contained in the UK-EU Political Declaration. All scenarios are based on the assumptions that the UK retains existing EU trade deals and negotiates new deals with major economies such as the US and China.