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Grayling Brussels' Brexit Bulletin - 12 January 2017

12th January 2017


The Grayling view: Parliamentary opposition no match for May

Much is talked about what Theresa May will do on Brexit - but what of the political opposition in the UK?

The Labour Party Leader Jeremy Corbyn this week set out his position on Brexit, saying he was not "wedded" to free movement of people, but he did think immigration was a good thing.

Confused? You will be.

In a speech in Peterborough (where 61% voted Leave), he said "Labour is not wedded to freedom of movement for EU citizens as a point of principle, but I don't want that to be misinterpreted, nor do we rule it out."

Make of that what you will. 

He went on to say that the UK must not "lose full access to European markets" - but to be sure, the Labour Party believes that the UK will, and indeed should, leave the EU following the referendum result.

Moreover, from the sound of it, it seems like they would prefer to remain members of the Single Market and subscribe to free movement. A "soft Brexit", in other words.

The problem Corbyn has is that many Labour voters don't agree with him, and they have started to vote for UKIP, thereby diminishing the electoral prospects of the main opposition party. Many in the Parliamentary party also don't see him as a viable leader, and the party has been dogged by infighting since even before the referendum.

The real winner of this political "dog's dinner"- despite her various shortcomings on this issue - is Theresa May, who is governing almost unopposed. 

Neither Labour nor the Liberal Democrats - despite a recent upswing for the latter in recent weeks - can match the Conservatives, even as we move towards the most critical period in recent British political history.


Join us for a Brexit webinar!

Join the Grayling Brussels CEO and Chairman of European Public Affairs Russell Patten and the CEO of Grayling UK & Ireland Richard Jukes on 26 January for a webinar on Brexit hosted by the Public Affairs Council. 

Issues which will be covered include:

  • How long will it take the UK to extricate itself from the EU?
  • How is Brexit affecting the EU economically and politically? Are more referendums likely?
  • How might UK and US trade arrangements be affected?
  • Which sectors have been impacted the most, and what should your organisation be doing to prepare for the changes that lie ahead?

For more information on how to register see the webinar's webpage.
 


The highlights from the UK

Hard Brexit increasingly likely - and it's what May wants
This week there was further evidence that Theresa May will prioritise controlling immigration over Single Market membership and jurisdiction of the European Court of Justice (ECJ). In an interview with the UK TV station Sky News she said: “Often people talk in terms as if we are leaving the EU but we still want to keep bits of membership of the EU. We’re leaving, we’re coming out.” She also rejected the accusation by former UK Permanent Representative Ivan Rogers, who resigned last week, that the Government's thinking had been "muddled". "Our thinking on this is not muddled at all,” she said. “Yes we have been taking our time. It was important for us to take our time and look at the issues.” The pound fell sharply following her remarks. Meanwhile the Liberal Democrats are calling for the UK to remain inside the Single Market, and Scotland First Minister Nicola Sturgeon is saying that Scotland will press ahead with a second independence referendum if the UK does leave the Single Market.

The Grayling view
Ms May still seems beholden to the Eurosceptic wing of her party and UKIP and seems to be advocating for a "hard Brexit", which would involve the UK leaving both the Single Market and the Customs Union. Opposition within the UK seems limited, with the Liberal Democrats portraying themselves as the "Remainers" party and being vocal about the need to remain in the Single Market. 




Sir Tim replaces Sir Ivan
The UK Government wasted no time in naming a successor to Sir Ivan Rogers as Permanent Representative, who resigned out of the blue last week. The next day Sir Tim Barrow, Political Directive of the UK Foreign Office, was named as the new Permanent Representative. A career diplomat, he has previously worked in the UK Perm Rep in Brussels and has also been Ambassador to Russia. The appointment was praised by Brexiters who seem to think he will better represent their interests than Sir Ivan who was seen to have "gone native" whilst in Brussels.

The Grayling view
Considering the surprise resignation last week, this issue has been dealt with quickly and smoothly by the UK Government. Sir Tim is used to difficult postings, but this could top the lot. As to whether he is pro-Remain or pro-Leave - a) that should be irrelevant to his posting and b) there is no real evidence that he is any more pro-Leave than Sir Ivan. It is perhaps significant that he is a man of the Foreign Office - and hence under Boris Johnson, the pro-Leave Foreign Secretary - whilst Sir Ivan was from the Treasury, which is under the "soft Brexit" supporting Chancellor Phillip Hammond. In any case, it is not the Perm Rep's job to grab the headlines. Sir Tim will be hoping he will not be in the media spotlight too much. 


 

Northern Ireland political turmoil could spell more trouble for May
Northern Ireland's Deputy Leader Martin McGuinness resigned on Monday in protest at the handling by First Minister Arlene Foster of a green energy scheme. His resignation will likely lead to an election in the province, but no date has been confirmed. Mr McGuinness's party, Sinn Fein, was pro-Remain during the referendum, whilst Ms Foster campaigned for Leave. 56% of Northern Irish voted to Remain in the EU. Northern Ireland is particularly exposed if Brexit goes ahead, since checkpoints may be re-introduced along its border with Ireland.

The Grayling view
The upcoming election in Northern Ireland - should it go ahead - may turn into a vote on Brexit, which puts Sinn Fein in a relatively strong position. Nonetheless, the sectarian divide in the province is still very prominent, and hence it may not be as clear-cut as it would be in other regions. A strong win for Sinn Fein would heap more pressure on Theresa May to at least remain in the Single Market and ensure the border between the north and south of Ireland remains open. 



Rolls-Royce to continue to invest in UK
Some good news for the UK Government! Rolls-Royce Motor has said it will keep its HQ in the UK and will continue to invest in the county. The company announced that it was a "true Great British manufacturing success story"  and that it had seen a 26% increase in sales in the UK in the last year and 6% increase worldwide. This is particularly significant since the company's CEO had written to workers before the referendum to emphasise the costs of leaving the EU and the impact on its "employment base".

The Grayling view
A further boost for British manufacturing, following Nissan's commitment to continue to invest in the UK last year. Rolls-Royce of course is a British manufacturer, albeit owned by BMW, so the pressure to be loyal and even "patriotic" to its home country, given the current climate, must have been immense. There is still reason to be cautious however - Article 50 has yet to be triggered, and there remains huge uncertainty over what a post-Brexit UK will look like and what its relationship with the EU will be. 

 

News from our European Network 
 

Merkel reiterates - no Single Market membership without free movement
Angela Merkel this week reiterated that the UK will not be able to remain a member of the Single Market if it insists on rejecting the principle of free movement of people. “One cannot lead these (Brexit) negotiations based in the form of ‘cherry picking’,” she said, whilst adding that she wanted the UK to be "an important partner" once the negotiations are over.

The Grayling view
Nothing new here, just the confirmation that the EU's most influential country is sticking to its mantra that the UK will not be able to remain in the Single Market but not sign up to free movement of people. This has been said virtually every month since the referendum by the EU side, but still the UK suggests that it could be a possible outcome. Sooner or later the penny will surely drop - and a "hard Brexit" will be the only way out.

What's happening in Brussels

UK departure leaves a funding hole
Among the many uncertainties that Brexit brings about, one major opportunity seems to emerge from Brexit, namely rethinking how the EU funds itself. Not only did the UK obtain a rebate in 1984 under Margaret Thatcher, it also systematically opposed any attempt for the EU to raise income independently of national governments. The UK’s rebate negotiation in the 1980s led to other Member States asking for similar/linked exemptions, notably the capping of contributions from Germany, the Netherlands, Sweden and Austria. More importantly, it poisoned all the discussions around the regular negotiations on EU budget.
 
With the UK out, the EU budget will lose roughly €6 billion, corresponding to the UK’s annual net contribution. It is unknown whether the result will be a smaller EU budget, higher contributions by the remaining members, or the widening of the EU’s traditional own resources, obtained from customs duties on goods imported into Europe and a share of Value Added Tax revenue. A panel of high level EU officials, chaired by former Italian Prime Minister and EU Commissioner Mario Monti, has analysed how the EU could raise revenue directly for Europe and reduce the amount handed over to Brussels by national treasuries. The potential new sources of income they identified include a share of taxes on corporate income and financial transactions, an electricity tax, a carbon levy or proceeds from the EU’s Emissions Trading System, a motor fuel levy or fossil fuel excise duty, and other revenue from EU policies such as border control, the digital single market, environmental protection, and energy efficiency.
 
The Grayling view
Although it is still quite uncertain that the EU will be allowed to collect its own resources in the short and medium term, especially given that other Member States will oppose it - notably the Germans out of fear that it would lead to uncontrolled spending - Brexit will at least have put the issue on the table. In any case, the budgetary shortfall resulting from the UK's departure will need to be filled somehow.  


What's happening in North America 

UK "first in mine" for post-Brexit trade deal
After meeting some key Republicans on a visit to Washington, D.C., UK Foreign Secretary Boris Johnson said that the UK would be "first in line" for a post-Brexit trade deal with the US. Johnson emphasised the "closeness of the relationship" between the two countries and said that for both it would be a "very exciting year". Bob Corker, the Chair of the Senate Foreign Relations Committee, echoed this sentiment, saying that it would be a priority to get a deal with the UK "on a trade agreement." Theresa May is due to visit incoming President Donald Trump in the coming months.

The Grayling view
It is difficult to know with any certainty whether a US-US trade deal is in the offing. Indeed, if TTIP is anything to go by, it will take literally years before such an agreement is hammered out, and the UK can really only begin negotiating once it has left the EU, meaning it won't enter into force until 2021 at the very earliest. Even in this scenario, it's difficult to imagine the UK being anything other than the smaller party, being dictated to by the world's only superpower and forced to align its standards and regulations with the US.


Dates for your diary 

January 2017 - Judgement on the appeal launched by the Government regarding Article 50 due
16 January 2017 - Theresa May to give key speech setting out Brexit strategy
3 February 2017 - EU Summit in Malta without the UK
End March 2017 - UK expected to trigger Article 50
April/May 2017 - French Presidential elections
September 2017 - German Federal elections
End October 2018 - Negotiations expected to end
March 2019 - UK expected to leave EU

Grayling Brexit Unit

Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.

The Grayling Brexit Unit is here to support, guide and inform the success of your business and identify how the political dynamics will change as a result of Brexit in both London and Brussels.
We are your Brexit experts.

No task is too big, too complex, or too ambitious - please contact Robert Francis (robert.francis@grayling.com) in our Brussels team for more information or Jonathan Curtis (Jonathan.Curtis@grayling.com) in London, and check out our brochure.

Don't forget to check out our #Brexitpapers including the "Brexit Organigram", the 'Great Repeal Bill'Guy Verhofstadt, the European Parliament's lead negotiator on Brexit, Sir Julian King - the UK's last Commissioner. Shadow Brexit Minister Sir Keir StarmerArticle 50, the UK's "Minister for Brexit" David Davis, Chief Brexit Negotiator for the Commission, Michel Barnier, his deputy Sabine Weyand, and what Brexit means for Brits working in the EU institutions.

If you have any suggestions about the Brexit Bulletin or want to find out more about a specific aspect of Brexit, please do let us know.

Please visit the Grayling Brussels website and follow us on Twitter @TheEULobby.


Grayling Team

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