Why May will have to compromise on Brexit

The Economist The Economist

Negotiations will begin on schedule next week, but in a very different political context

ALTHOUGH little debated during the campaign, Brexit is the government’s biggest challenge. Formal talks begin next week despite post-election chaos. The Brexit department in London has just lost two of its four ministers. Nobody knows how long Theresa May will be in Downing Street. Yet the EU’s timetable is oblivious to elections. Mrs May’s letter invoking Article 50 was sent 11 weeks ago, and a negotiating mandate has been given by the other 27 countries to Michel Barnier at the European Commission. There is no doubt over when Britain is due to leave: two years after Mrs May’s letter, on March 29th 2019.

Yet neither side can pretend nothing has changed. Mrs May called the election to win a mandate for her “hard Brexit”, prioritising immigration control and escaping the European Court of Justice (ECJ) over the economy. That implied leaving the EU’s single market and customs union. But the election gave her no mandate. Some 82% of voters backed parties promising to quit the single market. Yet Labour’s commitment was opaque, since it talked of retaining all the market’s benefits. And a majority of MPs in both parties were Remainers.

Politics reflects the new circumstances. The appointment of Damian Green, a strong pro-EU figure, as first secretary of state is one sign, albeit partly offset by the choice of Steve Baker, a hard Brexiteer, as a Brexit minister. The prominence of Ruth Davidson, leader of the Scottish Tories, who wants an “open Brexit”, is another. Mrs May’s Northern Irish partners, the Democratic Unionists, fret over a possible hard border with the Irish Republic. And her political weakness has forced Mrs May to retain the doveish Philip Hammond in a much stronger position at the Treasury. He has declared that voters did not back Brexit to make themselves poorer.

Some Remainers want Mrs May to switch to the softer option of staying in the single market and customs union. A few want to withdraw the Article 50 letter or extend its deadline. But an abrupt change of policy is unlikely. Many Remainers also favour the idea of tougher immigration controls, although the single market precludes them. Most voters now just want to get on with Brexit. Extending the deadline requires unanimous support from the 27, which is unlikely to be forthcoming.

Yet it is possible to draw three broad conclusions about where next for Brexit. One is that Mrs May’s priorities will have to change to put the economy and jobs first. That means listening to British business. A new report from the Harvard Kennedy School (“Making Brexit work for British Business”), based on many interviews, stresses the case for barrier-free access to the single market, more talented immigrants and continuing engagement with EU regulatory agencies. This suggests it would be wise to keep open both the single-market and customs-union options.

A second is that the vast quantity of Brexit-related legislation, described recently by Lord Judge as a tsunami, will be far harder to process in a hung parliament. And that points to a need for cross-party collaboration. Even David Cameron, Mrs May’s predecessor, has called for this. It may be tricky formally to involve other parties in the Brexit negotiations, not least because they have little reason to help Mrs May. But compromises will be necessary to get the Great Repeal Bill and other laws through both parliamentary houses.

The third is that far more time is needed than is available. Mrs May will now surely have to accept the EU’s sequencing plan, which means dealing with the Article 50 divorce before discussing new trade arrangements. That makes a case for more generosity from the British side, particularly over EU citizens in Britain and the sums needed to pay the “Brexit bill”. But even then, negotiations on a deep and special trade partnership will take a lot longer than the year or so likely to be left before the Article 50 deadline. To avoid a cliff-edge exit of “no deal” thus requires a transition. And the only plausible transition on offer will be to keep the status quo, which implies continuing free movement of people, budget payments and the ECJ.

The end-point for Brexit is far less certain, though some clarity may be needed before entering any transition. It could still be Mrs May’s hard Brexit, with a relationship analogous to the EU’s planned deals with Canada or Ukraine. But it might equally be a softer Brexit into a relationship more like Norway’s or Switzerland’s, which could mean retention of either or both the single market and customs union. There is surely scope for some creative additions to these. On migration, for instance, Britain might secure an emergency brake (as Norway has) or permission to offer jobs first to British nationals. Subjection to the ECJ could be partly disguised by deft use of the EFTA court, like Switzerland.

The economic outlook matters: hence Mr Hammond’s new clout. Growth has slowed in Britain but picked up in the rest of the EU. Not only will that make voters more aware of the potential costs of Brexit, but also it will mean that net EU migration continues to fall sharply. In a year’s time, there could just be a better chance of compromises that suit all sides.