12 August 2019

The news has focused on the stand-off with the EU over the Irish backstop, but Jill Rutter says the real change of direction by the new government is over the future relationship.

There were two triggers for Boris Johnson’s decision to leave the Cabinet in summer 2018: the first was the resignation of David Davis the day before. But the second was Theresa May’s tortured Chequers compromise, which had led Davis to hand in his cards.

Neither minister resigned over the December 2017 Joint Report (which paved the way to the Irish backstop), the draft text the EU tabled in February, or even the UK proposal for a temporary UK-wide customs arrangement in June.

But the Chequers view on where the UK wanted its relationship with the EU to end up appeared to be the final straw.

Chequers was designed to remove the need for the Irish backstop 

There are two interpretations of the road to the Chequers compromise.

The first was that it was a huge victory for manufacturers with just-in-time supply chains, who (with help from former Business Secretary Greg Clark and former Chancellor Philip Hammond) finally impressed on the prime minister that the UK needed to be part of an EU customs arrangement and stay aligned to EU regulation to minimise border friction.

The second interpretation of Chequers is that it took the issues the backstop needed to address and was designed to render them nugatory – so no need for anything that required a border check.

Although the EU was scathing about Chequers at the Salzburg summit, Olly Robbins argued in December that the EU’s response had not been “as wholly negative as some have perhaps portrayed it, including on the economic side.”

The new government wants a much more distant relationship with the EU

All reports coming out of the first encounters between Boris Johnson’s new EU Sherpa David Frost and the EU Task Force make clear that the new administration does not want any approximation to the commitments made by Theresa May at Chequers. 

Of the options for trade after Brexit, the Johnson government wants a Canada-style agreement; he called his version ‘Super Canada’ in September 2018. The government also wants agreements on aviation and haulage, but is far from clear regarding staying aligned with EU regulations – or in their orbit.

Last year, Johnson suggested he would opt for ‘mutual recognition agreements’ to give the UK continued access to the EU market but with much greater regulatory flexibility. That is what May floated in her Florence speech – but it was roundly rejected by the EU then and would be again. Why go to all the bother of harmonising and enforcing internal rules, to then recognise whatever rules a third country puts in place?

The EU’s own guidelines set out its demands, which meant the Canada-style deal was only on offer if the UK was prepared to sign up to level playing field provisions designed not to undercut the EU. May’s government was prepared to put much of that into her proposed Withdrawal Agreement Bill, but Johnson is highly unlikely to willingly sign up to any of those sorts of restrictions.

Indeed, early indications from the new government, for example the enthusiasm for freeports and a quick free trade deal with the US, will have increased EU concerns that Johnson with a majority would aim to turn the UK into Singapore-on-Thames.

Manufacturing has lost the assurances it won at Chequers

Manufacturers are focusing on the short-term disruption of no deal, but they ought to be thinking about what the future might look like. Even in the government’s best-case scenario, there will be significant non-tariff barriers to trade.

When the services industry saw Chequers, it bemoaned its failure to get across its points on the importance of Single Market access – and why, as the dominant part of the economy, the government had so casually dismissed its needs.

Now both services and manufacturers are in the same boat, with government prioritising trade deals with anyone but the EU and abandoning any talk of frictionless trade or delivering the "exact same benefits” as now, that David Davis initially promised. We know what the Johnson government does not want on future trade with the EU – we have yet to see what it does want.

Chequers is well and truly chucked – but with nothing yet in its place.