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“Transition, trade and talent” is the now widely accepted script on behalf of the City of London and financial services. Certainty for business, and as soon as possible, remains critical in order to allow businesses to make plans against timeframes.
Indeed, senior industry figures – including Bank of England Governor Mark Carney and Chief Executive of the FCA Andrew Bailey – have said the details of a transitional deal are needed by Q1 2018 to allow firms to take pre-emptive action.
Transition period
Having returned from the EU Council Summit last month, Prime Minister Theresa May delivered an upbeat assessment of her time in Brussels to parliament, claiming the UK was within “touching distance” of moving to the next phase of Brexit talks.
With that, attention has moved to how and when transitional arrangements are delivered.
When Andrew Bailey provided evidence to the Treasury Select Committee (TSC) on 31 October, he confirmed there are two key reasons in favour of a transition period:
- It makes more sense for firms to make decisions knowing the final outcome
- To avoid cliff edge risks.
Meanwhile, MPs listening to May’s statement were confused at the suggestion that it would not be possible for the UK to secure transitional arrangements until the details of a future trade deal were finalised. Brexit Secretary David Davis added to the sense of uncertainty, having told the Exiting the EU Select Committee that parliamentarians may not get to vote on the final Brexit deal until after the Article 50 deadline has passed in March 2019.
In an attempt to clear up the confusion, the government subsequently assured the House of Commons that parliament would get a “meaningful” vote in time.
Brexit Minister Steve Baker MP has also since sought to clarify the mechanism for delivering transitional arrangements, informing the Exiting the EU Select Committee that the government is planning separate legislation on the transitional arrangement the UK will have when it leaves the EU – rather than seeking to include it in the EU (Withdrawal) Bill.
No deal outcome for services
While future arrangements for services are not mentioned in the Trade Bill, the government has highlighted the importance of the services sector to the UK economy. It has confirmed the intention to work with all stakeholders, to ensure the benefits of trade can be widely felt and understood, managing the transition brought by changes in the trade environment.
While we wait for the detail of that new ecosystem, industry figures have spoken up about the risks of no agreement. In his evidence to the TSC on 17 October, Carney said the immediate areas of concern for both sides will be cross-border provisions of insurance, data protection and the future of derivative contracts.
Carney added that he believes the EU recognises these shared concerns and there has been less planning by EU firms for a ‘no-deal’.
Similarly, Bailey spoke about such symmetric risks with regard to the loss of the passport. The top-level solution in his view is to reach an agreement within the Article 50 process. The second level is for each side to do what it would take to deal with this (via secondary legislation) and for the regulator to create a regime which would preserve authorisation (at least until contracts ran to their end).
How the politics shape such suggested solutions waits to be seen.
Slow progress
At the Council Summit, while EU leaders decided that sufficient progress had not been made on withdrawal terms to progress to the second phase of talks on the future relationship, the door to progress was at least left ajar as the EU committed to “internal preparatory talks” on trade.
Therefore, given the slow progress in separation talks so far, December’s Summit is a more realistic target for the launch of negotiations on the future trade relationship between the UK and the EU.
Domestically, the EU (Withdrawal) Bill remains highly contentious for the government. The bill is scheduled to begin its process of detailed scrutiny in parliament on 14 and 15 of November. With over 400 amendments tabled for debate, the Prime Minister and Brexit Secretary will be expecting an uphill battle, particularly on issues related to 'Henry VIII powers' and a 'meaningful' vote for MPs on the final Brexit deal.
In order to progress this key piece of legislation, we are likely to see the government making concessions to appease the rebels among its own benches.
Nor should we forget that serious work is still required on the key issues of citizens’ rights, the Irish border and the UK’s outstanding financial settlement.
Nevertheless, while the weight of political realities should not be ignored, we remain hopeful that ‘transition, trade and talent’ form a central commitment in the government’s ongoing Brexit strategy to support business towards a good end state.
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