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Never a dull moment in Brexitlandia…

On Friday, the British Cabinet met in Chequers, the Prime Minister’s country retreat, to agree among itself, a position to propose to the EU27 on its intended future relationship with the EU after Brexit. A mere two years after the referendum. Key points involved agreeing to maintain a “common rulebook” for all goods and agricultural products and the establishment of a “combined customs territory”, under which the UK would apply its own, possibly lower, tariffs and policies for goods for the domestic market, and EU tariffs and policies for goods entering the EU. These, the Cabinet considered, would go some way to enabling the UK to maintain a frictionless, or close to frictionless, border in Ireland and mainland Europe, while giving it an independent trade policy, particularly in relation to services. On jurisdiction, the UK would pay “due regard” to EU case law in respect of the common rulebook, but would not technically be bound by its decisions, nor would the ECJ resolve disputes between the UK and the EU. Free movement would end and be replaced with a “mobility framework”.

A Government White Paper is expected to be published on Thursday, with considerably more detail than the three-pager that was published at the start of the weekend. In its current form, the proposal may not fly in Brussels. It looks like the fabled “cherry picking” of the UK requesting the benefits of EU membership without fully signing up to the Four Freedoms, and the fear in Brussels is that it would give the UK a competitive advantage that other members states do not have. But it is at least the first document emerging from the UK government that explicitly accepts trade-offs will need to be made.

Brexiteer Conservative MPs were not impressed, taking the view (not unreasonably) that the government’s position, which is likely to be watered down further by the EU, leaves the UK in a position where it remains subject in effect to EU rules while not being able to influence them, and unable to enter into bold new trade deals (a free trade agreement with the US would likely be hard to conclude if the UK was bound by European standards on goods and agricultural produce). Speculation that a UK Cabinet Minister might resign rather than sign up the government’s position came to nought, as none did. Michael Gove, one of the most prominent Cabinet Brexiteers was reported to have argued enthusiastically in favour of the Prime Minister’s position, and certainly was on the Sunday political shows.

Until late last night. David Davies, the Brexit Secretary, having reflected over the weekend, decided he could no longer remain in his post, particularly given the Prime Minister has told her Cabinet Minister that she will no longer tolerate any public dissent on the government’s agreed position. He stated publicly that he could not continue as a “reluctant conscript” in a “weak negotiating position”. It should be noted that Davies has largely been away from the centre of the negotiations, with the Prime Minister having taken back control and entrusted a senior civil servant, rather than the Brexit Secretary, to lead on them.

He has been replaced in the post by Dominic Raab, an ambitious Brexiteer who has not previously been in the Cabinet. It is not clear whether any powers will be repatriated back to DExEU and to what extent the replacement of Davies, a “big picture” man by the more studious Raab, will impact on either the government position or its engagement with the EU27.

And as I write, the Foreign Secretary Boris Johnson, has also resigned. This would appear to increase the chances of Theresa May facing a confidence vote, but it remains unclear to what extent she is at risk of losing it. She needs 48 MPs to trigger a no-confidence motion. A vote is then put to the entire body of Conservative MPs. If Mrs May loses that vote, there is then a leadership contest, in which she could stand (but, in practice, probably wouldn’t). What happens then is anyone’s guess. The membership of the entire Conservative Party will vote on the new leader, on a list of two voted on by Conservative MPs. They may or may not both be “leavers”.

Even if there is a new Prime Minister, and that Prime Minister is a “leaver”, the Parliamentary arithmetic does not immediately change. Meanwhile, the clock keeps ticking and the currently immoveable deadline of 29 March 2019 draws ever nearer at which point, in the absence of an agreed deal, the UK will leave without one.

This blog has always advised that all businesses, whether small, medium-sized, large or global need to ensure that they are well prepared for a range of possible outcomes. The rapidly evolving events since Friday and particularly today show that a “no deal” Brexit remains a significant risk and the chances of that have increased today. A soft or softish Brexit should not be taken for granted, even if it appears to be the preferred outcome for Theresa May, whose future is not looking rosy right now.

© Copyright 2018 Squire Patton Boggs (US) LLP

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About this Author

Jeremy Cape, Squire PB, tax attorney
Partner

Jeremy Cape is a tax and public policy partner in the London office, advising on a wide range of issues, including M&A, private equity, finance, restructuring and insolvency, and VAT. He has substantial experience in both domestic and global matters, with specific expertise regarding emerging markets and Africa, counselling both governments and taxpayers. His current initiatives include helping businesses deal with the introduction of VAT in the Gulf in 2018 and helping both UK and international businesses plan for Brexit.

Jeremy is frequently quoted and cited...

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