Top 3 developments
• EU working towards “bare-bones” customs option for backstop
• OBR rebuffs ‘double deal dividend’ claim in Autumn Budget
• May can reject MP alternative trade plans says head Commons Clerk
UK Update
This way, that way, forwards and back way…
A new ‘bare-bones’ all-UK customs union is currently being floated around Brussels as one part of a solution to the Northern Ireland backstop issue. The idea would see Great Britain applying the EU’s common external tariff and rules of origin regulations, whilst Northern Ireland would remain in a deeper customs union applying the EU’s full customs rules and following single market regulations on goods and agri-foods. Little has been said however on what would happen down the Irish Sea, with the UK refusing to create barriers within its own internal single market. The issue of a separate regime for Northern Ireland, which effectively allows it alone to follow May’s ‘common rulebook’ for goods, is still present, along with wider concerns about how long any such arrangement would run.
Concerns aren’t just on the UK side, however. The backstop, which would fall into place in the absence of a deal during the implementation period, would still remove the UK from the agreements it has previously entered into. France and several other states are concerned with opening up an unfair playing field through diverging regulations, whilst others are worried about allowing the UK to enter a customs union without extracting concessions on issues such as access to UK waters. Many of these issues, however, are very likely to form part of future trade talks, making a deal within the implementation period arguably more complex and divisive then Brexit negotiations given the more prominent representation of individual national economic interests.
OBR rebuffs Brexit budget dividend claim
The Chancellor delivered his 2018 Autumn Budget this week, promising billions of pounds of additional spending across sectors. But ‘this was not the end of it’, said the Chancellor in so many words, with more to come cash to come if a deal on Brexit is agreed between the UK and EU.
The Office for Budget Responsibility has spoken out against Chancellor Philip Hammond’s claim that a deal between the UK and EU would deliver a ‘double deal dividend’. Whilst a deal is likely to offer a more positive economic outlook and business confidence and inward investment than a no-deal in the short term, there is unlikely to be a ‘tax windfall’ according to the OBR. The Chancellor had claimed that a deal would allow him to release some of a £15.4 billion Brexit contingency buffer for extra spending, however, a ‘double’ dividend is unlikely on the OBR’s forecast. It is yet to be seen if both sides can agree to a deal, with Brexit no-deal preparations due to come in effect in the coming weeks in any case.
Bienvenue! Benvenuto!
The FT has reported that France and Italy have done the most to lay out the red carpet to UK bankers looking to make the jump to the continent through generous tax breaks. Germany meanwhile offers less beneficial terms for expatriates, with little in the way of deductions for overseas investments or travel. The UK’s infamous ‘non-dom’ status acts as its own marketing tool for attracting foreign financial talent, but the push by EU states to pull talent from the UK has had some success. Many financial firms have moved jobs overseas, with an estimated 5,000 due to move over to the EU in a worst case Brexit scenario.
Moving with The Times…
A story on page 14 of The Times this week speculating the conclusion of negotiations between the UK and EU on financial services was splashed across news channels this week only to be rebuffed by No.10 and the EU. Barnier spoke out about the article, saying it was misleading and differed from the EU’s position on equivalence, whilst government sources said that whilst progress was being made no agreement was in place. The UK is continuing to push for a better deal than that offered by the EU to third-states such as the United States, however, there is considerable pushback both by the EU Commission and some member states who fear that the EU would become reliant on a third states departed from its own rules and jurisdiction.
EU agrees UK access on Derivatives
The European Commission VP in charge of financial services has said that EU companies will be allowed to access UK derivative clearing houses temporarily in a no-deal scenario, in what is seen as a positive reassurance for companies preparing for all scenarios. The City of London Corporation’s Policy Chair, Catherin McGuinness said disruption to clearing houses in a no deal Brexit would cause a “significant threat to financial stability”, further welcome what she called a “step in the right direction” by the EU with so little time left for both UK and EU businesses to prepare for Brexit. The move helps to shore up £41tn of derivative contracts that were at risk in a no-deal scenario according to the Bank of England, which had asked the EU to step up to avoid EU businesses incurring additional costs.
May can ignore MPs on Brexit says Commons Clerk
The most senior official in the House of Commons, Sir David Natzler, has told the Brexit Select Committee that the Government can legally ignore any alternative Brexit plan tabled by MPs when and if the government tables its own UK-EU deal. Whilst conceding that the impact of a majority vote for an alternative plan could hold ‘considerable political force’, the Clerk said that the Prime Minister could still reject it and push ahead, making the passing of her deal the most likely outcome. This however only remains the case if the Government retains the position that a vote against the deal would deliver no-deal and a no-deal exit, something that is not supported by the majority of Parliament.
Upcoming Key Dates
13th December: EU Council Summit
29th March 2019: UK planned exit from the European Union
30th March 2019: UK planned transition period.
31st December 2020: UK planned exit from the transition agreement.
