Will the Brexit outcome meet UK industry’s needs?

What did Chancellor Hammond’s speech mean for the UK’s negotiating position on Brexit? Eoin O’Shea takes a look.

After the recent UK election, in which Prime Minister May failed to achieve her stated objective of securing an increased majority, thoughts among the UK establishment seem to have turned to the possibility of a Brexit deal which British industry could live with as opposed to the Brexit deal which had been offered during the referendum by the Brexiteers, (or by the UK’s government, in the meantime). In particular, and in the aftermath of the election on 18 June 2017, Chancellor Philip Hammond had cause to say that “no deal would be a very, very bad outcome for Britain”.

On 20 June 2017, while speaking at the Chancellor’s annual address at London’s Mansion House, Mr Hammond stated that his aim for the Brexit negotiations was directed at “maintaining our strong trade links with the European markets after we leave the EU”. According to the Chancellor, a negotiating position should be adopted by the UK which “prioritises British jobs, and underpins British prosperity”. During his speech, the Chancellor accepted that “The future of our economy is inexorably linked to the kind of Brexit deal that we reach with the EU.”

A few months ago (during March 2017), the UK’s House of Lords published a report entitled Brexit: Trade in Goods, which was published following their lordships’ discussions with representatives from the major trading bodies in the UK. Their lordships’ conclusions, having regard to the UK Government’s Brexit negotiating position, might seem stark.

In order not to be seen to put a slant on the conclusions, it is perhaps appropriate to present their views by way of sequential quotations:

“Safeguarding UK-EU trade in goods will be a critical factor in ensuring the UK’s long term prosperity post Brexit.”;

“All the sectors from which we took evidence expressed concerns about the imposition of tariffs in their sectors.”;

“Many UK businesses cannot easily substitute their imports from the EU with UK products.”;

“Non-tariff barriers can pose as significant or greater a barrier as tariffs to trade in goods.”;

“If the UK and the EU were to agree a FTA, compliance with preferential rules of origin might be so administratively burdensome for some sectors, such as chemicals, as to outweigh the benefit of tariff reductions.”;

“Some industries with an integrated EU supply chain and high levels of both imports and exports, notably the automotive sector, might be unable to comply with the local content requirements contained in the EU’s preferential rules of origin.” (Meaning that, even if there is a free trade deal between the EU and the UK, it is possible that important UK businesses, like the automotive trade, would not be able to benefit from such a free trade deal because the products would not qualify as goods of UK origin.);

“Regulatory standards are a significant non-tariff barrier. If the current level of EU-UK trade is to be maintained, ongoing harmonisation or mutual recognition of regulatory standards may be required.” (Bang goes the Daily Express’s “Now EU wants to ban our Kettles" referendum campaign warning!);

“Leaving the EU customs union would result in costly administrative requirements and customs procedures, whatever new framework for trade is established.”;

“Administering UK-EU tariffs and non-tariff barriers -  in the absence of a common regulatory system - would also significantly increase the work of HMRC, a task for which it is not currently resourced. The UK would also have to establish new customs posts, develop a new customs code and consider improvements to the UK’s systems for trade processing.”;

“Thus Brexit is likely to result in a cessation of the preferential conditions of trade with non-EU countries currently enjoyed by UK businesses.”;

“Uncertainty is the enemy of investment. Lack of clarity on what Brexit will entail has caused concern in the business community, particularly in sectors reliant on international investment.”

Will Britain’s Brexit negotiators take account of the views of UK industry, as expressed to the House of Lords and captured in their lordships report from March 2017? So far, the UK Government’s answer seems to be Doris Day’s “Que sera, sera”.

Eoin OShea is a practising barrister, specialising in commercial and tax law and was formerly a member of the European Court of Auditors.