Analysis Of Theresa May's 12 Point Plan For Brexit

Theresa May finally outlined her plans for Brexit in a speech the other day and it is clear that she is starting negotiations with a stance of a clear break from the European Union. May outlined 12 points in her negotiating strategy:

1) We will provide certainty wherever we can.

That may be true but this statement is altogether meaningless. Brexit is a negotiation and there will be no certainty until the deal is actually signed, sealed, and delivered. May clearly indicated that she will not be providing updates on the state of the negotiations but I imagine there will still be plenty of leaks that will give an indication of how they are proceeding.

2) Leaving the European Union will mean that our laws will be made in Westminster, Edinburgh, Cardiff and Belfast.

Indeed, that is true. But the reality is that EU law has only effected a relatively small percentage of UK law. The real impact on Britain comes from EU regulation which does not require a UK law for enforcement. As noted below, workers may find that some of those EU laws and regulations provided quite a benefit that may no longer exist when UK lawmakers have free reign.

3) A stronger Britain demands that we strengthen the precious union between the four nations of the United Kingdom.

Well said. But Brexit does exactly the opposite. Already, Sinn Fein has forced early elections in Northern Ireland and Brexit is likely to become a major issue during that campaign. In addition, an upcoming ruling by the Supreme Court could require May to get the consent of the Northern Irish Assembly before invoking Article 50 to begin negotiations. According to the Times article, "There is little sign that Northern Ireland has been a significant concern in London as the British government works out its strategy for Brexit." In Scotland, Nicola Sturgeon reacted to May's speech by saying that a new referendum on Scottish independence was now ""all but inevitable". That puts her in direct opposition to May, who said in her speech, "We will put the preservation of our precious union at the heart of everything we do", basically indicating she will do everything in her power to prevent that referendum. So, it is hard to see how this hard Brexit will do anything but weaken the "precious union".

4) We will deliver a practical solution that allows the maintenance of the Common Travel Area with the Republic of Ireland.

Here May is promising to have no hard border between Ireland and Northern Ireland. This would allow for the free flow of goods and people between the two countries. There are two problems with this promise. First, the free flow of people would certainly mean that illegal immigrants would have a pretty clear path of entry into the UK. Secondly, the very act of leaving the EU customs union of which Ireland is a part would automatically mean a return of a hard border between the two Irelands. Any free flow of goods into Ireland from the North would be a violation of that union. Similarly, any exports from Ireland to Northern Ireland would also violate EU rules if hey wer not subject to the same tariffs that the UK imposes on other EU members when Brexit is finalized. As Sinn Fein leaders have already pointed out, "Exiting the single European market, exiting the customs union, creates a hard border on the island of Ireland...Warm words, soft words from Theresa May mean nothing."

5) Brexit must mean control of the number of people who come to Britain from Europe.

This is clearly the heart of the matter. May has interpreted the Brexit vote as primarily a vote against immigration. The choice for the UK will be to be able to control immigration or be part of a single market. The EU will force May to choose between one or the other. There will be no having the cake and eating it too.

6) We want to guarantee rights of EU citizens living in Britain & rights of British nationals in other member states, as early as we can.

This has already become a touchstone issue as many EU nationals living in the UK would like May to guarantee their rights before negotiations begin, rather than essentially being used as a bargaining chip. In addition, according to May, there are some EU leaders who are not prepared to offer that reciprocal guarantee, saying, "I have told other EU leaders that we could give people the certainty they want straight away, and reach such a deal now.  Many of them favour such an agreement - one or two others do not - but I want everyone to know that it remains an important priority for Britain - and for many other member states - to resolve this challenge as soon as possible. Because it is the right and fair thing to do." It may be right and fair but that won't stop May from not doing it and using EU nationals living in Britain as a bargaining chip.

7) Not only will the government protect the rights of workers set out in European legislation, we will build on them.

This statement, in a way, contradicts the first statement. Apparently, EU laws are what protects worker's rights in Britain, not English law. The 48 hour work week, paid vacations, and maternity leave are all EU protections. So, perhaps for many workers, those pesky EU laws are actually better than UK laws. Similarly, this statement directly stands against the prior statement which said that the rights of EU nationals living in the UK were subject to negotiation, rather than government protection. The UK could simply pass new legislation today that protected the rights of all workers, UK and non-UK, with the full knowledge that those laws would be in place when Brexit is finalized.

8) We will pursue a bold and ambitious Free Trade Agreement with the European Union.

May can pursue this all she wants, but she will not have access to the single market and at the same time be able to restrict immigration. See statement 5. Even getting beyond the immigration issue, there will still be enormous hurdles for May to accomplish this goal. First, individual members of the EU can not negotiate separate trade deals with a non-EU member. In addition, the tariffs negotiated for that non-member must be applied equally by all members of the union. Also, this would still not allow for free access of goods across EU borders. British goods would be stopped at each border for a "point of origin" check to ensure that the merchandise did not include goods that had been imported into Britain from another non-EU member and then exported to Europe, thereby avoiding the higher external tariff. Lastly, the head of the European council's legal service said that this kind of agreement that May is proposing would be a violation of the Global Agreement on Tarrifs And Trade and would never pass muster with the EU or the World Trade Organization.

9) It is time for Britain to get out into the world and rediscover its role as a great, global, trading nation.

This is May's big shot across the bow of the EU. She is hoping to persuade the EU to offer better terms to prevent the UK from signing separate trade deals with the US, China, Brazil, etc. Certainly, Donald Trump has made no secret about his willingness to quickly sign a trade deal with the UK. But it is far from clear whether these deals will offset the losses from losing access to the single market as well as helping British exports. The loss of access to Europe for financial firms could be enormous blow to the UK economy. A PriceWaterhouseCooper analysis of Brexit's effect on the financial services estimated that the sector would shrink between 5%-10%. Already, firms are moving or preparing to move staff to the continent.  The financial sector accounts for over 3% of jobs and nearly 8% of gross value added to the British economy. European ministers have much to gain by forcing UK banks to lose access to the single market and move their base of operations into the EU and will probably force that issue when Article 50 is invoked.

10) We will welcome agreement to continue to collaborate with our European partners on major science, research and technology initiatives.

Again, May will welcome that agreement but it's not clear it is likely to happen. Already, EU workers on joint projects are pulling up stakes and moving back to the continent, precisely because May can not guarantee their rights to work in the UK and fear that funding for these projects will dry up. It is also doubtful that EU leaders will want to share certain technology research with a non-EU member.

11) We will continue to work closely with our European allies in foreign and defence policy even as we leave the EU itself.

Hopefully, that cooperation will continue and there is no reason to think that it won't. But there will probably be a little less sharing of information between EU defence agencies and the UK.

12) We believe a phased process of implementation will be in the interests of Britain, the EU institutions and member states.

This is probably May's most realistic statement as a "cold turkey" break from the EU would probably be catastrophic. The real question is how quickly this phased in approach can be implemented, what the agreement is, and whether the uncertainty that would reign in the interim would create huge damage to the UK economy.

May also made the point of saying that Parliament would be able to have an up-or-down vote on the final agreement. She clearly ruled out a second referendum on the final deal but was also unclear on what  Britain's status would be if Parliament actually voted down the final agreement.

Finally, Europeans reacted angrily to Chancellor of the Exchequer Philip Hammond's veiled threat that Britain could become a tax haven if it did not get a good Brexit deal. Hammond said, "most of us who had voted remain would like the UK to remain a recognisably European-style economy with European-style taxation systems, European-style regulation systems etc. I personally hope we will be able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different". German CDU deputy Norbert Röttgen responded, "The two major economic weaknesses in Great Britain are the considerable trade deficit and the large budget deficit. Hammond's tax cuts 'threats' are therefore threats of self-harm and as such an expression of British helplessness". Ouch. On the other hand, that pretty much sums up how Germany feels about everyone, as Southern Europe well knows. Others in Europe saw Hammond's statement as essentially "blackmail" and felt it did nothing but harm the negotiations to come.

But Rottgen's comments have resonance. Despite May's 12 point plan and her bluster, the UK enters these negotiations as by far the weaker party. Threatening to become a tax have is hardly a reflection of a powerful, dynamic economy. While May could believe that she can mitigate the damage to the UK economy with separate trade deals, those deals are going to take time to negotiate and sign. As her own ambassador the EU, who resigned in protest, has clearly stated, the deal to unwind from the EU could take a decade. New trade deals with other countries could take years to negotiate. But the UK is working in a tight two year window to exit the EU. it is unclear just how capable the government is at being able to negotiate so many trade simultaneously. It is clearly a much more difficult task than May's blithe statements imply. Similarly, the upcoming European elections in the Netherlands, France, and Germany, all of which will be a referendum on the EU, will provide further difficulties for the negotiations. For the current governments in all three countries that support the continued Union, a punitive Brexit deal will inhibit other countries from potentially exiting. And, even if the Anti-EU parties win power in these countries, it is still unclear how they would treat Britain going forward. The incentives for those countries to punish Britain would still be there even as they worked to dissolve the EU from within.

Finally, May has to await the outcome of the Supreme Court ruling on whether Parliament is required to vote in order to invoke Article 50. If the Supreme Court upholds the ruling from the lower court that Parliament does indeed need to do that, the whole approach to how the government negotiates Brexit will be back up for discussion.

Meanwhile, the damage to the UK economy is already beginning. Much of the immediate impact of Brexit has been offset by the dramatic fall in the pound. But that can only last for so long. The latest inflation numbers for December jumped 1.6% and the Bank of England expects inflation to rise to nearly 3% this year, eating into workers incomes even as the price of imported goods continues to rise. Already, UK consumers are starting to maintain their current lifestyles by drawing down savings and increasing their rate of borrowing. That, too, can only last so long. It certainly won't last until the UK and the EU finalize the Brexit agreement.