UK Finance Minister Philip Hammond delivers his Spring Budget on Tuesday. In what is an economic and political context still dominated by Brexit, the set-piece speech in Westminster comes at a critical stage of the UK’s talks over a EU exit transition deal which is now in the balance.
In recent weeks, UK cabinet ministers from pragmatists like Hammond to ideological Brexiteers like Foreign Secretary Boris Johnson, have made a series of speeches seeking to seize back the initiative from Brussels in UK exit negotiations. These interventions culminated with Prime Minister Theresa May’s address earlier this month, only her third major speech on Brexit.
There had been growing business and political confidence, since December 2017’s first phase Brexit deal, that a transition deal could be secured, potentially quickly by the end of this month. Yet, this is becoming tougher, in part because of the significant, ongoing divisions within May’s government.
While May had been temporarily buoyed in Westminster by December’s deal, she is now in a very weak political position again overall. And it is this that makes her already poor hand of cards on Brexit even more difficult to deal, let alone win with, against Brussels in coming negotiations not just over the transition, but also any final settlement with the EU-27.
May had hoped last June that a big general UK general election victory would allow her to smooth over the deep divisions in the Cabinet and forge a consensus on Brexit strategy. But there is significantly less chance of that now, despite’s December’s deal, and the fundamental disagreements within the ruling Conservative Party on the nature and length of any transition may not ultimately get resolved any time soon.
Underlying these key disagreements — between pragmatists like Hammond and Brexiteers such as Johnson — is the deeper, crucial issue of what the United Kingdom will actually transition to in terms of its relationships with the EU-27. Remarkably, more than a year and half after the Brexit referendum, May’s government appears to have no completely clear, or firm idea of where the nation is ultimately headed than when she gave her landmark Lancaster House speech in January 2017, and indeed the first time the cabinet had a formal discussion on this topic was in only December.
A sign of continued disagreement over such fundamental Brexit issues among senior ministers came when Hammond refused earlier this year to rule out the United Kingdom remaining in the European Customs Union. This put him at odds with May who has ruled out retaining any “bits of EU membership” post-Brexit and asserted instead that she would like a harder exit leaving the Customs Union, Single Market, Common Commercial Policy and the Common Commercial Tariff while seeking a “bold, ambitious free trade agreement” with “the freest possible trade on goods and services … that is frictionless as possible”.
Until London has addressed these first order exit questions — with the associated trade offs such as a potential ‘harder border’ in Ireland — with greater resolve and clarity, Brussels has indicated it may drag its feet in forthcoming transition negotiations. And this, alone, could rule out a deal by March which will disappoint UK and European corporates looking to plan ahead for the post-Spring 2019 business environment when the United Kingdom is scheduled to leave the Brussels-based club.
To be fair, European Commission President Donald Tusk has said that May is becoming “more realistic” about some of the trade-offs that will be necessary in the final negotiations. But nonetheless, it is very unclear whether May’s collective negotiating demands — should she ultimately press for a ‘hard Brexit’ — can be realised from the EU in the timeframe of Article 50 given its own robust negotiating positions.
This is especially so given May’s weakened political standing after June’s UK general election where she lost her parliamentary majority. Indeed, it remains possible that her government could still fall in 2018.
So with a significant amount now beyond her power, even more rests on whether the remaining 27 EU states will ultimately offer outlines of such a deal on attractive enough terms to her to accept. Here, much may depend upon whether the EU-27 fragments in 2018 with its Brexit preferences, or alternatively that it shows the same degree of strong unity and common interest that it did in 2017 vis-a-vis the United Kingdom.
Last year, the perceived existential threat from Brexit seen by some continental politicians, alongside the in-built advantages for Brussels within the two-year Article 50 process handed the initiative to the EU-27. For example, under Article 50 it was for the EU-27 alone, not the United Kingdom, to decide last December whether “sufficient progress” was made in the first phase divorce talks to justify moving to the next stage, fortifying the bloc’s already strong position.
And as well as adjudicating the process in this way, Brussels has also controlled the time tabling too. This is exemplified, for instance, with the decision of Brussels to delay until this later this year substantive talks on the future UK-EU relationship, including over trade, putting the transition talks first, despite the fact that London wanted the sets of talks to proceed in parallel.
Taken overall, with London now raising the stakes in securing a final deal, and transition, 2018 will be huge and historic not just for the United Kingdom but also for the EU. Delivering a smooth departure will need clear, coherent strategy and thinking so all parties can move toward a new constructive partnership that can hopefully bring benefits for both at a time of significant global geopolitical turbulence.
Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.