June 30th, 2017 / Insight posted in Articles

Brexit Debate: One year on

Now that the clock is officially ticking down to Brexit and negotiations have begun, the EU has made it clear that it cannot strike a deal that is too advantageous for the UK if it wants to keep the Union together. So the question is, how ‘hard’ a Brexit will it be?

A year after we launched our EU debate series, our speakers reunited to share their thoughts and opinions on what shape Brexit might take and the future of the UK’s economic and business landscape.

The debate was chaired by Sir Michael Snyder and we were delighted to welcome back four panel members: Lord Howard Flight (Conservative politician and member of the House of Lords), Sir Mark Boleat (Past Chairman of the Policy and Resources Committee at the City of London Corporation), Jean-Pierre Larroze (Managing Partner of French accountancy firm, Aplitec), and Christian Clingen (Partner at Germany accountancy firm, WTG).

The debate began with defining what a ‘soft’ Brexit actually means. The panel had varied views, acknowledging that it means different things to different people. Howard Flight defined it as somehow being able to stay within the Customs Union and Single Market, something he does not consider possible because of the issues behind the Referendum result. The European perspective viewed ‘soft’ Brexit as the UK wanting to have all the advantages of being in the Customs Union and Single Market, without the ‘disadvantages’ of EU membership. Christian Clingen commented that Macron, Merkel and other EU leaders have made it fundamentally clear, ‘to the point of no return’, that to use the advantages of the EU market in the future, free movement of people is absolutely crucial – “they are so intertwined, there is no chance they will be pulled away from each other just to make it more comfortable for the UK”.

Mark Boleat argued passionately that the Referendum asked only the simple question of whether the UK should leave the EU or not – no-one was asked whether it should also leave the Customs Union or Single Market. He felt that what sort of Brexit it should be is an open question – and one that everybody should be allowed to have a say on.

The panel moved on to discuss the news that EU citizens currently in the UK will be allowed to stay. Mark Boleat commented that he was happy with that, but it was the future that bothers him: “If we cut off something that has made London what it is today, through bureaucratic policy, even if ostensibly we’re still going to allow lots of people in, that will be really damaging to us.”

The panel then considered whether the unexpected General Election result has profoundly weakened the UK’s negotiating position. Jean-Pierre Larroze agreed that it has and that Theresa May’s loss of majority means the EU27 now considers that there is no clear majority in favour of any of the Brexit solutions, so perhaps we will see a change of Prime Minister. Christian Clingen agreed, citing the political change across Europe with populist, nationalist parties losing support and the uniting of the EU27 as also weakening the UK’s position.

Mark Boleat said that France, in particular, was now a very different proposition after its election and that France makes Germany feel better about having an EU without the UK. He said, “We have consistently misunderstood in Britain what drives the EU and the political impetus behind it in many countries….and now the economy has turned a bit – the European economics are looking better and Britain is looking a little bit worse, so I think the dynamics have changed.” Howard Flight broadly agreed, adding that he felt the EU can afford to be a bit more helpful to the UK in negotiations, now that it is in a stronger position itself.

The debate then focused on SMEs. Christian Clingen said that it will be harder for UK SMEs to trade with Europe after Brexit, especially if they are light on resources as they will have to take into account import and export duties and registration of products in Europe, which they don’t have to worry about at the moment. He said there could also be significant tax implications for companies and private citizens.

Mark Boleat pointed out that most UK SMEs don’t export to the EU, but they sell a lot to clients who do. That is where he envisages problems occurring, and he said that sensible businesses are asking questions about their supply chains now. He noted that in the motor industry supply chains are going to be more national – which is good in one sense, British car manufacturers will buy more from Britain, but bad in another as German manufacturers will buy more from Germany. He feels that will be at the very least disruptive, even if the business turns out to be ok in the end. Howard Flight countered this, believing a free trade deal would allow businesses to thrive and fewer regulations would help entrepreneurs.

It was suggested to the panel that, if talks collapse, and a so-called ‘brutal Brexit’ takes place, the government could make the UK competitive by reducing corporation tax and VAT. For Christian Clingen, this would have no impact – he said that if a business sets up in the EU, it has a market of 500 million, but if it does the same in the UK, the market is only 60 million. Howard Flight agreed that tax incentives would make no difference as the EU has ‘bigger fish to fry’ with the recent collapse of two Italian banks and other economic challenges, and it will make sense for it to do a sensible deal with the UK.

Michael Snyder reminded the panel of Macron’s previous declaration that ‘the EU must reform or face Frexit’. Jean-Pierre Larroze was emphatic that Frexit is off the table after the election in France and the pro-Frexit nationalist parties have all been defeated. Mark Boleat said that the EU does need to reform – as does Britain. He said that we’ve seen some welcome reforms at the beginning of Juncker’s presidency, such as the reduction of EU legislation. He suggested that future reform could include different levels of integration for member states with the EU – he noted that we have this already to an extent, as the UK is outside Schengen and the single currency. He felt that there could have been a formula that the UK could probably have lived with. But he didn’t think Brexit is the catalyst for the reforms we’re starting to see – they would have happened anyway.

According to Christian Clingen, “Brussels is broken – but Brussels is not Europe.” He said that the Brexit vote was a wake-up call for Brussels and they know they have to make the EU work for the people, not just themselves. This is important so that no other members want to leave and to keep the populist, nationalist parties in the 27 countries in check.

To round off an interesting and lively debate, a member of the audience asked whether the panel was satisfied with the UK’s performance in over the last year, or whether it has made certain significant mistakes in its approach to Brexit. Christian Clingen said the British position has weakened, not only because of British internal politics, but also what is happening in Europe. Mark Boleat believed that the way the Referendum was presented to the UK public in the first place was too high-level, with no alternative presented to the electorate. He is concerned that the UK is making zero preparations for a ‘no deal’ situation with the EU – no move to appoint the necessary 25 new regulators, to make new customs arrangements or to rebuild the port of Dover.

Michael Snyder concluded the debate by reiterating that we should have faith in the innovation and ability of the British people to come through this in the end: “It’ll be a hard and difficult road but I think we will come through.”