There is a lot more work to do before Brexit takes place, despite the new agreement on a transition period
“A week is a long time in politics”. So said Harold Wilson. But for most of us, the last year feels like a lifetime, from the triggering of Article 50 last March to a transition agreed last week.
While the past 12 months have been difficult for businesses, slowly but surely there are signs that the voice of prosperity – and the crucial evidence put forward by the business community – is being heard.
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We went on a tour of Brexit Britain and this is what we found
Last week’s agreement of transition until December 2020 was a genuinely historic handshake with real and immediate consequences. A quarter of our members who are planning for Brexit told us they would trigger contingency plans by the end of March if no transition was agreed. Some will now press pause on these plans, others will slow them, while EU firms with supply chains into the UK will be relieved with the extra time to plan. It’s a win for common sense that will unlock investment and protect jobs.
But this is no time to rest on any laurels – there is still a lot of hard work to be done. Over the next three months, three key hurdles on the Brexit path must be cleared by negotiators in the same spirit as the win on transition.
First is addressing the issues in the rest of the Withdrawal Agreement, including the Irish border. There’s a firm commitment in the draft agreement to avoid a hard border between Northern Ireland and the Irish Republic, so we need the Government and the EU to bring the same pragmatism to this vital issue as they have to transition.
Second, until a workable solution for a frictionless Irish border can be implemented we believe the UK should remain in a customs union with the EU – shifting the border into the Irish Sea does not solve anything. There may come a day when the opportunity to set independent trade policies in goods outweighs the value of a customs union with the EU. But with 48 per cent of the UK’s exports going to the EU, that day has not yet arrived. There is actually a lot that can be done from within a customs union to make it easier to grow trade in services with fast-growing emerging markets, like China and India, as well as more established trading partners, like the USA or Switzerland).
Third, is moving away from the risk of a limited trade agreement, like the one the EU has with Canada. For many sectors – particularly the UK’s successful services sector, which accounts for 80 per cent of our economy – this is only marginally better than the disaster of no deal.
The services sector is a great British success story. Accounting for four in five jobs across the country, the UK is the world’s second largest exporter of services. British services are in demand all over the world, but the EU is the single largest destination for them – worth £90bn annually to the UK economy – with hundreds of thousands of jobs of companies and individuals benefitting from the services UK firms provide on both sides of the Channel.
Co-operation on data will help companies on both sides of the Channel. Where trade was once measured by the tonnage of ships on the seas, it’s now also measured by terabytes in cables under the seas. In fact, the data trade now has a greater effect on GDP growth than the millennia-old goods trade.
Finally, we cannot forget people in these lofty policy debates. For 5 million people, Brexit is not some political or business debate. It’s about their lives – pure and simple. Transition is a big step closer to ensuring EU citizens who arrive here before it happens can stay on the same terms. But we must now turn to the future – surely we can agree on a preferential treatment for EU migration.
Transition has brought much needed breathing space and time for companies, but the focus must now turn to our future relationship with our biggest trading partner. Over the coming months, businesses of all shapes and sizes, across the whole country, will continue to provide the evidence to deliver a victory for common sense, prosperity and jobs.
Rain Newton-Smith is chief economist at the Confederation of British Industry