Brace yourself: the next phase of Brexit is going to get messy

With the clock ticking, a low-alignment deal with the EU now seems likely, but it comes with great risks

Boris Johnson’s honeymoon was always going to be short-lived. The immediate, unexpected, reason is the sudden escalation of tensions between the US and Iran. But it won’t be long before Brexit once again dominates the headlines.

With the UK set to leave the EU on 31 January, and both sides set to embark on trade negotiations shortly thereafter, the prime minister, his senior ministers and his key aides are keen to lower the temperature. “We want to see Brexit on the business pages, not the front pages,” says one ally.

Two key factors will determine whether this aim is achieved. First, will Johnson stick to his decision ruling out any extension to the transition period, in effect imposing a 31 December deadline for concluding a free trade deal with the EU? Second, will he make good on his desire to “diverge” from EU rules and standards, thereby prioritising the government’s right to do things differently over preferential access to the single market?

The initial signals aren’t promising for industry. Johnson will politely dismiss EU warnings that his timetable is unrealistic when he meets the new European commission president, Ursula von der Leyen in Downing Street on Wednesday. Although he now commands an 80-strong parliamentary majority, extending the transition, and thereby remaining in the single market and customs union with no say over their rules while handing over wads more cash, would seriously anger Eurosceptic MPs and some voters. Senior ministers also believe that the very tight deadline will concentrate minds in Brussels. “We will not extend the transition under any circumstances,” one Downing Street source told me.

This will leave seven months to hammer out a deal. The EU’s 27 member states will only agree on the commission’s mandate to negotiate on their behalf by the end of February. The cabinet and Whitehall will also need time to settle on a final policy. Ratification of the deal will probably take two to three months. In a best-case scenario, that leaves March to September – about seven negotiating cycles – to strike an agreement. It’s an understatement to suggest this might not be long enough.

The prime minister hopes the arrival of Von der Leyen in place of Jean-Claude Juncker will mark a new start, as the two “friends and partners” agree a new relationship. He will also work hard to build personal rapport with EU leaders. Just as bonding with his Irish counterpart, Leo Varadkar, unblocked the withdrawal agreement talks, he will hope that strong relationships with other EU capitals could smooth the trade talks, too. But even if things are more cordial than during the divorce – and that is a big “if” – the challenge Johnson is setting himself is immense. The risk of a no-deal cliff edge at the end of the year will remain a key concern for financial markets and businesses.

The second, arguably bigger, problem is that many at the top of government see diverging from EU rules as the big prize of Brexit. While legislation enshrining existing EU standards in the areas of workers’ rights and the environment is likely, it’s doubtful this government will agree to follow EU rules in the future. Some senior ministers argue that alignment might actually be easier now as it will be the UK’s choice, but it’s hard to square this approach with the worldview and instincts of those now in power. Indeed, Johnson’s allies rightly point out that his opposition to both Theresa May’s Chequers deal and her withdrawal agreement was not because of details but because he believed it was fundamentally and philosophically the wrong approach.

Could he prove more pragmatic – just as he was when he pulled off the withdrawal agreement against the odds? Perhaps, but probably only when talks reach a climax in the autumn. After all, not agreeing to follow EU rules would make it difficult to defend manufacturing industries from EU tariffs and regulatory barriers – in plain English, there would be a risk of substantial job cuts and factory closures. The newly elected band of Tory MPs from the north and the Midlands will be anxious to avoid that, and this might prompt a rethink. In the end, the government could be tempted to follow EU rules in sectors such as aerospace, pharmaceuticals and chemicals.

But this is not a given. Senior voices in the cabinet tell me that the Tories’ new working-class former Labour voters are likely to be used as a justification to deliver a quick deal to deadline and for a tougher approach to immigration. The PM’s aides also acknowledge they will need a big selling operation to explain any new barriers to trade: “We will not go for high alignment; that will mean trade-offs.” Another minister says that “standing up to the EU won’t play badly with these voters. There will be a deep reservoir of support for the PM if he wants to play tough with Brussels.” To the extent there are jobs that need protecting, this could lead to a more assertive industrial policy – including “buy British” procurement rules and state aid for companies struggling to survive, both of which will cause tensions with Brussels.

A final, unresolved tension inside the government is whether to use the prospect of a US-UK trade deal to put pressure on the EU to make concessions. Some ministers want to go all out for “global Britain” from 1 February; others want to prioritise the EU and believe such threats could be counterproductive.

Given all of the above, a scrappy, relatively unambitious, low-alignment trade deal is arguably the most plausible landing zone, in contrast to a deal that keeps both sides economically close and the UK locked into the EU’s regulatory orbit. The risk of tariffs, not just regulatory barriers, is real. Despite hopes for a less fraught “phase II”, it seems likely that the UK’s noisy Brexit psychodrama isn’t going to quieten down any time soon.

theguardian.com / balkantimes.press