Theresa May has signalled there will be no transitional deal to prevent a “cliff-edge” Brexit unless the UK settles its final trading relationship with the EU next year, prompting warnings that businesses will start leaving the country before then.
The prime minister surprised MPs when she told them in a Commons debate that there could be no “implementation period” unless the UK had settled its “future partnership” with the EU, which is unlikely to happen until next summer at the earliest and may fail to be agreed at all.
Her remarks alarmed MPs fighting against a hard Brexit. Business groups have been intensively lobbying for the government to agree the terms of transition with the EU by Christmas, before companies make their financial plans for 2018.
Labour warned that the delay in agreeing a transitional period was “a recipe for job losses, businesses disinvesting and an economic downturn”, while the backbench Tory MP Nicky Morgan called for more clarity for businesses.
The prime minister was responding to a question asked by Iain Duncan Smith, a former party leader and a leading Tory Eurosceptic, to confirm that there could not be agreement on an implementation period until there was a final deal that could be worked towards.
She replied: “I thank my right honourable friend because he is absolutely right. The point of the implementation period is to put in place the practical changes necessary to move to the future partnership and, in order to have that, you need to know what that future partnership is going to be.”
She was pressed to clarify her remarks by Yvette Cooper, a former shadow home secretary, who asked whether she meant there “won’t be any transition deal at all” if no long-term UK-EU trade deal was agreed by this time next year.
“An implementation period is about a period that is adjusting to the future relationship,” May said, implying that there could be no transition if there was nothing to implement. “That’s the basis on which I’ve put it forward to the European Union and that’s the basis on which we’ll be negotiating an agreement.”
May said the EU’s chief negotiator, Michel Barnier, had suggested that any trade deal with the EU would need to be agreed by October 2018 in order to be ratified by all the national and regional parliaments in time for the day of the UK’s exit in March 2019.
But Barnier appeared to contradict her comments on Monday, saying any final trade deal could take years to negotiate and, even then, Britain could expect little better than the one struck with Canada.
He told a group of European newspapers that agreeing transitional arrangements could be possible before March 2019 but a future trade deal would have to be negotiated over several years and “will be very different” from the status quo.
“From the moment the UK told us that he wants out of the single market and the customs union, we will have to work on a model that is closer to the agreement signed with Canada,” he said.
The prime minister’s spokesman repeatedly refused to elaborate on what May meant by her comments and declined to confirm whether there could be a transitional period if the UK were to leave without a deal and became reliant on World Trade Organization terms.
After the debate, Keir Starmer, the shadow Brexit secretary, said May had caused yet more “uncertainty and confusion about her approach towards transition”.
“The biggest risk to jobs and the economy is the threat of no deal and the failure to secure an early commitment for strong transitional arrangements on the same terms as we have now. That means within the single market and a custom union,” he said.
“It is deeply irresponsible for the prime minister to pretend businesses can wait for an agreement on transition until any final deal is reached. That is a recipe for job losses, businesses disinvesting and an economic downturn. We need less doublespeak and more clarity from the prime minister on this important issue.”
Chris Leslie, a former shadow chancellor, said the whole point of the transition was to stop businesses relocating but this benefit was at risk of being lost.
“Today, the implication is that businesses will not get any certainty on transition until the signature is on the paperwork of the final deal. Basically, businesses were saying they need certainty by January but that does not look like it will happen,” he said. “We should at least be trying to get an interim agreement that says you’re under status quo terms until 2021 which is what we all thought the Florence speech was about. It’s a bit of a rebuff for business groups.”
Vince Cable, the Liberal Democrat leader, said: “This defeats the whole point of a transition deal, which is to provide much-needed certainty. Past experience shows there is no way a final trade deal with the EU will be agreed by March 2019.
“Theresa May is snubbing British businesses and adding to the Brexit uncertainty which is already damaging jobs and investment. Firms facing crucial investment decisions need clarity now, not in another 18 months’ time.”
Concerns about the prime minister’s words were not limited to opposition MPs. Morgan, the Conservative chair of the Treasury committee, said: “Businesses have made it very clear they need early reassurance on transition. I do think more detail on exactly what the prime minister was saying today is needed.”
Business groups have long been calling for transitional arrangements to be nailed down with the EU as soon as possible. A draft letter from the CBI, British Chambers of Commerce (BCC), the EEF manufacturing trade body, the Institute of Directors and the Federation of Small Businesses emerged on Monday calling for the prime minister to strike a transition deal before firms start to rein in spending plans as they finalise budgets for 2018 and prepare to implement contingency plans for Britain’s departure from the EU.
“We need agreement of transitional arrangements as soon as possible, as without urgent agreement many companies have serious decisions about investment and contingency plans to take at the start of 2018,” the business groups wrote.
“Failure to agree a transition period of at least two years could have wide-reaching and damaging consequences for investment and trade, as firms review their investment plans and business strategies.”
Adam Marshall, the director general of the BCC, said an early transitional agreement was critically important. “We would like to see that happen by the end of 2017 because the value of that transition decreases day by day, week by week, month by month the longer that it takes to get in place. So the sooner we can get it the more secure businesses will be that they can prepare for change,” he said.
A spokesman for the Federation of Small Businesses urged the prime minister to agree to a transition period as soon as possible. “It is important for businesses to have the certainty that there will be a Brexit transition period before whatever new arrangements between the UK and EU are implemented,” he said.
”With many firms looking to future investment decisions, it is vital that a ‘standstill’ implementation period is agreed urgently. Small businesses would struggle to cope with more than one set of rule changes and so a single switch to the new arrangements should be made after firms have had time to adapt and prepare.
“The longer the short-term uncertainty goes on, the more difficult it will become for small businesses with EU customers or supply chains to make investment decisions.”
May made her remarks in parliament as she updated MPs on last week’s Brussels summit, where some of the EU leaders called for the UK to be clearer about how much it was prepared to pay in a divorce bill.
Responding, the Labour leader, Jeremy Corbyn, said that the negotiations were clearly “stuck in an impasse” and called for the European commission to stop briefing out “astronomical numbers” for what the UK owed the EU.
“I am now getting a worrying Groundhog Day feeling every time Theresa May gives us an update on what she calls the ‘progress’ of Brexit negotiations,” he said. “Government chaos and splits are weakening Britain’s negotiating position and damaging the negotiations. So too is the EU’s approach to haggling about money. They need to to stop briefing astronomical and unacceptable numbers.”
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