Davis Says U.K. Could Pay EU to Keep Single-Market Access

  • Brexit secretary says priority is trade in goods and services
  • Government says it must decide how taxpayers’ money is spent

U.K.'s Pay-to-Play Approach to Post-Brexit Single Market

The U.K. would consider making contributions to the European Union to secure the best possible access for trade in the bloc’s single market, Brexit Secretary David Davis said.

Davis said Thursday his priority is to ensure that businesses keep the ability to trade and provide services in the European market after the U.K. leaves the EU. Though he didn’t directly mention making payments, Davis’s comment may be a signal that the U.K. could continue to pay into the EU budget after leaving in order to keep market access.

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“The major criterion here is that we get the best possible access for goods and services to the European market,” Davis told lawmakers in response to a question about the U.K.’s willingness to make contributions to the EU to retain such access.

The pound strengthened after his comments, which will be welcomed by banks and other businesses keen to maintain as much access as possible to the single market. 

Tariff-free access to the EU is “essential” to food producers and retailers, chief executive officers including those from Wm Morrison Supermarkets Plc, Dairy Crest Group Plc and J Sainsbury Plc wrote in a letter to The Times newspaper published on Thursday. The Society of Motor Manufacturers and Traders said this week that losing duty-free ties with the EU could lift the price of imported cars by as much as 1,500 pounds ($1,900).

Watch More: Davis Speaks on Single-Market Access

Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of euro-area finance ministers, also opened the door to the British retaining ties with the single market, though he warned it would come at a cost.

“Of course we can design new agreements to allow them to enter the internal market and to allow trade to continue,” he said in an interview with the Times of Malta. “We have to do that. But it will not be as easy or as cheap as it is now.”

Derek Halpenny, European head of global markets research at MUFG, said Dijsselbloem’s comments marked “the first time we can recall a senior EU official acknowledge the possibility of the U.K. having access to the internal market” after Brexit.

The insights into how governments are viewing post-Brexit trade came in a week in which both sides of the looming divorce negotiations began fleshing out their plans. European and U.K. officials now seem to accept they will have just 15 months to seal a deal once Prime Minister Theresa May triggers the talks, given the need for the European Parliament to ultimately have a say. Where they still differ is in whether they should discuss issues such as the break and future relationship at the same time as the U.K. would like, or sequentially, which is the EU’s preference.

‘Any Contribution?’

During the exchanges in Parliament, Wayne David from the opposition Labour Party asked Davis: “Will the government consider making any contribution in any shape or form for access to the single market?” The minister responded that “the major criterion here is that we get the best possible access for goods and services to the European market, and if that is included in what he is talking about then of course we would consider it.”

Speaking during a trip to Scotland, Chancellor of the Exchequer Philip Hammond said Davis “was absolutely right not to rule out the possibility that we might want to contribute in some way to some form of mechanism.”

Asked about the comments from Davis and Hammond, May’s spokeswoman, Helen Bower, said the question of contributions was a matter for the negotiations. “It will be for the U.K. government to make decisions on how taxpayers’ money will be spent,” Bower told reporters. At a later briefing for journalists, she added: “Two ministers have been asked things today -- they responded. They said we could look at these issues, they haven’t said we will do.”

Economic Value

The Institute for Fiscal Studies estimated in August that retaining single-market membership could be worth around 4 percent of gross domestic product by 2030, the equivalent of 75 billion pounds.

The U.K. paid 13 billion pounds into the EU budget last year and received around 4.5 billion pounds in EU spending, leaving a net contribution of 8.5 billion pounds. Those who campaigned most ardently for Brexit may prefer keeping all of that cash to paying some of it for entry to the single market.

As Parliament met, the Office for National Statistics reported that net migration to the U.K. rose to a near-record in the year prior to June’s referendum, a trend that will keep pressure on May to win more control of Britain’s borders.

Those arriving to live or study for a minimum of one year outnumbered those leaving by 335,000 in the 12 months through June, the ONS said. That compared with 326,000 in the year through March and was just off the all-time-high 336,000 seen a year ago. Net migration from elsewhere in the EU hit a record 189,000.

While the U.K. wants to minimize immigration and maximize trade, French Foreign Minister Jean-Marc Ayrault repeated on Thursday that access to the single market depends on allowing free movement of labor and other requirements. Norway, for example, pays the EU the equivalent of 740 million pounds a year and signs up to immigration from the EU in return for avoiding tariffs.

“Any access to the common market comes with rules and obligations and one of those is freedom of movement for people,” Ayrault told a news conference. “It is not a la carte.”

Foreign Secretary Boris Johnson denied a Sky News report that he had told ambassadors in London that he backed freedom of movement.

Speaking in Rome on Thursday, Johnson said that his message had been that “immigration has been a good thing for London and the U.K. but you’ve got to have control. And the point of Brexit is we’re taking back control.”

— With assistance by Stefania Spezzati, John Follain, John Ainger, Gregory Viscusi, and Lukanyo Mnyanda

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