Photo Illustration: Tom Hall/Bloomberg

Brexit Bulletin: Pragmatists Speak

  • Davis sets out clearest vision yet of what U.K. wants after Brexit
  • Pound rallies as U.K. seen keeping close to EU rules after split

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Two of the cabinet’s leading Brexit backers set out the government’s vision of the divorce on Wednesday, and the key message was that nothing much would change.

Brexit Secretary David Davis and Trade Secretary Liam Fox both struck an overwhelmingly pragmatic tone as they gave the clearest description yet of what the Cabinet will try to secure in a future trade deal with Brussels. Davis said Britain will stay close to the EU’s regulatory regime after it leaves the bloc and only wants “the freedom” to go its own way if it chooses in the future. It’s quite possible that the U.K. will decide to replicate European regulations on financial services and other areas indefinitely, he suggested. 

“I see my task as creating that freedom – how far apart we diverge will be a matter for the government thereafter,” he told a parliamentary committee.

David Davis.
Photographer: EMMANUEL DUNAND/AFP

Crucially, those comments chime with those of Environment Secretary Michael Gove, another key Brexit backer. In December, he wrote in the Telegraph: “If the British people dislike the arrangement that we have negotiated with the EU, the agreement will allow a future government to diverge.” The important thing is that leaving the EU allows the government to change its laws in the future.

While to some it may sound like a continuation of the have-cake-and-eat-it approach, it’s clear that any divergence will have consequences for access to the EU market. It will be up to future governments to decide if it’s worth it.

Fox struck a similar tone, saying he wouldn’t rule out joining a customs union with the EU. “If there’s a different way we can align ourselves, then we are curious to look at it,” Fox told the BBC.

Sticking with the EU rules – if Brussels accepts it and doesn’t see it as an attempt at cherry-picking – solves the problem of the Irish border. The Conservatives can’t ignore the Irish puzzle and plenty of Brexit backers are also keenly aware of the need to protect the union of Great Britain and Northern Ireland. Most businesses will be pleased to see rules kept the same, though they may be spooked by the prospect of divergence in the future.

While the three key Brexit supporters are apparently on board with keeping regulations aligned after the split, the main question mark remains Boris Johnson. The foreign secretary and face of Brexit has been stepping up his own campaign in recent weeks amid reports he’s unhappy with the direction the Cabinet is headed. Jacob Rees-Mogg, a hard-line euroskeptic who doesn’t have a seat in the Cabinet, is on the warpath over the concessions the government looks set to make. But in parliament overall there is probably support for Theresa May's plan: a recent study showed that a majority consider that even staying in the single market would be compatible with delivering the referendum result.

In his almost two-hour testimony, Davis made a few other key points about the year ahead, most of them signs of pragmatism:

  • “I never used the phrase red line at all.”
  • Immigration was a “minority issue,” the point was taking back control.
  • The trade agreement will take time to be concluded – as the Canadian one did – and won’t be finished until during the transition period.
  • He won’t put up a fight on the terms of transition and expects a deal by March. He’s “relaxed” about the terms, as the government will be judged on the final deal, not on the two-year transition.
  • EU citizens won’t be deported, even in the event of a no-deal Brexit.
  • And a dig at Johnson: “I don’t talk about dividends until they are delivered.”

Read more: Bloomberg’s Rob Hutton looks at the debate about a second referendum and why the Europeans keep asking May if she might take it all back

Brexit Latest

Merkel Firm | German Chancellor Angela Merkel said in Davos that she wants a “good partnership” with the U.K. in the future, but there can be no compromises on access to the single market without accepting the four freedoms associated with it. It’s up to the U.K. government to decide how close Britain’s relationship with the EU is going to be, she said.

Brexit Fit | The U.K. government is too beset by political turbulence and ministerial turnover to effectively prepare the country for Brexit, the Institute for Government said. Some 85 of May’s 122 ministers have taken new posts since the general election in June. At the Department for Exiting the European Union, just Davis and one other minister have remained in place since the department’s creation 18 months ago. A separate briefing on the Department for International Trade by the National Audit Office said the model of moving staff every few years could be problematic, as trade and negotiating skills take time to master. “Considerable work will need to be done to build skills that have not existed in government for a generation.” 

Friendly Italians | Prime Minister Paolo Gentiloni said that any accord reached between the U.K. and the European Union must include financial services, and there’s a “strongly prevailing position supporting the necessity of having a good deal with the U.K.” Financial services “will be part of the agreement,” since excluding them “is totally unrealistic,” he told Bloomberg Television in an interview in Davos.

No Punishment | Luxembourg Prime Minister Xavier Bettel said he “deeply” regrets the U.K. decision, but he wants a “pragmatic” solution that doesn’t “punish” U.K. citizens or London.

Luxembourg's Bettel Regrets U.K.'s Decision to Leave EU.

Aviation Priority | Aviation will be an “early part” of the Brexit negotiations and European airlines’ demand for Heathrow is a strong negotiating card, Transport Secretary Chris Grayling said on Wednesday.

Misleading Forecasts | JD Wetherspoon Plc Chairman Tim Martin said business groups warning of a Brexit-induced spike in costs are spreading misinformation, arguing that food prices will actually fall after the U.K. leaves the European Union. In the latest of a series of quarterly commentaries on Brexit, the pub boss said the Confederation of British Industry and the British Retail Consortium are “trying to fool the public” and “bringing business into disrepute” by warning of a rise in food prices. 

Tim Martin, founder and chairman of JD Wetherspoon.
Photographer: Simon Dawson/Bloomberg

Dimon Warning | JPMorgan CEO Jamie Dimon told the BBC the bank could cut its 16,000-strong U.K. workforce by more than a quarter if rules diverge from the EU’s after Brexit. The bank had revised down its initial predictions of job moves, as it realized it wouldn't have to move many people on day one after the divorce. But the number could go up again if “we can’t find reciprocal recognition of rules,” the BBC quoted him as saying.

On the Markets | The pound rallied the most since April as hopes for a soft Brexit and stronger-than-forecast labor-market data bolstered the currency against a weaker dollar, Charlotte Ryan writes. The pound traded at $1.4278 early on Thursday.

And Finally...

Davis’s two-hour grilling by Parliament’s Brexit committee was more colorful than usual. Northern Irish member of parliament Sammy Wilson accused the Irish government of having a “hissy fit;” a lawmaker described the EU’s budgeting processes as “French accounting,” and Davis decided the best way to deal with Rees-Mogg was to laugh at him.

Jacob Rees-Mogg.
Photographer: Dan Kitwood/Getty Images Europe

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