If you think the Government's position on Brexit sucks, wait until you see Jeremy Corbyn's.
Theresa May’s deftly crafted Mansion House speech appears to have achieved something unlikely – unite the Conservative party behind a common position on a future relationship with the EU. In the PM’s model there is something for nearly everyone on her benches: an independent trade policy for Brexiteers on the one hand, and a clear acknowledgement that the UK will inevitably have to stay closely aligned to EU rules in some areas in future for the Gradualists. For both sides there was a sensible admonishment: you can’t all get what you want. The PM’s clear statement of the trade-offs entailed in Brexit was as refreshing as it was overdue: the UK will be sovereign and have the ability to diverge from the EU if it chooses, but this will inevitably come at the cost of market access.
This outbreak of peace – if it lasts – is a coup for Theresa May. In some respects, it doesn’t matter if the EU thinks the UK is cherry picking; at least the PM can now focus on negotiating with the EU and not her own party. At the same time, the Mansion House speech appears to have reduced, if not eliminated, the chances of Jeremy Corbyn winning a major Parliamentary victory on a customs union with the EU.
Perhaps now it's one negotiation, not two
Has the PM's Mansion House speech undermined Corbyn’s ability to do the Government over on a customs union?
As a reminder, Jeremy Corbyn recently clarified Labour’s Brexit position in his Coventry speech. Labour will, like the Government, eschew Single Market Membership and will seek a bespoke future relationship which is not based on an existing model.
However, in a couple of crucial areas Labour’s policy is different: it will seek a form of customs union with the EU, where the UK external tariffs will be set by the EU. This is in direct opposition to the Government’s requirement that the UK must have an independent trade policy. But while he plans to stick close on customs, Mr Corbyn would not sign up to EU rules on state aid and opt-out on competition measures. Again, this is in sharp contrast to the Government, which says it will make binding commitments on EU state aid and competition rules.
As a matter of policy, Corbyn’s position on a customs union has a mixed impact. One benefit of pursuing such a policy would be tariff free access for goods in both directions. However, the EU’s draft negotiating mandate seeks tariff free access for goods despite the Government’s insistence on an independent trade policy. This is no surprise – the EU has a massive trade surplus in goods with the UK so, they would, wouldn’t they? There are other benefits of such a union, however. Chief amongst these is a reduced requirement for border infrastructure and checks – something that would simplify fraught talks over the Irish border considerably. However, in seeking a formal deal on a customs union Mr Corbyn would also give up the UK’s ability to pursue an independent trade policy by effectively delegating trade policy to the European Commission. For the Brexiteers, this is selling out on the whole point of Brexit.
Following this shift on policy, Labour is expected to back an amendment to the Customs Bill tabled by pro-European Conservatives rebels - led by Anna Soubry - which calls on the Government to pursue a customs union with the EU. This means the UK’s position may end up being determined by Parliament rather than the Prime Minister and Cabinet. This is a matter of arithmetic – perhaps fewer than 20 Conservative rebels might be required for the Government to lose. This challenging vote has been pushed back until some undetermined point later this year.
Mr Corbyn must be attracted by the politics of such a move – by coming in behind Tory rebels proposing a customs union amendment to the Customs Bill, he could inflict a very painful defeat on the Government and, at a stroke, re-open a Conservative feud which the Mansion House speech appears to have calmed.
However, the approach taken in Mrs May’s speech appears to have led to a reassessment by at least some of the Tory Mutineers about following through on their amendment. Speaking at a Cicero event this week, Nicky Morgan suggested that customs union rebels were open to talking to the Government. To be clear, Mrs Morgan did not suggest they were backing down, but did praise Theresa May’s ‘excellent’ speech. That is a significant de-escalation of tensions.
Undermining their own PM both at home and in Brussels and blowing up a delicate consensus on a way forward in the Conservative party may not be enough to put off Anna Soubry or Ken Clarke, but it may peel off enough rebels to deny Corbyn his victory. It is possible the Government could persuade the rebels to withdraw their amendment entirely. Recent reports that Labour has held discussions with Michel Barnier on the matter of the customs union in a bid to undermine Theresa May’s negotiating position, adds further pressure for would-be rebels to re-consider their position. For there is one thing that all Conservatives can agree on: they don’t want to do anything that moves Jeremy Corbyn and John McDonnell closer to power.
Not very mutinous...
Beware Corbyn bearing gifts: Labour’s Brexit positioning is arguably now less compromising than that of the Conservatives
The business sector – for understandable reasons - was eager to welcome Mr Corbyn’s embrace of a customs union. It appeared evidence that the soothing pragmatism of Labour remainers such as Keir Starmer was winning out. However, the customs union move is, if not a red herring, only part of the story. Corbyn's policy shift was delivered in a speech which had elements which should be deeply concerning to businesses who seek close ties with the EU after Brexit. As much as many in business may not like the Conservative insistence on an independent trade policy if it comes at the cost of a frictionless border with the EU, Mr Corbyn’s stance on other issues may severely constrain the breadth of any future trade deal.
Jeremy Corbyn’s rejection of EU state aid provisions as part of any future trade deal should set alarm bells ringing. The rejection of such basic level playing field provisions must surely severely limit the prospect for a comprehensive trade deal under a Labour government. It is a strong signal that Labour would seek to provide support to domestic industry that is currently prohibited under EU rules – which would lead to complaints from EU firms that they were being unfairly disadvantaged. It is difficult to imagine Mr Corbyn offering to make ‘binding commitments’ on competition policy either, given competition policy is essentially a construct of the neo-liberal market economy system he disavows. Labour policies on nationalisation may place European investors at risk of being compelled to sell assets at below market price. If you were looking at a starting point for a deep and comprehensive trade partnership, this would not be it.
Further, John McDonnell told the BCC conference on 8th March that a Labour government would not seek a special deal for financial services, saying to do so would prioritise bankers over other parts of the economy.
Labour’s position may offer a customs union. But this offers scant comfort if there is no ability to agree a broad deal on goods, and no interest from Labour in seeking a special deal on the part of the economy – financial services - which provides a huge slug of the UK’s surplus.
Be careful what you wish for...
I have heard some in business say that perhaps Corbyn and no Brexit or Corbyn and a soft Brexit is preferable to the Conservatives and a hard Brexit. However, this is a pretty flimsy straw man. For Mr Corbyn is not offering an alternative to Brexit. Quite the opposite. His Coventry speech doubles-down on his personal commitment to Brexit and signals that he wants to take the UK away from the open markets model which is at the core of the Single Market.
Equally, I fear that the Tory mutineers, as sympathetic as I am to their aims, could achieve a Pyrrhic victory. They may get their customs union, but at the cost of handing Corbyn the opportunity - in his own way - to take the country further from the EU Single Market than even the most fundamentalist of the Tory Brexiteers.
They have some thinking to do.