Britain’s manufacturers have responded to the prime minister’s Brexit deal with deep misgivings in the run-up to the vote in parliament on Saturday.
The lobby group for the engineering and manufacturing industries, Make UK, said though it was relieved at the possibility of leaving the EU with a deal, the new agreement failed in several important ways to overcome the concerns of its members, not least the transition deal, which stretches to just 14 months, and the lack of commitments to maintaining the closest possible trading relationship with the EU.
The warning follows a letter this week from industry chiefs to the Brexit secretary, Stephen Barclay, warning him the deal posed a “serious risk to manufacturing competitiveness”.
Clearly distressed by the government’s push for a harder Brexit than was agreed by Theresa May, chief executives from the aerospace, automotive, food and drink, chemicals, and pharmaceutical sectors, said their main concern was being excluded from EU regulatory institutions – a move that would diminish their influence and increase their costs.
Make UK went further, accusing the government of four strategic errors that should be rectified if it wanted industry to thrive, including an extension to the transition period, a commitment to regulatory alignment and a loosening of planned migration controls.
Manufacturers fear Boris Johnson’s deal will hit their profits directly and indirectly as the economy weakens over time, a trend outlined by the Department for Exiting the EU (DExEU) in its assessment last year of rival Brexit scenarios.
DExEU, which at the time was promoting May’s deal, used information from the Treasury, the Bank of England and the City regulator – the Financial Conduct Authority – to show that a deal akin to Johnson’s would cost the economy 6.7% of GDP over the next 15 years, equivalent to about £130bn in lost income or £2,250 for each person.
May’s deal was considered to have a much milder negative effect on the economy, with the report saying the cost would be nearer to 2.5% of GDP by 2034.
The new Brexit deal is essentially the old Brexit deal with a new chapter on the protocol on Ireland and Northern Ireland and a few key tweaks to the political declaration. Here is a link to the full text.
The backstop is replaced
The backstop has essentially been replaced by a full stop whereby Northern Ireland remains aligned to the EU from the end of the transition period for at least four years. A change can only happen if it is voted on by the Stormont assembly.
Consent
Stormont will have a key role in future Brexit arrangements. And if there is cross-community support to remain aligned to the EU rather than the UK the consent will hold for eight years.
The arrangements in this deal will automatically kick in for a mandated four years if there is a breakdown in trade talks, so it remains a “backstop” but with a permanent tinge.
That four-year period will start at the end of December 2020.
Two months before the end of the four-year period, that is October 2024, Stormont will be asked to vote on whether to remain aligned to the EU in ways outlined by this deal or not.
Checks on border, ports and airports
Under the deal, the UK and the EU are “underlining their firm commitment to no customs and regulatory checks or controls and related physical infrastructure at the border between Ireland and Northern Ireland”.
Future trade deals
The EU and the UK will aim for a zero-tariff deal with unlimited quotas. The entire UK, including Northern Ireland, will be free to sign trade deals. The line in the political declaration that “the United Kingdom will consider aligning with union rules in relevant areas” in any future trade talks has been ditched.
Customs
Northern Ireland will remain legally in the UK customs territory but practically in the EU customs unions. There will therefore be no customs checks on the border but tariffs will be payable on certain commercial goods.
No customs duties will be payable on “personal property” being transited from Great Britain to Northern Ireland. That protects online shopping and all items bought for personal rather than commercial use.
Customs duties will be payable on goods imported from the UK for commercial use unless it can be demonstrated that the goods remain in Northern Ireland or are for personal use, as above.
A system of rebates will allow importers to be reimbursed.
West/east trade
The commitment to frictionless trade between Northern Ireland and Great Britain is restated.
VAT
EU law on VAT will apply in Northern Ireland.
Single electricity market
The island of Ireland is considering a single market for electricity so homes in Northern Ireland can get their energy from a supplier in Northern Ireland or the republic. There were fears this could be disrupted by Brexit. Under the Johnson deal, the provisions of union law remain so nothing will change.
Level playing field
This guarantees that the UK will remain in line with EU conventions on climate, environment and workers rights in a future trade agreement.
Lisa O'Carroll Brexit correspondent
MPs on the Treasury select committee said in July the report, published last November, needed to be updated before MPs voted again on a fresh Brexit deal. On Friday they repeated that demand, saying only the Bank of England had answered their call.
Catherine McKinnell, the cross-party committee’s interim chair, said she had written to the chancellor, Sajid Javid, asking HM Treasury to publish its updated economic analysis before Saturday’s vote. “If the chancellor does not provide the committee with an update, we can only assume that the existing analysis stands,” she said.
Javid arrived in London on Friday after attending the annual meetings of the International Monetary Fund and World Bank in Washington where his plans to bolster spending and borrowing after Brexit received a cool reception from IMF officials.
The organisation’s economists are concerned that the UK’s public finances remain fragile after a slow recovery since the 2008 financial crash, and restrictions on exports to its main trading partner will weaken it further.
An analysis by the Institute for Fiscal Studies this month showed the uncertainty had knocked GDP by 2% to 3%. Yet, the government’s commitments to increase spending on road, rail, hospitals and schools form a key plank of its post-Brexit recovery plans.
The shadow chancellor, John McDonnell, accused Javid of not going far enough with the £14bn Whitehall spending boost he announced last month, saying it did little to overcome 10 years of austerity and a three-year period when companies failed to buy new equipment and cut training, leaving the UK trailing other powerful trading countries on important measures of investment.
Javid is expected to respond to his critics with even higher spending in his upcoming budget, scheduled for 6 November. In the meantime Johnson has appealed to business leaders in a letter that claims the deal provides “the certainty businesses need so that the country can come together and move on”.
Stuart Rose, the Ocado chairman and former boss of Marks & Spencer, has urged MPs to vote for the deal as “the best we’ll get”, while Paul Manduca, chairman of insurer Prudential, told the FT: “This is the first step away from the cliff edge and so deserves everyone’s support.
“We understand there is a long battle for a trade deal and to work out our future relationship but this is the start. We are hoping that MPs see common sense in the vote tomorrow.”
There was also support for the government from Bank of England governor, Mark Carney, who said the UK was primed to bounce back from uncertainty with higher levels of investment and growth should a deal go-ahead.
Carney, speaking at the IMF Meetings to Bloomberg TV, cautioned that lower levels of trade with the EU would restrict any recovery, but he said the UK was a flexible economy and “you would expect the economy to pick up [following a deal] all things being equal”.
