Investment Manager David Battersby examines Theresa May’s Brexit Speech.
A clean break for Global Britain
Outlining the twelve point plan (1), Prime Minister Theresa May declared her intention to forge a new, equal partnership with the EU, confirming that she would seek to end Britain’s membership of the Single Market, withdraw from the jurisdiction of the European Court of Justice and reshape the UK’s relationship with the EU’s Customs Union.
She rejected any “half-measures” and embraced the vision of a self-governing “Global Britain” free to strike its own trade deals and control its own borders. In doing so, she has turned her back on the many voices in business, the opposition and some in her own party who had urged her not to privilege these concerns over membership of the Single Market.
The Prime Minister has offered something of a compromise with the promise that both Houses of Parliament will have a vote to approve any deal. This led to an immediate spike in sterling giving hope to city concerns that the negative economic impact of BREXIT could still be derailed. As a result, the FTSE 100 fell as the majority of large capitalisation companies are international in focus.
May has been careful to offer the hand of friendship to her fellow European leaders. She stressed her commitment to a new “strategic partnership” with the EU, saying that Britain could only prosper if the EU was successful. As well as this, she argued that the leave vote did not represent a “desire to become more distant to you”, but that “we will continue to be reliable partners, willing allies and close friends”.
Indeed, May’s opposition to a deal that leaves the UK “half-in, half-out” could put discussions with Brussels on a more civil footing. A clean Brexit would avoid the cherry picking of aspects of membership that has been so vehemently opposed by the European Commission, and potentially encourage a quicker resolution to the negotiations.
We must not forget however that this goes far beyond Westminster; although May has, for the first time, given some real detail on her position ahead of triggering Article 50, the European Commission, 27 member states and regional assemblies will all have a role to play in thrashing out the final settlement. This is the opening gambit in a process that will last at least two years, and there is still all to play for.
Single Market access
May said that the Government would negotiate a bold and ambitious free trade agreement with the EU permitting movement of goods and services on a basis that should be as free as possible, so long as this did not imply membership of the Single Market and acquiescence to its four freedoms of movement of goods, people, services and capital across borders. May similarly signalled a renegotiation of the customs union, proposing inventive solutions such as partial membership, or certain customs agreements replicated in a new deal. Turning to the possibility of failing to strike an agreement, the Prime Minister said that she would rather leave the EU without a trade deal than accept a bad one. If this were to happen, the Government could consider adopting a revised economic model, possibly a reference to deeper corporation tax cuts hinted at by the Chancellor at the weekend.
As has previously been pledged by Ministers in discussion with business, May announced that EU law will be incorporated fully into British law once the European Communities Act has been repealed. May further argued that it was not in the interest of Britain, the EU or business for there to be a cliff edge upon leaving but put on record her opposition to an indefinite transition arrangement. Instead, she recommended a “phased process of implementation” to be agreed in the negotiations.
Free movement of people
May stressed that she wanted to resolve the status and rights of EU nationals living in the UK, and UK citizens who had settled in the EU, as a matter of urgency. In what will be a welcome step for many, she also prioritised keeping the land border with the Republic of Ireland open. Beyond reiterating that she wanted Britain to continue to be able to attract the “brightest and the best”, May refused to elaborate on whether there could be exemptions on free movement for certain sectors.
May asserted that “a global Britain must be free to strike trade deals with countries outside of the European Union too.” She stressed that “the UK needs to increase, significantly, its trade with the fastest growing export markets in the world”, pointing to a stagnation of trade as a percentage GDP since joining the bloc. She highlighted global interest in striking trade deals and named some of the countries in preliminary discussions with the UK, such as Australia, New Zealand, and India. On President-Elect Trump’s comments towards a possible deal with the US, May said that the UK was now “in the front of the line”.
Going forward we expect sterling to remain volatile as further details are provided and UK markets will similarly be reactionary but now the negotiating tactic has been made clear other issues may start to take greater precedent such as inward investment and monetary vs fiscal policy.
Theresa May presented a clear strategy stating; “I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too. A country that gets out into the world to build relationships with old friends and new allies alike.”
(1) Twelve Point Plan
- Provide certainty wherever we can
- Control of our own laws
- Strengthen the Union between the four nations
- Maintain Common Travel Area with Republic of Ireland
- Control immigration from the EU
- Guarantee rights for EU nationals in Britain/British nationals in the EU
- Protect workers’ rights
- Free Trade Agreement with EU
- New trade deals with countries outside Europe
- Make Britain the best place for science and innovation
- Continue co-operation with the EU on security and defence policy
- Phased implementation