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GUIDE delivers political and market intelligence for corporate clients. To find out more, email Chief Executive Greig Baker on greig@theguideconsultancy.com 


Briefing from EU27 sources 03Jul18

Sources within the Commission and various EU27 member states describe how the EU’s Brexit strategy has recently evolved. The EU27 now plans to allow the Commission to continue to push HMG for as many concessions as possible, with no intention of member states ‘stepping in’ to encourage a more conciliatory approach. In the meantime, the EU27 plans to prepare a series of measures that would mitigate the most perilous aspects of a ‘no deal’ scenario in the short term, or that could be enhanced to be used at the end of an extended transition period when there will be a similar failure to concede to a comprehensive free trade agreement with the UK. In other words, the EU27 is planning to punish the UK now or in the future, while increasingly limiting the damage that does to member states.

New concessions sought by the EU from HMG will include: extra territorial control over financial services institutions (that, if accepted by the UK, would be proposed to other jurisdictions, too); long-term HMG commitment to subsidising future MFFs via channels (especially R&D programmes) that are effectively beyond Parliamentary scrutiny in the UK; demands for recompense for alleged ‘state aid’ infractions by HMG; and extending the ‘implementation period’ to prolong HMG’s adherence to current and incoming law.

In the meantime, the Council and Commission is preparing compensation measures (which are expected to focus on fiscal issues) that can be offered to Ireland when the EU27 forces Dublin to apply a ‘hard border’ with Northern Ireland. Similarly, the Commission is creating various bodies (like the Agency of Space Programmes of the EU) that can steadily usurp institutions that maintain UK involvement after March 2019 – this is intended to allow the EU27 to allow and exploit UK involvement is specific fields only for as long as it takes to build up alternative arrangements that exclude the UK.

The GUIDE to the week

So, Christmas 2019 is sorted. Tim Shipman has agreed to write the third instalment of his modern political chronicles, due out in the autumn next year. But for now, here’s our take on the week in Westminster…

London calling

Jeremy Corbyn will hint at a more pro-EU stance next week. Labour sources tell us this is about positioning ahead of the local elections, where the party is determined to take some Tory scalps and maybe even win talismanic councils like Westminster and Wandsworth. Voters in the capital might find Corbyn’s proposition less attractive if they knew about Labour's thoughts on a 20% wealth tax – and after May, Labour intends to revert to whatever Brexit position causes the Government most harm in Parliament.

A trouble, not the troubles

It went without comment in the UK media, but in Leo Varadkar’s latest Brexit speech the Taoiseach insists there should not only be ‘no hard border’ between Northern Ireland and the Republic, but that there should be ‘no new barriers to the movement of people or to trade’ at all. Given that last year’s UK-EU27 Joint Report puts the UK on the hook for the cost of any new measures (on either side of the border) that Ireland or the EU determines are needed, this new bar could turn out to be higher and much more expensive.

Mo’ money, mo’ problems

This week it was confirmed Labour raised more cash than the Tories in the last quarter, but that might not last. Next Thursday sees measures from the Trade Union Act 2016 come into force – including restrictions on funds for political parties and an ‘opt-in’ system for new union members who want subs to go to Labour. As well as threatening the size of Labour’s coffers, the change is also likely to increase the party’s reliance on Momentum.

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Predicting politics

Back in November 2016, we predicted that the National Cyber Security Strategy would lead to “the explicit shift of liability for cyber breaches in the public sector to suppliers from the private sector”. The story made it into the public domain yesterday, with the Sunday Telegraph reporting infrastructure firms working with the Government face “fines of up to £17m for weak defences or failing to notify regulators about cyber attacks”.

Briefing from Commission legal adviser

We have been briefed by a legal adviser in the Commission on what their senior colleagues think key phrases in the ‘sufficient progress’ deal really mean and that may have been misunderstood by commentators here. Here’s a summary of what we were told, with an explainer from our Commission source following each quote from the document signed by HMG:

Document text: “the CJEU is the ultimate arbiter of the interpretation of Union law. In the context of the application or interpretation of those [citizens’] rights, UK courts shall therefore have due regard to relevant decisions of the CJEU after the specified date. The Agreement should also establish a mechanism enabling UK courts or tribunals to decide, having had due regard to whether relevant case-law exists, to ask the CJEU questions of interpretation of those rights where they consider that a CJEU ruling on the question is necessary for the UK court or tribunal to be able to give judgment in a case before it. This mechanism should be available for UK courts or tribunals for litigation brought within 8 years from the date of application of the citizens' rights Part.”

Commission view: UK courts will be able to ask the CJEU for interpretations during the 8yr period. Separately and distinctly, after Brexit (i.e. “after the specified date”), the CJEU will still have jurisdiction over legal decisions in the UK, but UK courts will not be able to appeal to the CJEU. There is no end date for the CJEU being “the ultimate arbiter”.

Document text: “The United Kingdom remains committed to protecting North-South cooperation [on the island of Ireland] and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom's intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.”

Commission view: the UK must take full responsibility for preventing a hard border being created on either side of the Northern Irish border with Ireland. The EU27 will decide whether the only way to do that is for the UK to continue to abide by the rules of the Single Market and Customs Union, including new rules set in the future.

Document text: “The UK will contribute to, and participate in, the implementation of the Union annual budgets for the years 2019 and 2020 as if it had remained in the Union (including revenue adjustments). This will include the UK’s share of net financial corrections and fines imposed until 31 December 2020, once definitively settled.”

Commission view: fines imposed on the UK will be determined by an assessment of the UK meeting new EU requirements set before 2020. No upper limit on potential fines has been agreed.

Document text: “In the second phase of negotiations, some simplification of the revenue adjustment procedure including time limitation could be agreed between the UK and the Union.”

Commission view: no time limit has been agreed on the UK’s financial obligations to the EU27. A limit could be offered to the UK if it meets conditions to be set by the EU27 in the next phase of talks.

Document text: “Except for the UK payments relating to UK participation to Union annual budgets to 2020 as set out in paragraphs 59 and 60, the UK share in relation with the Union budget will be a percentage calculated as the ratio between the own resources made available by the UK from the year 2014 to 2020 and the own resources made available by all Member States, including the UK, during the same period.”

Commission view: the UK’s total financial contribution to the EU27 will be based on both the UK’s net contributions and the amount of tariff revenue collected on goods entering the UK but not bound for the EU27, as these customs revenues would otherwise have been passed to the EU27. The UK will not be able to keep customs duties on goods brought into the UK until at least 2021.

Document text: “As part of the second phase of negotiations, the Union and the UK could also decide to agree to simplified procedures so as to avoid unnecessary administrative burdens extending well beyond the end of the current multiannual financial framework, provided that they respect the sound financial management of the Union budget and do not result in discrimination in favour of the UK or UK beneficiaries.”

Commission view: without a subsequent transition agreement, the ‘sufficient progress’ agreement commits the UK to meeting EU27 administrative costs after 2020.

Document text: “The Commission welcomes the UK Government's offer to discuss with Union Agencies located in London how they might facilitate their relocation, in particular as regards reducing the withdrawal costs.”

Commission view: the UK will pay for moving EU agencies from the UK to the EU27.

Document text: “This report is put forward with a view to the meeting of the European Council (Article 50) of 14 and 15 December 2017. It is also agreed by the UK on the condition of an overall agreement under Article 50 on the UK's withdrawal, taking into account the framework for the future relationship, including an agreement as early as possible in 2018 on transitional arrangements.”

Commission view: the conditions agreed in this document will be binding, as long as a withdrawal agreement and transitional agreement is ratified before starting a third stage of negotiations on trade. A possible trade agreement will be separate to the conditions agreed here and detailed discussions will only start after the UK leaves.

Comment from GUIDE: In terms of what happens next, the Council must decide whether or not to accept the Commission’s recommendation that ‘sufficient progress’ has been made. It is also important to note that while the deal struck by HMG is not legally binding (yet), it would be impossible for the May administration to unilaterally renege on it and still be trusted by the EU27 to continue negotiations. In other words, this deal is now the only basis of a comprehensive agreement that a Government led by May can pursue. Our Commission source told us the EU27 is keen to help May stay in office so that it can secure the conditions set out above.

Axiomatic rules for boffins

In an article for Computer Weekly, Greig Baker managed to shoe-horn Abraham Lincoln’s saying about axes into an explanation of the Government’s proposed cyber security rules. The main point is that key decisions are being delayed, which hinders efforts to protect people, businesses and public services, and could limit our economic options outside the EU. So, if you want to see Honest Abe, cyber security and Brexit all mentioned in the same breath (who wouldn’t?!!), the full article is here: http://www.computerweekly.com/opinion/Governments-cyber-security-policy-decide-or-delay  

What’s that coming over the hill?

There is relief in No.10 this morning and a sense that President Juncker has given HMG something to show for its efforts. However, the past few days have been more important for showing how political tensions come to the surface when actual decisions have to be made. During the Withdrawal Bill debate this week, a Minister passingly mentioned that new EU directives will be adopted during any transition phase (and potentially beyond). Even if there is “discretion on the details of implementing an EU obligation” post-Brexit, this sort of proposal guarantees monstrous dust ups in the New Year.

Spring Statement (of intent)

The Treasury has set 13th March as the date of the Spring Statement. Although Hammond wanted to move to “one major fiscal event per year”, the political demands of the Brexit process and the financial demands of key public services means 2018 will see at least two meaty tax-and-spend set pieces. 

Industrial relations

Free-market Conservatives have been keeping their powder dry while they weigh up Brexit progress and their own chances in the next General Election. However, senior Tory MPs tell us they weren’t much impressed by Theresa May’s introduction to the newly published Industrial Strategy White Paper – the PM opens the document by declaring her “belief in a strong and strategic state that intervenes decisively wherever it can make a difference”.

(D)upping the ante

Whitehall is preparing the ground for extending the Conservative-DUP confidence and supply deal beyond its two-year term. We expect to see new measures on things like VAT and Air Passenger Duty, as well as steps to allow the £1bn already agreed to be spent even without a Northern Ireland Executive to officially receive the cheque. The Government’s desire for an ongoing deal with the DUP goes some way to explain why the latter has become more bullish this week.

Trading blows

The Government’s draft Taxation (Cross Border Trade) Bill set out proposals for managing trade post-Brexit. This is a vital piece of legislation, partly because the UK currently has no domestic customs law at all, and partly because it would give HMG the powers necessary to apply a deal with the EU27. However, the Government risks making the same mistakes it did with the Withdrawal Bill by explicitly asking MPs to grant powers to “amend or repeal any Act of Parliament whenever passed”. It’s hard to see Grieve and co going along with that.


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