Post-Brexit options for the UK: combining legal and economic analysis

Brexit will probably not be the economic catastrophe that many have feared, but uncertainty over the UK’s future trading relationship with the EU and legal complexities stemming from the Great Repeal Act will chill business relationships for the foreseeable future , say lawyers and economists meeting in Cambridge the day after the Article 50 ‘trigger’.

By Boni Sones, Policy Associate at CBR

The Centre for Business Research, University of Cambridge, recently hosted a one day workshop looking at the Post-Brexit Options for the UK: Combining Legal and Economic Analysis.

Held at Peterhouse, Cambridge, it brought together historians, lawyers, economists and tax experts to set out the potential hurdles to, and possible gains and losses from Brexit.

It was organised by the CBR and the Cambridge Public Policy Strategic Research Initiative with the support of the University of Cambridge Impact Acceleration Account.

The workshop was held on 30 March 2017, the day after the formal triggering of Article 50, and the day on which the government published a White Paper setting out its intentions for the ‘Great Repeal Act’ which will incorporate much of the current body of EU law directly into domestic UK law over coming years.

The Prime Minster, Theresa May, has recently said that ‘no deal’ is better than a ‘bad deal’ for the UK.  Thus if negotiations with the EU27 break down, the UK will fall back on the rules of the World Trade Organization (WTO). The workshop explored what this would mean from legal and economic perspectives.

If there were ‘no deal’, the UK would lose its current preferential access to the EU single market, as well as the benefit of numerous bilateral trade agreements which the EU has with third countries. It would, however, continue to be a member of the WTO, and as such would have certain, more limited rights of access to overseas markets including the EU, and the obligation to observe rules of non-discrimination (the ‘most favoured nation’ principle).

The workshop heard that the economic effects of reverting to WTO rules might not be as drastic as some have thought: the CBR’s UKMOD forecasting model anticipates a more modest impact of Brexit than that predicted by the UK Treasury prior to the June 2016 referendum, in part because a much-needed revaluation of sterling offsets the effects of tariffs.   Alleviating the effects of a ‘hard Brexit’ would, however, require the government to adopt fiscal reflation and an accommodating monetary policy, and to take steps to mitigate the impact of higher tariffs on certain vulnerable sectors, in particular agriculture.

This ‘hard Brexit’ will be avoided if a ‘deep and comprehensive’ trade agreement between the UK and EU can be successfully negotiated. While complete agreement along these lines could take up to a decade to reach, a framework deal within the two years allowed by Article 50 is possible.  There will also have to be a transitional arrangement to make sure that, as far as possible, there is ‘business as usual’ after March 2019.

While the workshop was taking place, the government published a White Paper setting out its intentions for the ‘Great Repeal Bill’ which will incorporate much of the current corpus of EU law into UK domestic law after Brexit. The consensus was that the White Paper, although brief on key points, nevertheless set out a strategy of keeping the UK in line with EU laws and standards, which should make it easier for the two sides to reach agreement on new trading and regulatory arrangements post-Brexit.

However, the practical obstacles to this outcome remain considerable. The legal complexity involved in reincorporating EU law into UK domestic law is likely to give rise to new constitutional challenges and to uncertainty which will chill business relations.  At the same time, until the outlines of a new UK-EU relationship are known, it will be difficult for the UK to forge new trading relationships with third countries.

In the five audio podcasts we set out here you can listen to the CBR speakers discuss options for a model for the UK to Brexit. They discuss legal options, social policy, taxation, migration, free movement of people, the recent White Paper on Brexit, devolution and the historical development of the UK and EU.

David Howarth on the UK Constitution, the White Paper and the proposed Repeal Act

Howarth key quote: “That is the underlying problem, there is no time. A lot of this process is far too short. Designing and drafting new law is not easy. It can’t be done by amateurs, it can’t be done by politicians on the hoof on the floor of the House of Commons. It needs to be thought through and there is just not enough time to think it through.”

Simon Deakin on social policy post Brexit and workers’ rights

Deakin key quote: “Going forward if we look at domestic policy Brexit is going to help us have a better debate about labour market policy. But ultimately these solutions require international cooperation so the downside to Brexit is that it may make it more difficult to forge international consensus on these questions but let’s see what happens. To what extent we remain outside the Single Market really it is going to be a matter of degree. The current government’s decision for a deep and comprehensive trade agreement actually takes us back in to much of the single market and we will be bound going forward to single market rules. We may even have to accept the jurisdiction of the European Court of Justice over a large number of issues. Let’s see how that pans out.”

Julian Ghosh on Brexit and our tax laws

Ghosh key quote: “It is unsatisfactory that business doesn’t have certainty. Profound legal questions and matters of legal reasoning and philosophy on what is or what isn’t a judgement that merely declares existing law and refines and makes it visible as opposed to making new law in my role as an academic it is a matter of debate but it is not at all good for a client doing business in the real world who wants to know what the rules are. It also stores up trouble for governments because it lays open opportunistic challenges by business who want to take advantage of post two year date decision which might be advantageous to raise an action in the UK courts. They could say you said we were subject to EU law previous to this date but this post two year date decision tells us what that law actually is, so see you in court. It is hopeless for the government and business. Tax is necessarily a cost to business and it is used as an incentive to business and also to attack business with and if the focus of Brexit is trade and free trade it ought to be more visible than it is.”

Martin Steinfeld on the Free Movement of People and EU Law

Steinfeld key quote: “There are many rights that EU citizens exercising their rights to free movement have had for many years. That is a matter for huge discussion on a domestic level in terms of what pieces of legislation may or may not flow to replicate the rights they already have. There is also an EU level set of negotiations that will have to take place and this is particularly important for say the 300,000 UK nationals in Southern Spain. The Commission and the Council will have to discuss this then the different 27 member states may take different views in relation to that. Then there may be international law which applies too. If there is no deal there could be a claim there has been a breach of the European Convention, and a whole series of cases ending up at the European Court of Human Rights in Strasbourg?”

Catherine Barnard; John Bell and Brendan Simms; The White Paper; Brexit and Devolution; the Geopolitics of Brexit

Barnard key quote: “The actual logistics of disentangling ourselves from the EU are incredibly large and it will take a considerable period of time certainly more than the two years the government thinks it can be done in.”

Bell key quote: “It will take a significant amount of time to establish the trade deals we need with other countries. There is a transition problem but also demand and transport costs suggest that we will also want to maintain relations with countries close to us we always have since medieval times. It is unlikely that we are suddenly wanting to send nothing, it is logistically closer for us to ship stuff to the EU and that will continue as a dynamic.”

Simms key quote: “The UK is a full political Union which the EU is not. The EU is not a nation state and it is not a full parliamentary union or debt union. I think there is a sense that the European order is based on the EU and NATO on both trade and defence. What we should be looking at is not a narrow trade negotiation but in Ireland what we call a totality of relationships that is really what is at stake here. The legal complexities are unique but if you think of the Reformation which was a great unravelling on the Church side that was a very complex operation. As regards the geopolitical patterns they have remained rather constant over time.”

Waibel, Gudgin and Hughes

You can also listen to Michael Waibel on the UK’s Exit Bill and those of two other speakers, Graham Gudgin’s economics podcast and Kirsty Hughes on the rights of EU citizens to remain, by clicking on the following links:

Listen to the podcasts

David Howarth: The UK Constitution

Simon Deakin: Brexit and Social Policy, What Changes?

Julian Ghosh: Brexit and Taxation Laws

Martin Steinfeld: Free Movement of Persons

Catherine Barnard, John Bell and Brendan Simms: Public Policy, Devolution and Brexit

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