This has been, on the face of it, an eventful week on the Brexit journey. However in the short term, at least, the negotiating aims of the UK and the process by which it will commence those negotiations remain intact. The 'Brexit Bill' was debated in Parliament and passed the MP vote by a majority of 384.

What followed was the Brexit White Paper, setting out further detail on the 12 negotiating principles set out by the Prime Minister on 17th January.

There is little that is new, but the paper does provide factual data to support the Government's position and reaffirms the government's narrative in some key areas:

  • The paper makes clear that the Government will consult on the Great Repeal Bill and the EU legislation to be brought onto the UK statue books through the Bill's application.  The Bill will have three primary elements: it will repeal the European Communities Act 1972; it will preserve EU law as it stands before we leave the EU; and it will enable changes to be made by secondary legislation to the laws that would otherwise not function sensibly once the UK has left the EU. This effectively provides that past European Court decisions will continue to apply, as will EU interpretations, giving much greater clarity regarding the status of the law.
  • The fact that the UK and EU's regulatory regimes are currently converged would make it significantly easier to negotiate a best in class Free Trade Agreement (FTA).  A stable regulatory environment would be welcomed by business leaders as they consider adapting to changes in trading regimes. The paper confirms "any significant policy changes" will be underpinned by primary legislation, allowing Parliament to scrutinise the details and presumably providing the opportunity for business to continue a dialogue with Government on material legislative issues for them.
  • The paper acknowledges that the UK needs highly skilled migrants and students.  Further, it confirms that the UK stands ready to give certainty regarding the outcomes for EU nationals currently residing in the UK, provided that a reciprocal deal can be negotiated.  However, the government has made no commitment regarding entry into the UK for unskilled and semi-skilled migrants. 
  • There are fairly detailed analyses of trade with the EU for certain sectors. Aside from these trade in services gets little attention.  The paper observes that the UK has a £89 billion deficit in trade in goods deficit with the EU; but the UK runs a £29 billion trade surplus on trade in services. It is critical that the FTA with the EU makes proper provision for services, which make up 80% of the UK's overall economy.  It is worth bearing in mind that just under half of the UK's exports go to the EU but only 5% of the EU's exports go to the UK.   
  • There is no detail at this stage on how the Government envisages that a Customs Agreement (as opposed to a Customs Union) might work.   Customs brokers estimate that even in a zero tariff environment, the additional administration costs of a new customs regime might run to £25-50 per shipping container, an additional cost that very quickly adds up to material sums.  There is a second issues here of goods potentially taking longer to clear customs.
  • On the EU Budget, the paper states that on leaving the EU the UK will no longer be required to make vast contributions.  However, the UK will face possibly significant 'break costs'.
  • Of course whatever the UK's aspirations it must negotiate a settlement with the other EU-27. The Government will inevitably need to compromise in some areas. 

In separate news, and against the backdrop of the machinery of Government edging forward, it is notable that the Bank of England has substantially increased its forecast for GDP growth this year.  The Bank now expects the economy to grow 2.0% in 2017, up from a November forecast of 1.4%, which was itself an upgrade from the 0.8% forecast made in August.  UK consumer spending has remained resilient, the global economy is looking in better shape and a weak pound should boost exports. The risks to growth come from a squeeze on consumer activity from higher inflation and weaker investment spending. Nonetheless, the big news is that the UK growth outlook looks much less threatening than it did in the weeks after the referendum vote, which can only be good news for UK business.

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