Theresa May’s Brexit strategy depends on Labour MPs. It will fail

Tom Kibasi

As Nigel Lawson famously said, “to govern is to choose”. This week, Theresa May revealed her choices. First, she chose to sacrifice the DUP to get a deal with Brussels, with a proposal that no hardline unionist could ever support. It brings a united Ireland closer by envisaging a future where Great Britain is out of the single market and customs union while Northern Ireland remains within both. That means a new customs and regulatory border in the Irish Sea.

Second, the prime minister attempted to appeal to the hardline Brexiteers. As Brexiteers examine the withdrawal agreement more closely, they will discover that May has negotiated the hardest Brexit possible without compromising the Good Friday Agreement. For anyone hoping for a soft Brexit, this is a bad outcome. May has wisely judged that Tory Remainers are spineless; all too predictably many have folded already. So this makes sense.

With the irrevocable loss of the DUP, the deal will only pass with the support or abstention of a sizeable number of Labour MPs. But having been negotiated by a Conservative prime minister, the withdrawal agreement naturally reflects Conservative priorities. Here’s how...

First, while many matters are reserved for the future partnership, the withdrawal agreement establishes a tough new regime to prevent British governments from providing distortionary support to UK businesses. The UK must maintain current EU state aid rules, task an authority with overseeing them, cooperate and consult with the European Commission and be legally bound to take its opinion into account.

Crucially, the European Commission decides state aid on a case-by-case basis, waving through three-quarters of requests for exemptions from member states. Given the subjective component of state aid decision-making, Britain may find itself in a more stringent state aid regime outside the EU than within it. For a third state, the commission is likely to be far more rigid than for one of its most powerful members.

Second, and in sharp contrast, the provisions on labour standards and environmental protections are much weaker. Both parties are currently required to sign up to non-regression clauses that would stop protections falling below current levels. The only enforcement is state-to-state procedures meaning individuals, trade unions, or civil society cannot bring about proceedings. And if the EU raises standards, the UK is permitted to simply fall behind. Conservatives will argue that this is a key route to competitiveness, while workers would prefer that competition was not at their expense.

Third, the destination envisaged by the withdrawal agreement and the outline political declaration is for a hard Brexit. The Brexit ultras have insisted that leaving the EU must also mean diverging from the single market and having no customs union. It’s worth recalling that more than half the world’s states are already in one of a dozen different customs unions.

The obsessive focus on “free trade deals around the world” is symptomatic of a political class that stubbornly refuses to accept responsibility for their own failures. We are failing in international trade, not because of the quality of trade deals, but because we have too little to sell to the world. Our problem is competitiveness, not trading arrangements. And the root cause is chronic underinvestment.

The reason that an economic rupture with the EU matters so much is that it fatally undermines the investment case in the UK. The pre-referendum case was straightforward: businesses should invest in Britain because they can serve the entire European market from here, we speak English, and we’re politically stable and trustworthy with a reliable legal system. A soft Brexit would have maintained much of this; a hard Brexit blows it to smithereens.

The hit to investment will make it much harder to move to an economic model that works. The principal causes of our economic problems are of our own making: destructive, ideologically-driven deindustrialisation; the absence of a serious industrial policy for a generation; and the wholesale financialisation of the UK economy. The poorest parts of our country have been kept behind by Westminster, not by Brussels.

A hard Brexit that undermines labour standards and environmental protections while further limiting the role of the state in the economy is unlikely to win the support of Labour MPs. So, the only tactic that the prime minister has left is to threaten “no deal” with all its attendant chaos.

But May’s concession that “no Brexit” was a possibility confirms that “no deal” was a political hoax all along. In the 21st century, no British prime minister would put food and medicine supplies at risk simply to prove their stubbornness. The EU is clear that it will not extend the negotiating period for the UK to seek a better deal. If May’s proposal cannot pass through parliament, that leaves just two choices: a general election or a second referendum. It’s going to be a turbulent few months.

Tom Kibasi is director of IPPR, a progressive think tank