There remains a vast array of possibilities and potential scenarios as to the contours of the UK's relationship with the EU and its remaining 27 member states following any negotiated settlement for the UK's withdrawal. However, as we move closer to the March 2017 deadline the UK Prime Minister, Theresa May, has given for triggering Article 50, two broad visions for the future UK-EU relationship are likely to crystallise: so-called hard Brexit or soft Brexit.

As both sides gear up for what will undoubtedly be a complex and challenging task, the Prime Minister and European leaders continue to "talk tough" and have adopted public positions that suggest a "hard" or "clean" Brexit is the most likely outcome. The extent to which this is simply pre-negotiation rhetoric will not become clear for several months.

What is hard Brexit?

Hard Brexit is generally understood to mean an outcome to the negotiations that entails the UK no longer being afforded the benefits of the EU single market for goods and services. As such, a hard Brexit is likely to be characterised by a swift but minimal free trade agreement with the EU, which is based on both sides' WTO existing commitments and is limited to basic tariff reduction and goods trade (therefore, potentially excluding trade in services).

Supporters of a hard Brexit suggest that this is the best route for the UK to regain control over its own budget, own law-making and crucially the management of its immigration, provided that a clean break is made from the EU.

What is soft Brexit?

Soft Brexit is generally understood to mean a future in which the UK retains some form of tariff-free access to the single market. One form of soft Brexit would entail the UK joining the European Economic Area (EEA), alongside Norway, Liechtenstein and Iceland. In such a situation, the UK is likely to have to continue to contribute to the EU budget, allow some freedom of movement (including free movement of people) and follow some (if not all) EU rules. However, it would no longer have any say in the making of those rules. Under the softest form of Brexit, the UK would join the EEA and also stay inside the Customs Union.

What is the UK Government's preferred outcome?

While May and her ministers have been extremely cautious in expressing any public view as to preferred models, a clear set of red lines and negotiating objectives are beginning to emerge:

  • an end to the free movement of people
  • the repatriation of law-making to the UK Parliament
  • freedom from the jurisdiction of the European Court of Justice, and
  • an end to, or significant reduction in, contributions to EU budgets.

These red lines, viewed alongside the Prime Minister's speech to Conservative Party conference on October 2, 2016, in which she outlined her vision for Britain after Brexit, seem to be more compatible with a hard Brexit.

It appears that the Government would have the support of the UK public should it seek to negotiate towards a hard Brexit. Recent polling by YouGov suggests that 47% of Britons are in favour of a hard Brexit that involves leaving the single market to gain full control over immigration, versus 39% who favoured a softer option.

However, the Government will face significant opposition to any hard Brexit, both inside and outside Parliament. In the House of Commons, a cross-party group including former deputy Prime Minister Nick Clegg, former Labour leader Ed Miliband and former Conservative ministers Nicky Morgan and Anna Soubry has already demanded a vote on Brexit and would likely seek to obstruct any UK exit from the single market. Perhaps most significantly, those advocating a soft Brexit extend to those within May's own Cabinet, including the Chancellor of the Exchequer, Philip Hammond.

Which is the preferred outcome for the EU and its other member states?

The EU, and individual member states, will also develop their own red lines and preferred outcomes over the coming months. The European Commission and European Parliament, whose negotiating teams will be led by Michel Barnier and Guy Verhofstadt respectively, have publicly emphasised the non-negotiability of the EU's four so-called founding freedoms - the free movement of people, goods, services and capital.

It is important to bear in mind that each EU member state will have its own negotiating agenda and priorities, which may compete or stand in opposition to those of the other remaining member states. For example, for the 11 EU member states formerly within the sphere of influence of the Soviet Union, free movement of labour is likely to be their highest priority.

Their message will be of an unwillingness to offer the UK unfettered access to the single market without the continued ability of their citizens to work and live in the UK visa-free. Germany, the Netherlands and France, are likely to prioritise the continuation of tariff free access to the UK market for their key exporting industries.

In a speech to the European Policy Centre on October 13, 2016, the president of the European Council, Donald Tusk, gave an indication as to what the EU's hard-line opening position is likely to be when negotiations with the UK commence in March or April 2017. Mr Tusk referred to what he termed the "brutal truth" that "the only real alternative to a hard Brexit is no Brexit". Mr Tusk went on to warn that it was "useless to speculate about soft Brexit".

Conclusion

While a clear health warning must be applied to their use, the terms "hard Brexit" and "soft Brexit" have become central to the language used to describe the UK's future relationship with the EU. In the coming months there is likely to be an escalation of "tough talk" on both sides as opening negotiating positions are established and articulated.

The consequences of both the UK Government and EU's apparent preference for a hard Brexit are already being felt, with significant volatility in currency and debt markets over previous weeks. Whether this "tough talk" provides any indication as to the eventual relationship between the UK and EU following a negotiated Brexit remains to be seen.