The Prime Minister’s speech at Lancaster House on 17 January 2017 has given her newspaper headlines she could only have dreamed of. Whether you are a former remainer or a happy leaver, there can be little denying that it was an ambitious statement of intent.

Article 50

It is worth remembering what Article 50 of the Lisbon Treaty actually says:

‘A member state which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that state, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

The Treaties shall cease to apply to the state in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the member state concerned, unanimously decides to extend this period.’

Effectively there is a two year negotiating window for the UK to conclude a deal with the EU on arrangements for withdrawal and a framework for the future relationship between the two. In the absence of an agreement, all EU treaties simply fall away.

The PM’s speech and the UK’s negotiating objectives

After an initial preamble emphasising the UK’s global outlook, the difference between UK and EU institutions and a wish to continue to be ‘reliable partners, willing allies and close friends’ with the EU, the meat of the Prime Minister’s speech is an outline of her 12 objectives in forging a new relationship with the EU.

Her list of objectives bears repeating with points of note:

  • ‘Certainty’
    • to ensure certainty, and as she had previously stated, it is the Government’s intention to incorporate the whole ‘acquis’ of existing EU law into British law. This is to ensure that ‘the same rules and laws will apply on the day after Brexit as they did before’;
    • a final deal between the UK and EU will be put to a vote in Parliament for approval. Of course, most commentators believe that once it has been triggered, the Article 50 process cannot be reversed so a vote at the end of the two year period will be an all or nothing vote. Would MPs vote to leave with no agreement on anything? That seems unlikely.
  • ‘Control of our own laws’ – an end to the jurisdiction of the European Court of Justice. If achieved, presumably pre-existing judgments would have to be upheld insofar as they relate to interpretation of the acquis.
  • ‘Strengthen the Union’ – clearly the Government is aware of the strength of separatist sentiment, particularly in Scotland. The Prime Minister mentions specifically the consultation arrangements with devolved assemblies and the return of repatriated powers to those assemblies. Perhaps as a shot across the bows of the SNP, however, she states that a guiding principle will be that ‘no new barriers to living and doing business within our own Union’ are to be created.
  • Maintain the common travel area with Ireland - which, of course, predates either country’s EU membership but will be at odds with ending the UK’s compliance with the EU’s freedom of movement principle.
  • Control of immigration – Britain’s ‘openness to international talent must remain one of this country’s most distinctive assets’ but set against this ‘Brexit must mean control of the number of people who come to Britain from Europe…and that is what we will deliver’. Time will tell how this square can be circled.
  • Rights for EU nationals in Britain and British nationals in the EU – the Prime Minister states that ‘we want to guarantee the rights of EU citizens who are already living in Britain, and the rights of British nationals in other member states, as early as we can’. She goes on to say that she has discussed this with other EU leaders and that while ‘many of them favour such an agreement’, rather intriguingly, ‘one or two others do not’. It would be interesting to know who those ‘one or two’ are.
  • Protect workers’ rights – with the entirety of EU acquis being incorporated into UK law, effectively the position of workers under UK employment law would not be changed immediately on Brexit.
  • Free trade with the European market - in many ways this is the most significant part of her speech and is certainly the part that most attention has focused on. The key words are ‘…as a priority we will pursue a bold and ambitious Free Trade Agreement with the European Union…what I am proposing cannot mean membership of the single market’.

In light of her second stated objective this is an understandable position. However, it is a challenging one as it seems to mean that there is no basis point or framework for negotiating such a trade deal. Retaining membership of the single market via the EEA Agreement, for example, would provide automatic continuity in trade arrangements. With an FTA, each sector of trade would seem to be up for negotiation (although the Prime Minister mentions that financial series and vehicle export are two areas where the UK ‘may take in elements of current Single Market arrangements’). Perhaps this is an opening gambit to tease the EU into being explicit in what it will offer. Time will tell, but in the Article 50 window for negotiation, this approach would seem to add complexity to the negotiations.

  • New trade agreements with other countries - in keeping with the ‘global Britain’ theme of her speech, the Prime Minister wants to ‘increase significantly [the UK’s] trade with the fastest growing export markets in the world’. She points to the establishment of the Department for International Trade as evidence of this.

She also states that she wants the UK to ‘have a customs agreement with the EU’ but to ‘remove as many barriers to trade as possible’. Such barriers would be financial as well as technical and her aim to remove them would seem to tie in with her preference to enter into an FTA with the EU. Without an agreement on such matters, UK exporters may have a shock very quickly the day after Brexit.

  • The best place for science and innovation
  • Cooperation in the fight against crime and terrorism
  • A smooth orderly Brexit - the final stated objective is to ensure that once the two year Article 50 period is over, there is a ‘phased process of implementation in which both Britain and the EU institutions and member states prepare for the new arrangements that will exist between us’. Again it is clear that she does not want transitional agreements but an implementation period. It goes without saying, therefore, that the nature and timescale of this implementation period is yet another matter that needs to be agreed in light of the stated objective of an FTA with the EU.

The Prime Minister’s speech ends with her explaining why she thinks her objectives are achievable and a call for post-referendum unity.

What’s missing?

On an initial overview there are certainly three significant areas that the Prime Minister did not cover.

Financial – the EU will almost certainly want the UK to pay towards current and historic liabilities. The so called RAL commitments amount to many billions of euros (the figure of €222 billion was reported at the end of 2013). The EU will most likely argue that these costs were incurred while the UK was an EU member and so the UK should be responsible for its proportion. The exact figures seem to be disputed but assuming the EU would want us to pay, our proportion would be 13% (which, on the basis of the 2013 figure would have been over €26.6 billion - ouch).

Common programmes and bodies – the UK is entwined in a number of EU agencies, bodies common initiatives and programmes which would, on the face of it, fall away on Brexit. These include Europol, the European Aviation Safety Agency, the European Space Agency, Horizon 2020, Erasmus, the European Chemicals Agency, and the European Medical Agency (which is based in London). The UK is likely to want to remain a part of a number of these. However, the Prime Minister does not really elaborate beyond a statement that ‘there may be some specific European programmes in which we might want to participate…if so, and this is for us to decide, it is reasonable that we should make an appropriate contribution’. There are clearly major negotiations ahead.

Interim trade agreements with third countries – the UK has not negotiated a separate trade agreement for decades. That responsibility has lain with the EU. Therefore, where they are in place, the current trade arrangements the UK has with other countries are in place by virtue of treaties that those countries have with the EU. The Government wants to enter into numerous free trade agreements swiftly post Brexit, but these agreements can take many years to enter into. The EU-Canada agreement has been in negotiation for eight. The question left hanging in the air, therefore, is what happens in the interim?

What is to be done?

Effectively from the point that the Article 50 notice is served, the UK will have two years to:

  • reach a financial settlement on the UK’s share of historic and current EU liabilities;
  • decide, agree and conclude our ongoing relationship with and, if applicable, contributions towards EU common bodies;
  • agree a full FTA with the EU;
  • make some kind of arrangement regarding the UK’s ongoing trading relationships with all third party countries where those relationships are currently maintained under treaties those countries have made with the EU.

The Prime Minister has staked out the UK’s position on many (but not all) of the issues that will need to be dealt with. Even without knowing what the EU will look to achieve or be prepared to agree, the Government has its work cut out.

A striking line from her speech was:

‘While I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain.’

If this is correct and in her objectives the Prime Minister has set out the UK’s red lines then she has effectively bet the UK’s farm on getting this done in two years.