Henry Newman is Director of Open Europe.
After weeks when the politics around Brexit seemed strangely calm, things are heating up again, quickly. In the week of local elections, this risks adding to Theresa May’s problems over Windrush and Amber Rudd’s resignation. In her three major Brexit speeches, the Prime Minister succeeded in moving the Government’s policy agenda forward (a little) and avoiding a total split in the Party. Yet decisions have been repeatedly deferred rather than addressed. One such issue is around the Government’s customs policy. If it’s mishandled, a major crisis could ensue.
In Parliament, it’s looking more and more possible that a majority in the Commons coalesces in favour of the Government forming a new Customs Union with the EU after Brexit. As I’ve repeatedly argued, that would be an error. Only Turkey is outside the EU and in a Customs Union. Even those countries closest to the EU like Norway and Switzerland chart their own course on trade. And – as Kemi Badenoch pointed out on Any Questions – even countries which trade very closely together like Australia and New Zealand, or Canada and the USA, haven’t formed a customs union.
Mystifyingly, the Government seems reluctant to make a clear case for leaving the Customs Union. That reluctance may be compounded by the fact that it still hasn’t decided on its customs policy. We are over halfway through Article 50 and there are still two options on the table. But, rather than choosing one, the decision point has been repeatedly delayed. It’s time for a decision and to my mind there’s only one sensible choice.
The first option is the highly streamlined model, known in Whitehall as ‘Max Fac’ (short for Maximum Facilitation). This would see the UK and EU agreeing to minimise all customs checks, using clever technology and building on best practice from around the world. There would be a customs border between the UK and EU, but it could be minimal. So it wouldn’t be entirely frictionless but it would be smooth and light-touch.
The second choice is called a hybrid model or a Customs Partnership. It rests on the EU recognising UK customs checks as equivalent to their own, and vice versa. Goods which enter the EU at Rotterdam could travel to the UK without further checks. That’s not that far-fetched an idea given it’s how customs within the EU already work!
But the partnership gets more messy. The theory goes that, in that model, the EU would also agree to allow the UK to do separate trade deals. Let’s imagine the UK (but not the EU) agreed a deal with China eliminating tariffs. A business would have to pay the EU’s tariff on an imported widget from China. But would be able to re-claim the tariff if they could demonstrate that the widget was staying in the UK. Sounds complex? It is. Why would the EU agree to it? And, if the UK continued to work as a customs post for the EU, why wouldn’t the EU insist on Britain continuing to hand over most of the tariffs collected?
Last autumn, the Treasury insisted that the partnership model was included in the Government’s position paper on customs. But it was quite clearly then considered an ‘also ran’ – widely dismissed by officials and advisers. More recently with the prospect of a rebellion on the Customs Union in the Commons gaining force, the partnership model seemed like it could have provided a way of persuading reluctant Remainers to keep backing the Government’s policy. By the time of the Mansion House speech, it had emerged as the preferred model.
Over a year ago (which just shows you how little the debate has moved) Open Europe considered this ‘half-in, half-out’ partnership approach. We thought it would be hard to negotiate, overly bureaucratic for both business and government, and politically very difficult in domestic terms. We also warned that it would inevitably create an inertia in our trade policy, where the global opportunities of Brexit were neglected in an attempt to protect the status quo. Our verdict was it was too clever by half.
When I interviewed Jacob Rees-Mogg, the ERG chair, last week he went one step further and called the idea “cretinous”. Yesterday, Bernard Jenkin wrote for this site, criticising the idea. I’ve also heard that David Davis has privately raised with Downing Street significant concerns over the plan, including echoing Open Europe’s concerns about a potential legal challenge in the WTO.
Around the Cabinet table – or, more importantly, the crucial eleven-person Brexit sub-committee on Strategy and Negotiation dubbed ‘SnN’ – Hammond was the key backer, supported by Rudd, Greg Clark and David Lidington. Boris Johnson, Davis, Liam Fox and Michael Gove were opposed, with Gavin Williamson reportedly a convert to that side. Karen Bradley was expected to back the Prime Minister. Yesterday’s mini-reshuffle sees a new voice around the table, with Sajid Javid replacing Rudd. My suspicion is that Javid will back the Brexit side, who are increasingly working together to co-ordinate their position.
Ditching the Customs Partnership option seems like a political no-brainer. Crucially, the EU side has already reportedly dismissed both of the UK options – Max Fac and a partnership. So it’s hard to hold up the partnership option as a way of ‘solving’ the Irish border issue. Equally, while the partnership option seemed like it could have been a mechanism a month ago for keeping potentially rebellious MPs onside, many of those are now aiming to force the Government’s hand towards a fully fledged customs union. If Cabinet back the partnership model, that won’t necessarily defuse the rebels.
If the Prime Minister jumps the wrong way on this crucial question, she risks losing the support of Brexiteers in Cabinet and undermining her very stability in the job. But although Theresa May has often been painfully slow in coming to decisions, she has tended ultimately to make the right political call. On the question of customs she faces yet another crucial test. She must not defer it.