Labour can shape Britain’s future

Nick Donovan

After the Conservative’s recent defeat in parliament, Labour has shown it has power – albeit limited – on Brexit. How can the party wield it? Nick Donovan explores the options for Labour in 2018

First, let’s dispel a myth. Even with last week’s government defeat, parliament hasn’t gained the power to reject the final trade deal.

After sending the article 50 notification, we leave the EU on 29 March 2019: deal or no deal, with parliamentary agreement or not. Even at that date we will not know the details of the new trading arrangement. By law, the EU cannot sign a trade deal with us until we have left. Moreover, the full deal will take a few years to negotiate – it won’t be ready until 2020/21 at the earliest. Therefore, the government, supported by Labour, will negotiate a transition period of two or so years. This will likely look exactly like EU membership, including regular payments, freedom of movement and ECJ jurisdiction, except without a formal vote at the European Council. There is Brexiteer squealing about this, but the EU has already included this outcome in its negotiating guidelines. We should remember the UK is essentially a supplicant in these negotiations and will have to, broadly, take what it’s given. We threw away our limited leverage when we sent the article 50 letter.

So when will parliament know what our fate will be? Well, about six months before Brexit day, in September or October 2018, a legally non-binding document outlining the future framework deal will be finalised. To repeat, this will not be the final trade deal. At this point the UK parliament will have a ‘meaningful’ vote on the separate withdrawal and implementation bill. Parliament will not have the chance to pass ‘amendments’ to the final trade deal, nor even to the outline future framework. That will be negotiated at a UK-to-EU state level. What parliament has gained is the nuclear option of rejecting or amending the withdrawal and implementation bill (which will contain provisions relating to paying the Brexit financial settlement, citizen’s rights and the transition period). If we delay acting until October 2018, Labour will vote in a context when the alternative is to risk crashing out without a deal. In these circumstances rejection of the withdrawal and implementation bill would only come at a moment of the highest political drama. Whether a nuclear weapon is useful in the hands of parliamentary guerrillas remains to be seen.

The choice is still between ‘Norway ’ or ‘Canada

However, Labour doesn’t need to wait until the eleventh hour to act. We already know roughly what the deal will look like and therefore can make a decision on which one we would prefer to be faced with when we enter government. There are two basic variants – Norway or Canada. Norway is shorthand for membership of the single market. Canada is shorthand for ‘tariff-free access to’ the single market – for goods only.

There might be a few tweaks but the EU has been clear that it won’t mix and match. Its message has been you cannot combine the deep benefits of ‘Norway’, with the shallow obligations of ‘Canada’. The Tories will aim for ‘a deep and special relationship’ which mimics the single market without ECJ jurisdiction, regular payments and freedom of movement. But they will fail. The EU has been telling them so for months but the Brexiteers have not been listening. The current Labour formulation – ‘a single market, not the single market, and a customs union, not the customs union’ – is not on offer either. Here, the move from indefinite to definite article matters. We can technically be in ‘a’ customs union with the EU – a bit like Turkey. However we cannot be in ‘a’ single market – we can only be in ‘the’ single market. Our line might survive a media interview or two but wouldn’t last five minutes in a serious Brussels negotiation.

Not inspiring but true: Norway is the least bad Brexit option we have

The difference between the two Brexit variants is important. The government’s own economic analysis is that ‘Canada’ leads to about a 6.2 per cent hit to GDP every year by 2031, and reduces tax revenues by about £36bn each year, roughly equivalent to a quarter of the NHS budget. Staying in the single market roughly halves the economic pain, reducing the risk of further austerity. ‘Norway’ leads to more jobs, higher wages and higher tax revenues. This is why it is the preferred option of the TUC.

This should be a straightforward choice for Labour, right? Wrong. The Norway option comes with one largely imaginary problem and one genuine dilemma. Some believe EU rules on state aid and competition hinder an active industrial policy and nationalisation. They do not. The rules tend to change how nationalisations and subsidies can be delivered – not whether they are deliverable. The genuine dilemma is that no country has split the ‘single market includes freedom of movement’ atom. This is a problem as many Labour supporters voted for Brexit because of concerns about migration. There are some migration reforms that can be introduced within current EU freedom of movement rules. There is also the faint possibility that other reforms might be agreed by the EU. However, basically there is a straight trade-off: more immigration controls versus fewer jobs and lower wages. If Labour wants to actually influence how Brexit develops, then it will need to come off the fence.

The Canada option now implies an ‘east-west border ’ between Northern Ireland and mainland Britain 

The recent joint EU-UK first phase agreement provides a safety net for Northern Ireland in the event that the overall deal does not avoid a hard border, or that novel technical solutions can’t be found. Paragraph 49 of the report states:

The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.

The agreement implies that ‘Canada’ would almost certainly have to be coupled with special status for Northern Ireland, involving some form of customs and regulatory ‘east-west’ border between Northern Ireland and mainland Britain.

To understand why, remember that the UK wouldn’t be in the EU customs union. Therefore, we wouldn’t apply the common external tariff (and any new free trade agreements would lead to tariffs applied by the UK varying from those of the EU). Cheaper imports could therefore enter the EU through the UK and Northern Ireland. To prevent this, some form of physical infrastructure between Northern Ireland and Ireland would be needed. The border between Norway (outside the EU customs union, but in the EEA single market) and Sweden (in the EU and effectively policing the common customs tariff) has a level of physical infrastructure which would be ruled out by paragraph 43 of the deal: “The United Kingdom also recalls its commitment to the avoidance of a hard border, including any physical infrastructure or related checks and controls.”

Would Labour’s plans to stay in the customs union, but not the single market, suffice to avoid a hard border? Probably not. Although the customs union was established in 1968, most border posts between EU states were not dismantled until 1992, when the single market was established. At its external borders the EU polices its sanitary and phytosanitary regime to prevent the introduction of threats to animal, plant or public health. EU member states also inspect goods to maintain product safety standards and to apply ‘rules of origin’. These determine whether the good (or a sufficient proportion of its components) originated in the EU, a third country with which it has a free trade agreement, or whether the good is subject to import quotas.

There are technical solutions to some of these customs and single market rules, but not enough of them to prevent a hard border emerging. Even the most sophisticated EU borders such as those between Norway and Sweden or France and Switzerland have a physical infrastructure.

This is why paragraph 49 of the joint report is so important. The UK government might aspire to a ‘Canada plus plus plus’ agreement which obviates the need for a hard north-south border. But the UK isn’t going to get this deal. The UK might also aspire to novel, ‘specific solutions’ but the EU physical border elsewhere isn’t replete with examples which inspire confidence that specific solutions will be found in time.

If the UK insists on leaving the single market and customs union the logic of paragraph 49 implies a border between Northern Ireland and mainland UK. The DUP noticed this and rejected the first version of the deal. This led to paragraph 50:

In the absence of agreed solutions, as set out in the previous paragraph, the United Kingdom will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom, unless, consistent with the 1998 Agreement, the Northern Ireland Executive and Assembly agree that distinct arrangements are appropriate for Northern Ireland. In all circumstances, the United Kingdom will continue to ensure the same unfettered access for Northern Ireland’s businesses to the whole of the United Kingdom internal market.

This rules out a hard ‘east-west’ border. However, one shouldn’t rule out the possibility of the UK attempting a Canada deal with special status for Northern Ireland. Put the issue of UK parliamentary arithmetic aside for one moment. In a moment of crisis it is not hard to imagine the prime minister being tempted to think that paragraph 49, with a powerful protector (the EU) in the negotiations, might trump unloved paragraph 50, which was only inserted late in the negotiations.

The logic of the first phase deal implies either confronting the DUP or de facto (or de jure) membership of the single market or customs union

The first phase agreement opens up the possibility that the Norway option includes either de jure membership of the European Economic Area, or a de facto version whereby we mimic the rules of the single market and customs union, but without formal membership.

The UK government is banking on a narrow interpretation of ‘full alignment’ in paragraph 49, restricting its meaning to those few sectors, such as tourism and the environment, mentioned in the Good Friday Agreement. However, it would be wiser to place your bets on the EU’s more expansive understanding. Remember: we are supplicants in an unequal negotiation.

What remains unclear, however, is whether the EU’s more expansive interpretation of full alignment will require the UK to remain a member of the EEA and EFTA, subject to the EFTA surveillance authority and EFTA court, and a member of various regulatory bodies such as the European Medicines Agency. To my mind de jure single market membership and a customs union with the EU is the most likely final interpretation of paragraph 49.

However, there might be also be a possibility of a fudged outcome.

First, the UK government will push for the mutual recognition of regulatory bodies. In this scenario, for example, the UK would recognise the EU’s regulatory regime for chemicals, REACH, and the European Chemicals Agency (ECHA). The EU would then in turn recognise the UK’s new regulatory body. Then all chemicals registered by either regulator (and products made from those substances), could be freely traded between the EU and UK. The problem is that the EU has already made it clear that will not go down this path. Even if they were the implications for Northern Ireland are clear: if there is future regulatory divergence, for example on accepting (by now infamous) chlorinated chicken imported from the US, then this will lead to physical infrastructure at the border to prevent unregistered goods, whether chemicals or chickens, from entering the EU. The UK government will push for mutual recognition, and it will fail.

After this it is just possible that the UK government might grudgingly accept a form of de facto single market membership – whereby the UK copies all regulations and customs rules, both past and future. While this would be a legal novelty for the EU, the rules governing the transition period (which in themselves would be a legal novelty) might provide a model. Alternatively, some point to the position of Jersey, a Crown Dependency. Jersey is in the customs union and single market for goods, but is not an EU member.

Choosing de facto membership (or ‘Jersey’) in order to pretend we are taking back control, ironically gives us far less say in the shaping of regulations that affect us than even EEA membership. EEA membership at least provides a formal voice in the consultation on new EU laws, although not the vote that comes with EU membership. More pertinently for the prime minister, in this outcome, the UK would not be able to negotiate new free trade agreements (because they would diverge from the EU’s tariffs, quotas or regulations), nor would the UK be able to diverge from many EU regulations. Selling this fudge to the hard Brexiteers is a task that requires political skills which Theresa May hasn’t yet demonstrated.

On the current trajectory, what will happen next?

The first phase agreement has clarified the political hurdles the prime minister faces trying to implement each variant. Broadly, to achieve a Norwegian Brexit she must face down her own hard Brexiteers. To achieve a Canadian Brexit, the option which she has made clear she intends to pursue, Theresa May needs to confront the DUP.

Just before trade talks begin, the first phase agreement will be put into legal text – including paragraphs 49 and 50. This may be the first flashpoint, as the process of translating the constructive ambiguity of the first phase agreement into more precise legal terms may expose fundamental differences on ‘full alignment’. It is also possible that the talks on the transition terms might also spark a crisis.

However, it is also likely that the process may seem calm for a few months. Talks will proceed in several strands: including one on future trading relationships and another on Northern Ireland. On trade UK negotiators will put forward proposals on ‘Canada plus plus plus’, with suggestions on mutual recognition, new dispute settlement mechanisms and migration. In parallel the negotiators will consider the implications of these notions for the Northern Ireland border. Slowly, ‘Canada plus plus plus’ will be whittled down to ‘Canada’ or perhaps ‘Canada plus’. This will be a pretty basic free trade agreement which puts up significant barriers between ourselves and our largest trading partner. As the implications for a hard border in Northern Ireland become clear, British negotiators in that track will move onto the ‘specific solutions’ suggested as the second line of defence in paragraph 49: ideas such as exemptions for small and medium sized businesses, and trusted ‘authorised economic operators’. These too will be rebuffed by the EU.

Once Theresa May’s current strategy runs out of road, there will be a crisis. At the time of writing, several months before, it is unclear what form this would take. One part of Labour’s strategy is preparation for forming a government after Theresa May’s administration loses a parliamentary majority. However, this isn’t the most likely scenario. It’s just possible there could be an attempt by more pragmatic Conservatives to replace Theresa May, who is indelibly inked with hard Brexit red lines, and then a bid to negotiate a form of de facto single market membership. A hard Brexiteer coup can not be ruled out either. But the most likely scenario is that Theresa May announces the outlines of a Canada-type deal (with special status for Northern Ireland and a long transition period) which has lost the DUP’s support but which she dares Labour to reject via the withdrawal and implementation bill.

Labour must avoid being a passive victim of future events. If it votes for the Conservative deal, it will be complicit in voters’ minds with the economic consequences (and the UK may be overdue a downturn in the business cycle). If Labour comes to power after the UK has started down the road towards ‘Canada’, then Labour cabinet ministers will shoulder the public spending consequences of that choice. The Labour administration would also spend its first Parliamentary term finalising the negotiations and establishing a myriad of new domestic regulators, rather than implementing a radical manifesto.

What should Labour do?

To influence the Brexit outcomes it is likely to face Labour needs to move quickly. Waiting until October 2018 will guarantee a range of poor options. The time to influence events is in spring 2018.  It needs to move on two fronts: internally within the party, and in parliament.

Within the party the key is to make a decision on single market membership. This is the hardest decision the party will make. To give itself some cover, the leadership could commission three pieces of independent research. The first is on the manpower needed to deliver the manifesto pledge to build 100,000 council and housing association homes a year by the end of the next parliament. The second should compare the effect on tax receipts of a hard Brexit with the tax revenue needed to meet the health and social care needs of Britain’s ageing population. The third should be legal advice on whether the party’s 2017 manifesto is compatible with EU single market state aid rules and competition law.

Alongside this, the party should announce a new set of migration policies, compatible with maintaining freedom of movement.

The party should then update the six Brexit tests set by Keir Starmer. The updated tests also need to serve a purpose in parliament of attracting Conservative rebels and members of the Liberal Democrats, Plaid Cymru, the SNP and DUP. New tests would provide more certainty to potential rebels that if they disobey their whip then their vote will be worth it. If they fear that Labour might support the government then their personal sacrifice would have been in vain, and rebellion is less likely.

The new tests could be: “Labour will support a Brexit deal which:

  1. Delivers the ‘exact same benefits’ as we currently have as members of the single market and customs union.
  2. Respects the Good Friday Agreement and all commitments made in the joint report on progress during phase 1 of negotiations under article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union.
  3. Gives the UK a formal voice in the shaping of future EU regulations, equivalent to that available to members of the European Economic Area.

These three tests minimise the economic damage of Brexit without disrespecting the referendum result, maintain the territorial integrity of the UK, and rule out being a pure rule taker. They have the advantage of having a broad appeal across parliament.

In announcing these three tests, Jeremy Corbyn should state that, while he keeps an open mind, the only solution that he has yet seen which satisfies these three criteria is membership of the European Economic Area and the customs union.

To lock in all organs of the party to the decision and to help publicise the new stance, Labour could call a special Brexit policy conference in spring 2018 for party delegates. This would be in tune with a leadership which wants to give more policymaking power to its members. If recommended by the leadership the motion would undoubtedly pass.

A parliamentary strategy requires unofficial coordination with other parties

The lesson of last week’s vote is not that parliament has taken back control of Brexit, yet. It is that there is not yet a Conservative rebel caucus ready to challenge the substance of the government’s Brexit policy (except Anna Soubry MP and Ken Clarke MP). However, there are a minority – who could hold the balance of power – who are currently willing to challenge the government’s handling of Brexit. The challenge for Labour is to convert this process rebellion into a revolt on the substance of the government’s policy. To do that, it needs to expose the inadequacy of the government’s preparations about the likely effects of leaving the single market and customs union on the economy and Northern Ireland. Once Labour has a clearer position, it can then start to hold the government to account more comfortably.

The aim should be to try to engineer cross-party debates and votes to influence the British negotiating mandate in the spring of 2018. Perhaps there can be another attempt at a ‘humble address for a return’ – the parliamentary procedure used to force the government to produce the sectoral impact studies. For example, this technique might be used to force the government to:

  • lay before the house the negotiating guidelines given to British negotiators, so they can be properly debated and scrutinised before talks begin;  and/or
  • produce the rumoured economic analysis which compares the (large) future economic cost of leaving the single market and customs union against the (tiny) benefits of new trade deals. The existence of this analysis has been hinted at by Liam Fox, and is the subject of litigation aimed at trying to force the government to produce it; and/or
  • produce a position paper, akin to those already produced on citizen’s rights and the Northern Irish border, on the government plans to renegotiate our free trade agreements with 67 third countries, covering about 15 per cent of UK trade, which will lapse immediately when we leave the EU and enter the transition arrangement; and/or
  • produce a position paper which sets out the government’s desired ‘end state’ ahead of the negotiations.

This is the type of pre-negotiation scrutiny that should appeal to those Conservative rebels who were attracted to Dominic Grieve’s victorious amendment last week.

In these strange times it might even be possible revive other parliamentary procedures over the course of the negotiations from March to October 2018. For example, the early day motion (EDM) has long been thought of as Parliamentary graffiti.  But it might be used to craft a cross-party motion setting out an alternative negotiating mandate, containing Labour’s three tests. EDMs are unlikely to succeed in getting parliamentary time for a debate, but if carefully crafted and with the right authors this approach might provide a public yardstick against which the progress of negotiations could be judged.

Then once it becomes clear that the outline framework deal doesn’t meet this public yardstick, MPs could introduce cross-party censure motions which aren’t votes of no confidence. As the Fixed Term Parliament Act provides a specific form of words for dissolving parliament it is easier to craft censure motions while making it clear that, if defeated, the government is not expected to dissolve parliament. For instance, in 1981 a censure motion was introduced which read: “This House has no confidence in the economic policies of Her Majesty’s government” but concluded by calling upon the government ‘to present to parliament before the end of the year’ new economic policies.  Perhaps this approach could be extended to censure motions focused on the government’s handling of the Brexit negotiations. (If the government resists proper scrutiny of the negotiations during summer recess, then it might be possible to recall parliament. The speaker of the House of Commons can only recall the Commons at the instigation of government ministers. However, the Lord Speaker can recall the House of Lords if he is satisfied that the public interest requires it.)

Some of these suggestions are more fanciful than others. But whatever approach is taken, it is clear that the Micawber-ish approach of hoping ‘something will turn up’ has run its course. Parliament should attempt to take back control in spring 2018. While Conservative rebels hold the balance of power in the Commons, the role of the Labour party will be crucial. It is sometimes said that there is no majority in Parliament for a hard Brexit. Well, unless Labour changes its course, then neither is there a majority for a soft Brexit.

There is also a narrow party advantage for Labour in detaching the DUP from its current confidence and supply deal with the government, in order to force Theresa May to run a minority Conservative government.

It is in both the interests of both the party and the country as a whole that Labour exercise the limited powers that it has to steer us towards a soft Brexit.

At the last election some commentators laughed at the response of Labour activists, claiming that they were acting like they’d won: “John McDonnell might be the people’s chancellor, but he’s not the actual chancellor!” But maybe Labour could prove that our activists actually had a point. Even from opposition, Labour can shape Britain’s future, to the benefit of the whole country, and save us from the Tory hard Brexit ultras.

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