LEADING THE WAY OUT OF THE EU

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Friday 8 February 2019

Whitehall is taking the WTO seriously. Cabinet secretary Sir Jeremy Heywood is reported to have led a cross-departmental team looking into the “economic levers” the government can pull to restore Britain’s competitive edge in the event of No Deal.

The planning, codenamed “Project After”, was completed late last year and entails the usual tax and tariff cuts, along with relief measures that will petrify Brussels. Disappointingly, however, the prime minister shelved plans for environmental and employment re-regulation. Chancellor Philip Hammond has already said he would provide £15bn in stimulus if Britain leaves the EU without terms.

But will the additional borrowing be even necessary? The FT reports a large part of the discussion had focused on which levers will be counterproductive. A cut to corporation tax, for instance, could be inflationary.

“Our economic fundamentals are very strong, just look at the figures,” said trade secretary Liam Fox. His department initiated the project two years ago. Unlike the emergency “Operation Yellowhammer”, Project After is focused on boosting Britain’s long-term economic profile,

“Our exports are at an all-time high. We have recently overtaken Germany as the biggest exporter to Hong Kong. This is an economy that is in robust health,” added Fox.

Those with their hands on the levers on Whitehall should not lose sight of those strong fundamentals, one Brexiteer familiar with the group’s work fears pro-Remain civil servants will have addressed their task, not as an opportunity, but as a problem.

“Project After would work if we had a coherent single objective and people who believe in Brexit,” he said. “But instead it’s essentially a civil service exercise in making the best of what they see as a bad situation. It won’t be coherent.”

From the future to the past. There’s a reason why Angela Merkel has been pushing harder than other EU leaders for a deal to get over the line. Germany’s industrial output plummeted in December, it cannot afford the slightest reduction in access to the British market. The downturn in demand from China has had a huge effect, but it’s only the beginning. Merkel and her ministers are known to be deeply concerned for the future of the country’s car industry as electric vehicles threaten to disrupt the market, casting established megabrands like Volkswagen, BMW and Mercedes aside in one fell swoop. Vehicle manufacturing is absolutely pivotal to German industry.

“A chaotic Brexit is getting dangerously close,” said Joachim Lang, director-general of Federation of German Industry.

“Businesses on both sides of the English Channel are hanging in the air. The priority must be to avoid a hard Brexit. British politics has to live up to this responsibility.

Britain is future proofed. As a services-based economy, it is better adapted to massive changes that await as China and other Asian giants swallow up huge pieces of the higher-end industrial market. A resurgent US under President Trump, where electric cars have stolen a march on the established European brands, will also steal business and reduce its own import dependency.

Food for thought as reports come in that Donald Tusk has – as feared in yesterday Brexit Brunch – taken a shine to Jeremy Corbyn’s BRINO plan, describing it as “a promising way out of the impasse,” after meeting with Theresa May yesterday. The British prime minister had gifted Tusk the opportunity to advocate Britain remaining in both the Customs Union and the Single Market by not making any demands of her own.

“May did not offer any concrete proposals on the way forward,” an EU official told Politico.

According to the Huffington Post, Tusk’s endorsement of Corbyn’s plan was not made on a whim, it was in fact developed in cooperation with Brussels. The Labour Leader has met with Michel Barnier in the EU capital on several occasions.

A Downing Street spokesperson said the prime minister is examining the proposal “with interest”, although, “there are obviously very considerable points of difference that exist between us.”

Understatement to say the least.

But how much credence do all these statements amount to? The EU always takes these negotiations to the wire. Downing Street knows this of course, but May would have cut a stronger image had she turned up and told Tusk it’s no backstop or no deal. Not likely of course, the prime minister wants the backstop more than anyone.

EU officials have told the Times the bloc will make its final decisions a week before Britain’s scheduled exit. Again, the source is unnamed, but don’t bet against big moves at the 11th hour.