May’s third Brexit way – another plan for the Brussels waste paper bin?

If Theresa May’s post-Brexit customs plan suggests the single market for goods it will just go in the Brussels waste paper bin, according to Ruth Lea, economic advisor to Arbuthnots.

On Friday, UK Prime Minister Theresa May is gathering the cabinet at her country house, Chequers, to present the final post-Brexit customs plan. In the hope a truce can be agreed between her feuding ministers, the strategy will be set out in a white paper the following week. But is May’s third Brexit way another dead end?

Post-Brexit plans one and two

Two customs options have been up for discussion for near to a year now. Firstly, the new customs partnership (NCP), where the UK stays within the EU customs system and collects tariffs on Brussels’ behalf.  Secondly, the alternative was the maximum facilitation scheme (max fac), which involved new technology and trusted traders. Downing Street was among the latter’s critics fearing its expense and that it did not address the problem of the Irish border. Her Majesty's Revenue and Customs (HMRC) said in May that the customs cost of Brexit would be £20 billion, more than 1% of gross domestic product (GDP), and warned time was running out to deliver the system by Brexit at the end of March 2019.

In an interview with IGTV’s Victoria Scholar, Ruth Lea, economic advisor to Arbuthnot Banking Group, says the National Audit Office believes HMRC should revamp customs procedures for March 2019 even if there is no deal. She also said the hard Irish border issue has been ‘weaponised’ by the EU and that the technology is more than capable of dealing with the trade that goes across it, which is very small compared to the Canada-US border.

Time for UK government to pare down its ambitions

This third customs union plan is expected to be a mix of NCP and the mac fax plan, with the UK reportedly seeking to stay within the single market for goods but not for services, which accounts for 80% of UK trade. The EU’s chief negotiator, Michel Barnier, has repeatedly stated that the four core freedoms of the single market, goods, services, capital and labour, are inseparable. Lea says, if the UK white paper suggests the UK are cherry picking the single market for goods it will just go in the Brussels waste paper bin. She adds, it’s time for the UK government to cut down its ambitions to a vanilla-free trade agreement with the EU on goods, and something for services, that would be the most practical way forward.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.