Gaenor Bagley: Welcome to the latest episode in our series of Beyond Brexit podcasts. Today, we’re talking about the likely timescale for future negotiations following Theresa May’s Florence Speech.
I’m Gaenor Bagley, PwC’s Head of Corporate Purpose, and I also chair our EU Steering Committee. I’m joined today by Anna Wallace, our Director of Political Relations. Anna, first question for you: what do you think were the key messages for business in Theresa May’s speech?
Anna Wallace: Hello yes. So, I guess the most significant thing in last week’s speech was that the Government formally asked for transitions, and this as we know is very important for businesses. Up until now, we spent the summer hearing a lot about speculations about discussions around the cabinet table, but this was the first time that she formally requested a 2-year transition period, which would be a status-quo type arrangement with perhaps some small changes around the outside for the UK. I guess the biggest thing as well, another big thing for businesses, it was the change in tone. Actually far more constructive in terms of things like making the offer around citizens’ rights, and the bill. So, clearly she was trying to unblock the negotiations, which I think is not an unimportant thing for businesses too, but that transition issue is probably the key one.
Gaenor: Yes, and of course it is only our side of the negotiation. So what did you think about the reaction from the Brussels, the immediate reaction we’ve heard so far?
Anna: I think the reaction was probably as we expected - which certainly, at the beginning of the next round of negotiations, was quite muted; and the problem with the speech last week was, although the tone was much better, we still didn’t get the level of detail that we need to really unblock the stage of negotiations. So, yes, there was some offers around EU citizens, there was some offer around the bill, but as Brussels has said, this is the starting point in negotiation, it is not a big enough offer to really unblock us and move us forwards.
Gaenor: And do you have a sense when that detail is likely to come, is there a kind of key milestone, when you think the detail will probably come before this event?
Anna: Yeah, well by the end of the week of written negotiations, the tone between Barnier and Davis seems to have improved. Barnier himself talked about a new dynamic in the negotiations and we understand that there’s going to be a number of conversations continuing between officials in the next couple of weeks. I think that that will give us some, sort of, good progress around the citizens’ rights question, potentially even the bill, but we still have the very difficult issue of Northern Ireland, Republic of Ireland to unpick; and for that reason, again as Barnier said in his press conference at the end of the negotiations, probably a couple of months away from starting to talk about the future trading relationship.
Gaenor: That’s interesting. I know business will be really relieved about the mention now of an open discussion about transition. Do you detect as well a change in attitude to the needs of business in Theresa May’s speech?
Anna Wallace: Yes, I think since the election we have seen a real, sort of, change in the Government’s engagement and understanding of business needs. It’s still not perfect, but they certainly have been trying to do much more outreach with the business community, seeing obviously through things like the Chevening events. But, as I said, there is still a challenge here between the level of detail the Government is prepared to go into and the level of detail that businesses need to plan effectively. What we are really seeing, and this is perhaps going to get worse towards the end of the year, is a misalignment between the political timetables and the business timetables. In terms of your question: when are we going to find out those important details - probably not when business needs them; and we know that lots of businesses are coming into the, sort of, final stages now - points of no return - where they need to know what the new deal looks like, or indeed what transitions would look like, to enable them to make best investments they can.
Gaenor: Yes, absolutely. And that probably is still a message for business, you know, that the Government is definitely listening – that’s the tone I pick up when I talk to other businesses and to Government themselves - but we still need to be making a point that we need more details, particularly clarity on timing.
Anna: Absolutely, that’s right. And of course, with transitions, transitions is good, but we still need to know what we’re transitioning to, because otherwise - and the business community have talked about this a lot - otherwise, there’s a risk that you just push that cliff edge out by a couple of years. That two years of extra planning is only helpful, of course, if you know what it is that you’re planning for.
Gaenor: Absolutely. And what do you see, we’ve also had the German election results recently, what do you see the impact of that on timing, or even likely shape of the negotiation?
Anna: Yes, again, this could be a risk in terms of the timing, because it doesn’t look like it will be quite as easy for Angela Merkel to put together a coalition as we might have thought before the election. Her party had a reduced share of the vote. The SPD have said that they won’t go into a grand coalition, they will go into opposition. So, that leaves a difficult coalition between the CDU, the FPD, the sort of Liberal Democrats, and the Green Party. And it’s the Liberals and the Greens, who are quite fundamentally opposed. That is important in policy areas. That is important in the Brexit negotiations, because if Merkel is consumed with coalition talks for another 3 or 4 months, then potentially, you know, her sort of either influence in moving us on to the future trade agreement might be diminished or simply just not on the top of her priority list.
Gaenor: That’s interesting. So, anything else that you think that business should be doing now?
Anna: I think it’s really important for businesses to, sort of, keep plugging away at any plans that they’ve already started. I think there probably wasn’t enough in the speech last week for businesses who are well progressed in their planning to stop that. So, I think that they need to continue that. As you said yourself, you know, this sort of request is only one half of the picture, and it’s probably going to be a little while yet before we understand what exactly the EU are prepared to agree for on transitions. So, it’s really important that people keep executing plans, because, of course, there is still a risk that we don’t find out anything until, sort of, 11:59 on March 31st 2019. So that, sort of, no deal scenario simply just can’t move off the table.
Gaenor: Yes, absolutely. I suppose, we are probably going to get clarity earlier, from what you said before on immigration and movement of people, and there is the consultation that’s going on about that. And I’m sure we’ll have future discussions about that. That is an important perhaps reassurance to businesses, that that conversation is, at least, very active.
Anna: It is, and we’ve seen the CBI and the TUC coming out together, and calling on the Government and the EU to, sort of, reassure the EU citizens, who are here in the UK, the 3 million citizens, about their rights; because, clearly, this is sort of approaching 18 months since the referendum and life for those people will have been very uncertain. And it would be a small win for the business community, but an area of certainty nonetheless if we had clarity on that.
Gaenor: Absolutely, well that’s really helpful. It’s difficult to pull all that together into a key message for business, but it seems good progress, not perhaps enough, but good. Let’s hope that momentum keeps going in terms of more information out of Government. I am sure, you and I Anna, will continue to have these discussions.
Anna: We will
Gaenor: So, thank you very much. That was very helpful. Thank you to everyone for listening. You can find all our Brexit-related content, including other episodes of the podcast on our website: www.pwc.co.uk/brexit
Brexit enquiries, PwC United Kingdom