The Conservative leadership candidates have headed to Belfast, where Northern Irish party members will get their chance to hear from the two contenders. Although the cost of living and how to deal with it has been dominating the debate in recent days, the Northern Ireland Protocol will likely be higher up the agenda than in previous hustings. And how the new Prime Minister decides to approach the Protocol will be central to the state of the UK’s relationship with the European Union come the autumn.
What position will an incoming Prime Minister inherit?
The UK left the EU in January 2020 but Brexit is far from done. There are new barriers to trade with the EU which have contributed to an increase in food prices and on one forecast may reduce GDP by 4% in the long term. The government says it plans to amend inherited EU law for the good of the economy but plans remain vague. Meanwhile, Northern Ireland’s unique position under the Protocol, where it is subject to a range of EU rules, has led to a great deal of political acrimony.
The most pressing issue facing the new Prime Minister is whether to let the Northern Ireland Protocol Bill continue its process through Parliament. This would give UK government ministers the power to override agreed elements of the Protocol through secondary legislation.
The EU has made it clear that it would view passage of the Bill as a breach of the terms of the Protocol. Should it become law, therefore, the new government would face the prospect of immediate retaliation, most probably via a further court action in addition to the two already underway. This could prompt a trade war and would worsen already strained UK-EU relations, which are hampering cooperation in areas of mutual benefit such as the Horizon research programme.
Immediate and long-term issues
Looking further ahead, much will hinge on the Protocol. Unilateral UK action via the Protocol Bill would subsume all else (with the partial exception of cooperation over Ukraine) in terms of UK-EU relations. Even assuming that the Bill does not become law, the need to resolve the dispute over the Protocol will continue to dominate the relationship, though one could perhaps foresee circumstances in which the withdrawal of the Bill led to sufficient concessions on the EU side in terms of the operation of the Protocol to satisfy the UK (though should the government insist on a renegotiation of the Protocol it is hard to see how any agreement could be reached).
‘Brexit opportunities’ refers to choices about how to capitalise on the freedom of the UK government to make its own regulatory decisions. Real choices await when it comes to whether to diverge from EU rules covering financial services, gene editing, agricultural standards, and a raft of other issues.
There has to date been a strong symbolic element to the debate about Brexit opportunities, evidenced by virtually all the leadership candidates speaking of their determination to seize them, while producing very little in the way of detail. Specific measures taken so far have been largely symbolic, such as the government’s review into permitting greater use of imperial measures.
The substantive question is whether post-Brexit Britain will manage to regulate or deregulate quickly and effectively enough to generate real economic gains, either through increased business efficiency or greater foreign investment. To some extent, the ability to do this will be impacted by decisions on the size of the civil service. Brexit implies the need for sufficient resources to allow the UK to carry out effectively regulatory functions that were previously the purview of the EU.
The quest for Brexit opportunities is also related to trade policy. Divergence from EU rules might impact upon the UK’s ability to trade with the EU. Should a new government decide to amend EU data protection rules, any putative domestic benefits would need to be weighed against the possibility that divergence might entail a removal of the ‘adequacy decision’ that allows for the free flow of data between the UK and the EU. There is the added complication that divergence in areas covered by the Protocol might lead to a hardening of the border between Great Britain and Northern Ireland, as goods legally produced in the former might be outlawed in the latter.
Trade with the rest of the world is economically less significant than trade with the EU. Yet decisions to stay aligned with, for instance, EU agricultural standards might limit the ability of the UK to sign meaningful trade deals with prospective partners such as the US (though such a deal is hardly a priority of the current Washington administration).
Implications of potential policy choices
How the Protocol is managed will have the biggest bearing on UK-EU relations but there is also a question as to how effectively the UK and EU can cooperate if they are engaged in stiff regulatory competition.
Economically, there are certainly opportunities to be seized in terms of regulatory divergence, but these remain uncertain and it remains to be seen whether these can be worth more to the UK economy than close alignment with EU standards given the possible costs in terms of increased barriers to trade with the EU.
While both ministers and candidates have proven reluctant to discuss it, numerous studies as well as OBR forecasts emphasise the ongoing negative economic impact of Brexit. This will continue to weigh on the UK’s overall macroeconomic performance and the fiscal environment within which other policy choices are made. And that impact will only increase in the event that a legal confrontation over the Protocol leads to retaliation by the EU which further disrupts UK-EU trade.
By Professor Anand Menon, Director, UK in a Changing Europe. This piece was originally part of the report ‘The Conservative leadership contest: a guide to the policy landscape’ with Full Fact.
