Press Release

The pettifogging logic of no transition deal

The Prime Minister’s announcement last week that there can be no transitional deal with the EU until long-term relationships are agreed has a pettifogging logic to it, but will feel like a slap in the face for businesses across London.

The PM has always been careful to refer to an “implementation period” rather than a “transition period”, and her remarks this week highlight the difference: it is of course hard to agree implementation arrangements until you know what you are implementing. But calls for a “transition period”, made by Centre for London earlier this year, and renewed by business leaders this week are based on different assumptions. Given the complexity of negotiating long-term access to the single market and customs union, transition arrangements – for example through interim membership of the European Free Trade Association – give government time to negotiate, and trading businesses the certainty they need to continue operating from the UK.

Without such certainty, businesses will begin thinking seriously about the risks they face. Without a deal, financial services will not be able to be traded from London across the EU, tech companies will not be able to share data, lawyers, accountants and architects will have to re-register to practice in other countries, and UK airlines may be prohibited from flying between EU capitals. These issues may all be resolved by March 2019, but it would be a brave business leader who bet on that happening, given the glacial pace of negotiations to date.

Trade in services is less tangible than trade in goods, but more vulnerable too. British customers for EU goods may face higher costs resulting from higher tariffs, but trade will continue, even if the lorries are queued down the M20: it is hard to relocate factories; tougher still to relocate agricultural land. But some service sector exporters may be unable to trade at all, if no deal is struck, so the threat they face is fundamental, and moving people – the raw materials of services – overseas is a lot more straightforward than relocating agricultural or industrial production.

Of course, London still has a huge amount to offer exporting businesses – international connections, a rich cultural life, the skills and services that support high value clusters.  But tying transitional arrangements to an objective – agreeing long-term relationships in the next 18 months – that many think is unachievable is a high-stakes gamble. Perhaps intended to force Brussels’ hand, it may end up forcing the hand of London businesses, as they consider relocation options.