A bitter storm sweeps across the UK from the continent, causing widespread disruption: yes, it’s the latest publication from the European Commission on Brexit. Politically and meteorologically, Theresa May makes her pitch this Friday to Brussels in the worst of conditions. The fragile consensus secured in December for the UK-EU Withdrawal Agreement is on the brink of collapse after the release of the European Commission’s legal translation of the December deal, in which it proposes that Northern Ireland remain part of the European Union’s customs union.
There is one plausible way for May to navigate her way through the coming storm. The key lies in the phrase “managed divergence” that emerged from the Brexit committee’s Chequers away day. While this phrase has provoked much mystification in Westminster, there is a way of interpreting it meaningfully—as a partnership based on the principle of continued alignment with the EU’s rules on the single market, with the option to diverge from these rules over time.
This is the premise of IPPR’s “shared market” proposal, which we published in December. In the shared market, the UK would continue to align with the four freedoms (seeking a Swiss-style compromise on the free movement of people). Moreover, it would stay aligned on broader areas related to the single market—including competition and state aid rules, as well as consumer, employment, and environmental protections.
Similarly, the UK and the EU would agree a joint comprehensive customs union covering all goods. The UK would be responsible for making its own free trade agreements, but would nevertheless continue to align its external tariff and trade policy with the EU’s.
Alongside this objective of alignment, there would be a mechanism to allow for the UK to diverge over time, if it so wished. A new set of surveillance and judicial bodies—mirroring those that exist for Norway’s agreement with the EU—would monitor the possibility of divergence. Of course, any divergence from EU rules would be met with proportionate limitations on EU trade. The UK could choose to diverge, but that divergence would have a meaningful cost.
IPPR's approach rejects the three baskets methodology which is clearly unacceptable to the EU because it would be regarded as ‘cherry picking’. The goal of the Shared Market is to achieve a stable form of alignment that assures workers’ rights and gives the certainty to business to invest. In contrast, the three baskets method seeks out opportunities to diverge.
Could this model work for both the UK and the EU? For the UK, it would seek to secure the benefits of trade with the EU while preserving regulatory autonomy: May would be able to tell her backbenchers that the UK has “taken back control.” For the EU, it would preserve the integrity of the single market and the soft Irish border, while offering a deal that, from its perspective at least, would be worse than EU membership: the UK would stay aligned to the single market without having a vote over its rules, and could only diverge at a significant economic cost. There is, of course, no guarantee that the EU would sign up to this plan and would likely take some persuading even if they did eventually agree but it’s worth remembering that the beauty of IPPR’s model is that it works well for the interests of both parties.
Indeed, the government already appears to be inching towards our proposed model. Speaking on the Today Programme last week, Health and Social Care Secretary Jeremy Hunt said that there will be areas where “you agree to align our regulations with European regulations,” but that “it will be on a voluntary basis” with “the right to choose to diverge.” The Home Office’s latest proposal on the rights of new EU citizens during the transition follows a similar principle: according to the policy paper, it should “be for the UK and for Member States to determine [their] rights,” but nevertheless their rights will stay broadly the same as now.
And suppose the government did successfully negotiate the shared market: while under our model the UK could theoretically diverge from the EU, in practice it probably wouldn’t. Even putting aside the economic consequences of divergence, IPPR’s new polling indicates that, when it comes to some of the core parts of the EU regulatory model—the EU’s consumer, employment and environmental standards—there is little public appetite for deregulation. In fact, on some of the most controversial legislation that the UK opposed when first introduced—like the Working Time Directive and the cap on bankers’ bonuses—the vast majority of both Remainers and Leavers want to keep these rules in place, or even tighten them further.
So if there’s anything that could satisfy both Remainers and Leavers, prove negotiable with the EU, and avoid a cliff-edge Brexit, it’s the shared market. This should be at the heart of Theresa May’s opening gambit to the EU on Friday.
