As Britain starts the process of withdrawal from the European Union, the prospects are high that the outcome of the exit negotiations will cause significant damage to the political and economic interests of both Britain and the EU. There is a real danger that if these negotiations go awry, our relationships may be blighted for a generation.

This paper sets out the risks from a bad or chaotic Brexit. It argues that the British Government is in serious danger of asking for the wrong things, in the wrong way and on the wrong timescale. The Government should reconsider the strategy set out in its recent White Paper and adopt an approach which emphasises our shared interests and values. Rather than seemingly seeking to minimise the formal ties between Britain and our neighbours, this policy options paper argues for a measured timescale for achieving Brexit and for the creation of a new institutional relationship to provide coherence to the many fields in which we should aim to preserve the closest continuing cooperation.

The outcome of the 2016 Referendum was determined by a narrow majority. The Government has adopted a somewhat intimidatory stance towards its critics, claiming that the Referendum has given it a mandate. This is disingenuous. It is not defying the ‘will of the people’ to believe that the Government is pursuing an unnecessarily extreme form of Brexit. The Referendum decided that we should no longer be a member of the EU; beyond that it decided nothing. The Government should respect the views of all those who voted in the Referendum and should be identifying approaches that heal the Leave/Remain divide. Regrettably, its White Paper is based on a divisive ‘winner takes all’ approach designed to delight Brexit zealots. Amongst other consequences, this approach risks increasing alienation between the Conservative Party and its natural supporters in business.

Two of the four constituent parts of the United Kingdom voted to ‘Remain’. The Government’s approach fails to recognise this and represents an English majoritarian mind set. This seeming insensitivity to Scottish and Northern Irish concerns may give the Scottish Nationalists the sense of grievance they have been seeking to give momentum to the cause of independence. In Northern Ireland the form of Brexit currently proposed is likely to alienate nationalists and may undermine the Good Friday Agreement, especially through the imposition of a ‘hard’ border on the island of Ireland.

The Government seems to have ruled out seeking to preserve British membership of the Single Market principally because it involves a continuing role for the European Court of Justice (ECJ). It is unwise for Britain’s negotiating strategy to be driven by such an ideological hostility to the ECJ. The need for EU law to take precedence where common rules must be enforced has been inherent since 1973. It has not been particularly controversial for most of that time – compared with some of the judgements of the European Court of Human Rights. If there were to be a UK-EU Free Trade Agreement (FTA) Britain will have to accept rulings by a supranational arbitrating authority to resolve disputes. The logical conclusion of a refusal to accept that supranational institutions should ever be higher than our courts is an absolute insistence on ‘sovereignty’. This mindset is reported1 to be leading the Trump Administration to refuse to guarantee their acceptance of future WTO rulings. The idea of shared sovereignty has been fundamental to making international institutions work.

It is in Britain’s interests to preserve a uniquely close relationship with the EU through a new institutional relationship rather than a series of ad hoc arrangements. The Prime Minister has spoken of the need to create a “new strategic partnership between Britain and the EU”. This is welcome. It should encompass inter alia the fullest possible participation in the Single Market, continuing co-operation in areas like the environment, science and research, higher education and aviation and the preservation of uniquely close working arrangements on security, crime and foreign policy. The fundamental flaw in the approach set out in the White Paper is that amid all the ‘ad hoc-ery’ there is no coherent vision to tie it together. Like the Tin Man in the Wizard of Oz, it lack a heart.

In considering new models, the parties should draw upon long discussed options for a ‘variable geometry’ Europe. Options might include Associate Membership; a bespoke Britain- EU Partnership Council; or building on ideas for a Continental Partnership. The latter would not only accommodate Britain but also other major actors on the edge of Europe, such as Turkey and Ukraine.

Much of the Brexit debate has focussed on economic issues, but the nature of our ongoing political relationship with the EU is of huge significance. It underpins our security, our shared efforts against crime and our ability to work effectively to promote our interests in the world. With the new US Administration agnostic about European unity and uncertain in its approach to Russia, now is a bad time to reduce the ability of European countries to cooperate on foreign and security policy. Our European relationship should remain an enduring pillar of British foreign policy. There is no Empire beckoning. Subservience to the United States has limited attractions since it cannot be a partnership of equals and, outside our NATO and intelligence relationship, our interests tend to diverge more than is the case with our European partners.

It is wrong to assume that it is necessarily impossible for Britain to retain membership of the Single Market whilst limiting freedom of movement for EU nationals. If negotiations are conducted in a constructive spirit, designed to maximise ties (albeit outside full membership) rather than amid suspicion and rancour, a grand bargain might yet be achieved. If Britain were, for example, willing to trade some influence over Single Market rules then it might be possible to secure restrictions over freedom of movement such as an emergency brake; constraints on access to benefits; and EU nationals only being allowed to come to Britain with an offer of employment or to study, rather than in search of work.

An EU Free Trade Agreement will fall a long way short of providing the same benefits as the Single Market, especially in relation to services. Before we start rubbing our hands at the prospect of new deals with third countries we shall first have to replicate the access that we enjoy with 59 countries through EU agreements. Moreover, new FTAs with third countries will involve tough trade-offs. Independent assessments calculate that such new agreements are unlikely to be transformational in compensating for business lost in the Single Market.

Leaving the Single Market will be damaging particularly for financial and professional services pharmaceuticals, the food industry and those manufacturing sectors with tightly integrated supply chains. Thus, if an exit from the Single Market were to become inevitable, then the Government should negotiate a significant transitional period, during which Britain should retain its place in the European Economic Area (EEA). Both sides would suffer from a ‘train- crash’ Brexit – but Britain has even more to lose.

The Prime Minister attracted approving headlines when she declared that ‘no deal’ is better than a ‘bad deal’. Theoretically she is right but only if the ’bad deal’ is in compulsory slaughter of the first born territory. We are fooling ourselves –and the Government would be fooling the British people– if we fail to understand that a default to trading with our biggest (and currently most closely integrated) trading partners on the basis of WTO Rules would be profoundly damaging.

Many statements from British Ministers have lacked empathy with our partners and failed to create the mutual confidence that is essential if the negotiations are to have a successful outcome. Many Continental leaders see the British approach as transactional, nationalistic and ultimately hostile to the EU. This feeds a sense that Britain should be palpably disadvantaged by choosing to leave. It is inevitable that non-membership will have fewer benefits than being members. Nevertheless, ultimately both sides will benefit from maintaining a high level of economic and trading integration and from preserving the habit, as fellow European nations, of working together on environmental, security and foreign policy challenges and against crime.

Download the full paper below.

1 Financial Times: ‘Trump’s trade shake-up – why has the US taken aim at the WTO’, 2nd March 2017