Theresa May’s inbox for 2017

Economist, Former MP and Conference Speaker Kitty Ussher on what’s in store for the Prime Minister

So far Mrs May has done quite a good job of not saying very much since she became prime minister in July. But as the aftershocks of the British public’s decision to leave the European Union swirl around the economy, some of the broad parameters of her to-do list are beginning to take shape. For businesses, and indeed for the many people who have settled in Britain to work from other EU countries, there are huge uncertainties ahead. In this environment, it is natural to search for things that can be relied upon. Here are some of the first shapes that are beginning to emerge from the fog.

The prime minister has now confirmed that the government will formally start the process of leaving the EU by the end of March 2017. But, as is becoming increasingly clear, that’s a very different thing to actually working out exactly which bits of EU legislation we want to keep going forward. The sheer volume of law means that it will take far longer than the two years allowed in the European treaties to sort that out.

Two things follow from this complexity. First, as the government has already made clear, those rules and regulations that apply within the UK but originated from the EU will simply all be transferred into UK law en masse with one piece of legislation: we can worry about the detail later, at our leisure. (So much for losing all that “Brussels red tape”.)

Second, and more worryingly, there is a very large problem looming about the status of cross-border trade. Given the political desire to introduce controls around the migration of people, it is looking likely that the UK will not remain a member of the European single market as the two things go together both in current EU law, and in the eyes of other European countries. That means that to sell cross-border, trade arrangements will need to be renegotiated, line by line and sector by sector.

This, too, will take longer than two years but because it involves reciprocal arrangements between the UK and the remaining countries of the EU it cannot be resolved in the short term by piece of sticking plaster in the form of a few lines of domestic legislation.

Although they haven’t articulated it publicly, to me, this means that the main priority for the UK government over the next two years will be to negotiate a transitional trade arrangement, presumably with a longer timeline, so that trade can continue to take place legally while the substantive and time consuming sector-by-sector negotiations are taking place.

Meanwhile, we also know that economic growth in the short term will be slower than previously expected: when the latest official forecasts are published alongside the Autumn Statement on November 23rd, economic growth for 2017 is likely to come in at around half the 2.2 per cent that was predicted at the time of the Budget in March. Thankfully however the economy was in a very strong cyclical position before all this kicked off meaning that it looks as if it will continue to grow at least for the time being. For individuals this means opportunities will continue to expand, not contract and the fact that they would otherwise have been growing faster is a loss that is hard to conceptualise. But unfortunately for the government, the lower rate of growth will still translate into lower-than-expected tax revenues, yet there will be pressure to spend more to provide reassurance in difficult times.

So Mrs May is wise not to say too much at this stage: we are in a long game and perhaps we do not want to hear what it is that would otherwise be said.

 

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