Business leaders are giving up their ambitious demands for the UK to maintain frictionless trade, freedom of movement or a customs union with the EU after Brexit, as Boris Johnson’s resounding election victory forces europhiles into a new political reality.
The Confederation of British Industry, the leading business group and a pro-remain force in the referendum, is scaling back its lobbying plans to push for what it sees as more “pragmatic” goals.
“We have to look at the reality of where we are now. We used to talk about frictionless trade – that is not the world we’re in,” said Rain Newton Smith, the CBI’s chief economist.
“We are not going to be a member of the single market and we are going to have a different system of immigration. As a service-oriented economy, being open to talent from around the world is a key part of that.
“But it is partly around short-term business travellers. We are moving away from a world of free movement of people, there is a big conversation to be had over free movement of workers.”
Her comments mark a key shift in business attitudes towards Brexit and politics, in preparation for Britain’s formal exit from the EU at the end of this month.
The CBI wants the Government to focus on a trade deal that keeps borders open to goods and to services, as the EU is a key market for both types of trade.
It is also important as much of the rest of the world will take its cue for free trade deals from the UK’s arrangement with the EU.
“What do we want to see? Absolutely tariff-free trade. Ideally, we would be minimising rules of origin as much as possible, but at the moment the deal on the table includes frictions between and even within the UK market between Northern Ireland and the rest of the UK. We have to acknowledge the political reality is there will be rules of origin,” said Ms Newton Smith.
“We’ve only just started to have a conversation about what sort of deal we want for services with the EU, and over the long term that is going to be one of the most important things – arguably more important for the UK than our relationship on goods. That is about the harmonisation of rules.”
Andrew Goodwin at Oxford Economics estimates there is a 20pc probability a trade deal can be done within a year, with a 50pc likelihood of an extension and a 30pc chance of a ‘no deal’ exit instead.
“This timescale is far shorter than seen in most trade negotiations, particularly those involving a large, bureaucratic organisation like the EU. For comparison, the EU’s deals with Canada and Japan took seven years of talks,” he said, noting that EU members are expected to approve the European Commission’s negotiating mandate by the end of February, at which point talks can begin.
“Ultimately, we expect the UK to seek a deep deal to try to protect vulnerable sectors. But this will take time and if the transition period is not extended, a political fudge – such as an interim deal with an implementation period – may be required to avoid trade frictions being introduced while talks are ongoing. “