After a handful of her political allies quit their posts to express their dissatisfaction with a Brexit plan agreed to last week that was widely seen as too soft, this morning - and just hours before Donald Trump's arrival - UK Prime Minister Theresa May released a long-awaited White Paper outlining her government's approach to Brexit, entitled "The Future Relationship Between The United Kingdom and European Union" (link).
Critics assailed the paper for proposing to keep the UK closely tied to the EU single market. The plan is essentially a proposal for a new "UK-EU free trade area" with closely linked customs regimes to ensure there are no tariffs. However, the UK services sector - most notably its banks - would suffer significant disruptions thanks to the "regulatory freedom" envisioned by May.
More notably, the White Paper revealed that May has accepted that the UK's banks will need to leave the European banking union. Instead, she's set her sights on "regulatory equivalence" agreements with the EU that have applied to countries outside the trading bloc. While UK banks would lose their unfettered access to EU markets, May hopes that a new "treaty-based" process would allow them to achieve an enhanced version of equivalence where the EU would commit to maintaining long term access for UK banks.
"This new economic and regulatory arrangement would be based on the principle of autonomy for each party over decisions regarding access to its market," the paper said.
The policy chairman of the City of London, where the UK's financial sector is based, said the proposals outlined in the White Paper would be a "real blow" to the UK banking sector. Looser ties to Europe would mean the financial and professional sector won't be as able to create jobs and support growth across the wider economy.
Additionally, the white paper proposes that the UK continue to abide by the EU’s common rulebook for regulation and product standards for goods, to protect "just-in-time" supply chains.
May proposed a joint EU-U.K. committee to determine whether an EU rule change would apply to the association agreement. UK parliament would then have the right to decide to continue to abide by EU rules "recognizing there could be proportionate implications" for trade between the two if MPs rejected it.
The proposed relationship would require continued close cooperation with the EU, including “regular dialogue between U.K. and EU leaders.” The white paper acknowledges that as the arbiter of the EU’s regulations, U.K. courts must make reference to the European Court of Justice, but stipulates that an independent arbiter should settle any disputes between the U.K. and EU.
Of course, there's no guarantee that the EU will accept her proposals, however if the UK pushes back hard, the most likely outcome would be a hard Brexit as May's cabinet will likely topple.
The EU has said all along that "mutual recognition" of each side's financial regulations would be unacceptable due to Britain's unwillingness to adhere to the rules of the single market. May's proposals for a post-Brexit immigration regime would be set out in more detail in another white paper to be released later this year.
Read the full white paper below: