What might a UK/EU Agreement look like?

Early next year we should begin talks about trade and the future relationship with the EU. Until we do so the language developed over money and the Irish border is parked. Both sides confirmed “Nothing is agreed until all is agreed”.

There may be continuing misunderstandings on the EU side about what the UK has in mind once the proper talks begin. The UK offers a full free trade agreement covering goods and services, with zero tariffs and no new barriers to trade. The EU sometimes seems to be suggesting they want the UK to sign a leaving agreement and implement it prior to 29 March 2019, to leave, and then engage in more detailed talks on trade. The first thing to clear up is the phasing of the talks. The UK needs to stress the urgency of getting on with the free trade talks. It is accepted we only sign a free trade agreement with them after we have left, but we need to know the details of such an agreement before we leave to judge the rest of the Agreement and the phasing of implementation.

The second thing to sort out is the possible Transitional arrangement. The PM always stressed this would be an Implementation Agreement. It would be as short as needed. We would only need one if there is an Agreement on our future trade and partnership to implement. The idea should not be to create a further two years in the EU under the guise of a Transitional Agreement, in order to have another two years of uncertainty and more talks about trade. Business and consumers need to know where they stand. They want to know as soon as possible if we are en route to a free trade agreement, or if we will be trading under most favoured nation WTO terms.

The third necessity is that once we have left in March 2019 with or without an Implementation Agreement, the UK will be free to sign trade deals with other countries and to pursue its own overseas trade agenda. There are various misunderstandings about regulatory alignment and convergence. Of course when you trade with another country or trading bloc you need to meet their requirements and product rules to sell to them. The UK accepts US law and rules when selling into the US, and will accept EU rules and laws when selling into the EU. What you do not do as an independent country is also accept all the rules and laws to govern all the rest of your trade. You have your own national rules based on an understanding of world standards instead. Alignment or equivalence means you have regulations with the same purpose but they may be different in the areas where this matters. The US sells services into the EU based on acceptance of equivalence for its regulations compared to EU regulations. It does not have to enforce EU rules on its domestic businesses or foreign trade outside the EU.

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Talks about trade

I have in the past said trade talks between the UK and the EU could be relatively short and straight forward. I have never said they would be. I have always acknowledged that if the EU wants to make them long and complex they can do so.

The first question the UK must ask when the talks begin is the simple one. Does the EU want a comprehensive free trade Agreement with us or not?

If the answer is yes, we can get on with translating our current tariff free arrangements on goods into a WTO registerable Free Trade Agreement, along with the access methods for service covered by current EU arrangements. This is largely a scissors and paste job, ensuring continuity of trade. As I understand it the UK is happy to offer this.

If the answer is No, then the UK needs to ask the second question. What new tariffs and barriers does the EU wish to impose on our exports to them, given that we will likely impose identical barriers on their exports to us?

If we take goods, the EU could if it wishes impose the same tariffs on our goods and food exports as they do to other non EU countries under WTO rules which govern us both. This would mean they would face high tariffs on their large farm exports to us, where they run a £20 bn surplus. We have a year to source alternative cheaper food from around the world and for our farms to gear up to produce more at home behind the tariff wall. If the EU for example wants a high tariff on meat there are plenty of other suppliers who would like to sell us more.

There is then the question of what impediments they would want to place on services. They have never completed a proper single market in services. There are still many national regulatory, language and qualification barriers around. The UK allows considerable access to its markets that helps continental business.

If the EU wanted zero tariffs on goods but more restrictions on services the UK could say it sees a trade off between the two.

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Buying your own home

On Friday I met a number of young professionals in the constituency who wanted to talk to me about opportunities to buy a home of their own.

They all reported difficulty with current house prices in the Wokingham area, and wanted to know what more could be done to make homes more affordable. One had recently succeeded in buying a property but was still concerned about this issue.

I explained that the government has produced two schemes to help directly with raising the money to buy. The Help to Buy Isa provides a £3000 top up to savings of £12000 in an Isa to speed up saving for purchase. The Help to buy equity loan offers up to 20% of the price a first home to pay the deposit, where the buyer has the other 5% of the house price as savings to complete the 25% deposit requirement. The price of a home is limited to £600,000 in England for this scheme, which is well above the price of the typical first home.

The government has now removed Stamp duty on most first time buyer properties, and is working with Councils and the development industry to see that a suitable number of lower priced properties form part of the mix of new homes being built.

I am keen to find other ways that Councils and the government can assist in making more affordable housing available for first time buyers. As my meeting confirmed there is substantial pent up demand, as the wish to own remains strong in the younger generation as with their parents. Those with access to the well funded banks of Mum and Dad usually do get on with house purchase in their twenties. The government wants those without this advantage to be able to do the same.

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The Joint Report on the negotiations so far

The Report opens by stressing that both sides are pledged to the view that nothing is agreed until everything is agreed. The Report acknowledges that the detailed draft agreement on citizens rights and on a financial settlement are without prejudice to an agreement on a future relationship. The Prime Minister has stated that the payment of any money other than our contributions up to leaving date are contingent on a wider Agreement.

The UK has won some of the important arguments over citizens rights. It is important that EU citizens living in the UK are under UK law, just as UK citizens living in the rest of the EU will clearly remain under EU law. The UK has sought to avoid a situation where EU citizens living in the UK enjoy a special status which is governed by EU law and the European Court of Justice. There will be further debate about whether an eight year right for UK courts to seek guidance on EU law in this field dilutes the UK jurisdiction too much. The UK side stresses that individual cases over citizens rights in the UK will be governed by UK law and adjudicated by UK courts.

The complex clauses on the financial settlement do not set out detailed numbers or precise programmes. The main extra cost appears to be accepting the Union budget for 2019 and 2020 after we have left. Presumably this is envisaged as a transition period which still has to be defined and negotiated in subsequent exchanges. People will want to know what such UK generosity achieves in terms of the future relationship. The Prime Minister has previously made clear that there only need be a transition period if there is a good Agreement to transit to. The UK has made some general statements on so called RAL or financial items after 2020, and on contingent liabilities. It will need greater clarity of what these are and why the UK might make some ex gratia contribution, as there seems to be no legal liability for these sums.

The wording on Northern Ireland and the border with the Republic is general and about principles. It will fall to later talks to work out how the “detailed arrangements” will work. This, as the UK has often pointed out, needs decisions on the general arrangements for UK trade with the EU before anyone can finalise the border arrangements. There will be considerable debate about the meaning of this statement “In the absence of agreed solutions the UK will maintain full alignment with the rules of the internal market and customs union which now or in the future support North-south co-operation, the all island economy and the protection of the 1998 Agreement”

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An agreement to talk

The government is trying to secure a deal to trigger trade talks with the EU. Today we learn that the EU is now prepared to talk about trade and the future relationship as well as the three special subjects it singled out for discussion so far. That is welcome, and means there can now be serious negotiations about a future Agreement. It was never possible to settle the Northern Ireland border issue without knowing the basis for future trade, for example.

We need to remember that leaving on the WTO option means no additional payments to the EU, whilst taking back control of our borders, our laws and our money. A good deal has to be better than this, otherwise the government’s mantra that No deal is better than a bad deal should apply.

Everyone needs to remember that this agreement is not the Agreement on the UK leaving the EU. It is an agreement to talk about all matters, and is still governed by the crucial principle that nothing is agreed until everything is agreed.

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Improving reading in UK schools

This week came the good news that English schools have done well in boosting reading standards in recent years.
The Coalition government spread the teaching of reading by synthetic phonics throughout England’s schools. They introduced the Phonics Screening check at 6 to see how well pupils were doing. In 2012 just 58% of pupils aged 6 met the required standard. The most recent tests show 81% of 6 year olds meeting it, with a better figure again for 7 year olds. There are 154,000 more 6 year olds fluent at reading than in 2012.
As a result of this improvement England now ranks 8th out of 50 countries at reading, compared to being 19th out of 45 in 2006. The improvement in reading standards has been fastest for the lower performing pupils, which is also good news.

There are now 1.9m more children in good or outstanding schools as assessed by Ofsted than in 2010. Raising reading standards is an important part of raising educational standards, as so much learning rests on reading and understanding the written word. This is a good base for later educational achievement, as the Uk seeks to ensure people achieve more at school so they can get access to better paid and more interesting jobs later.

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Unemployment continues to fall

UK unemployment fell to 4.3% in the latest November ONS figures, a new low since 1975.
The economy over the last year continued to generate a large number of additional jobs, enabling more people to find work.
This good result was not the one many forecasters assumed, as they expected a downturn which did not happen.

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Rail fares

The recent fare increases have been unwelcome. Rail pricing in the UK stretches the idea that you should pay a lot more for popular routes at popular times and a lot less for the off peak hours and journeys. I have no problem with the general idea that pricing needs to try to fill more seats, and to encourage sensible time shifting for those who have some flexibility over when they travel. What I do not like is to take it out on commuters who have to meet normal business hours for their jobs and who have little or no flexibility over when they get on a train.

The wide range of fares for the same route often combines ultra low fares that make little addition to train revenue net of costs with extremely expensive penalty fares at other times of day. Season tickets are now very expensive over longer commuting distances. It could be time to think again about how the railway can sell more seats, collect more overall revenue, but go a bit easier on the reliable captive passengers who need to commute to work.

There is an advantage in people using trains at peaks for commuting. The road system is totally overloaded at peak times. Trains offer easier and better ways for many to get straight into the centre of a city or large town where more of the jobs are based. Greater adoption of digital signalling and intelligent on board train information systems could make a substantial boost to peak hour capacity without needing extra track. The present artificial scarcity of train seats into our main cities is used as an excuse for high prices for season tickets.

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Comments to this site

There are too many long comments and too many multiple comments from some participants. I will have to delete more for reason of length or multiple postings to try to keep up.

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Universal credit and better incomes

Yesterday Labour organised another debate on Universal Credit.

The idea behind the reform is to simplify the complex benefits system, ensure financial support for those who need it, and to make it easier to get into work. Labour used to support the general aims of the reform, but they now want to slow down its implementation.
The government reports that people find faster routes into work from Universal Credit which is designed to make it always worthwhile working. They estimate another 250,000 getting into work as Universal Credit is rolled out.

Universal Credit provides a basic income for those out of work, and tops up incomes of those in lower paid work. It gives people more if they have children, if they are disabled, and if they need help with housing costs. The aim is no-one in our society should be unable to afford normal living costs, ending up homeless or cold or hungry.

Promoting work helps people achieve higher incomes. Benefit is withdrawn in a way which leaves people better off as they work more hours or take on better paid work. There is every incentive to get a job, get a better job and move to full time working from part time employment. Labour are right to speak out for people who are stuck in low pay employment or in underemployment. The government shares their wish to help people move into something better, and supports the aim of giving them benefit to top up inadequate incomes.

The best way to raise living standards is to help, mentor and train people so they can get into better paid work. Quite often it is easier to get into better paid work from less well paid work, or into a full time job from a part or contract job. That is why we need a benefit top up system that is flexible and helps people when they have need of financial support. A growing economy, and an economy that is thriving with growing companies in new and advanced areas of work, is the best ally of getting people higher living standards.

Meanwhile there have been some welcome improvements in the scheme following lobbying and consultation. More money will be made available earlier for claimants, with the 7 day waiting period going in February. Claimants will be told the housing component in any benefit they receive can be paid directly to landlords if they wish. Interest free advances of credit will be available to new claimants, as it is paid monthly in arrears.

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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