Theresa May's landmark speech today sets the UK on the road to a hard-hitting negotiation with the EU. While she kept the details of her negotiating strategy close to her chest, the direction of travel is clear. The Prime Minister is committed to bringing the UK out of the single market with the aim of securing a new comprehensive free trade deal with the EU.
On the surface, it may seem that Mrs May has simply played the most obvious opening move for the Brexit negotiations: ask to have our cake and eat it. Her maximalist position would take the UK out of the parts of the EU that she argues it doesn't like (freedom of movement, CJEU jurisdiction, the payment of large sums into the EU budget, the inability to make our own trade deals with third countries), while retaining all the benefits of trade with the EU in goods and services.
But in reality Mrs May has boxed herself in to a hard Brexit. By ruling out membership of the single market, by stating unequivocally that the UK will not be subject to the jurisdiction of the CJEU and will 'control our own laws', and by making plain the UK must have full control over immigration policy, she has ruled out the hope of a compromise with the EU on these critical areas. Her speech therefore significantly reduces the chance of a deal that retains the many benefits of the UK's current trading relationship with the EU. This is not just a question of tariff barriers on trade, which could likely be significantly reduced or removed through an FTA. The single market allows for the free movement of goods and services through the harmonisation of regulation and the removal of impediments to do business across the EU. In order to protect jobs, keep prices down for consumers, and help the economy to flourish, The Prime Minister needs to be ambitious in the negotiations, and therefore maintain as much flexibility as possible on all aspects of the single market.
Even more confusing is Mrs May's position on the customs union. Again she appeared to want to have her cake and eat it. She confirmed that the UK would be able to negotiate free trade deals with non-EU countries post-Brexit, but at the same time said she wanted to have a customs agreement with the EU that removed all barriers to trade in goods. But it is hard to see how such a position is coherent. The inextricable logic of a customs union is that 'rules of origin' can only be abolished internally if a common trade policy is adopted externally, because otherwise companies in third countries could take advantage of differential tariffs to use one country within the customs union as a 'backdoor' to import goods into another. So the Prime Minister will have to choose on this - and, based on her rhetoric about the UK as a global trading nation, there's little doubt that, when the time comes, she will be forced to reject the possibility of a new UK-EU customs union.
Combining this with Mrs May's warning to the EU that "no deal for Britain is better than a bad deal", the speech suggests that the government's strategy for Brexit offers little by the way of compromise. But there is still the possibility of finding a middle ground with the EU, while at the same time respecting and acting on the concerns expressed by the public during the referendum campaign. Today IPPR has suggested a framework for such a strategy. This is based this on the 'Deep and Comprehensive Free Trade Area' agreed between the EU and the Ukraine as part of the recently agreed 'association agreement'. Our proposed strategy would aim to maintain many of the benefits our current trade relationship, including on services - such as the financial services passport and freedom of establishment - while committing to fully align with future EU legislation on relevant matters, and seek a compromise on immigration, budget payments, and dispute resolution.
Of course, whatever deal we finally get will be a matter for the EU as well as for the UK, and no strategy is guaranteed to succeed. But the opening phase of the negotiations matter, as it sets the tone for what follows. A consensual, pragmatic and flexible approach is surely the best way to start.