U.K.'s Brexit Plan: Prepare for failure, hope for Success

Although Theresa May's government has been bullish in predicting it can land a trade deal before it leaves the EU in two years, such a timeframe would be unprecedented. Photo / AP

Prime Minister Theresa May is making plans for emergency laws to protect the U.K. economy in case Brexit negotiations break down without a free-trade deal, as concerns grow that she'll fail to achieve the sweeping agreement she wants.

In its 75-page plan for Brexit, May's government said on Thursday that while it was expecting to find common ground with the 27 other members of the European Union, it will prepare contingency measures to avert economic chaos if the discussions collapsed.

"The government is clear that no deal for the U.K. is better than a bad deal for the U.K.," according to the 'white paper' document on leaving the EU. "In any eventuality, we will ensure that our economic and other functions can continue, including by passing legislation as necessary to mitigate the effects of failing to reach a deal."

Failure to secure access to the single market for banks and other financial-services companies would also risk "market fragmentation" and the withdrawal of services for U.K. and European businesses, it added. Brexit Secretary David Davis vowed to try to avoid a "cliff edge" scenario.

May's preparations emerged in her government's first written blueprint for "an ambitious and comprehensive free-trade agreement" with the EU after Brexit. They suggest she's keen to avoid repeating the mistake of her predecessor, David Cameron, who was faulted for not having a plan for losing last year's EU referendum, leaving the U.K. unprepared for the Brexit talks when he did.

Bitter Failure
Lawmakers and analysts including former Chancellor of the Exchequer George Osborne have warned that May is unlikely to persuade the EU to give her the free-trade deal she's aiming for, given her ambitions in other areas such as immigration. They worry talks will turn bitter and the U.K. and EU will end up making a clean break.

"The administration is misjudging both the political and practical scale of the task ahead as it seeks to replicate much of the status quo in a new agreement with the EU," said Malcolm Barr, an economist at JPMorgan Chase & Co. in London. "We see increasing grounds for concern that the plan as constituted cannot be credibly delivered."

Although May's government has been bullish in predicting it can land a trade deal before it leaves the EU in two years, such a timeframe would be unprecedented, especially as a pact between the U.K. and EU would likely have to include services as well as goods. EU officials have also said they want to settle the divorce first before debating a new relationship.

Global businesses based in the U.K. "may choose to vote with their feet" rather than waiting to see what deal the premier can deliver, Barr said.

Forced upon her by lawmakers, including some from May's own Conservative party, the white paper provides the basis for the next round of discussions as Parliament inches toward handing the premier the power to start Brexit talks by March 31. The Article 50 law will be debated again next week after it won support of a majority in the House of Commons.

Some fellow Tories said on Thursday they want May to promise them a binding vote on the draft Brexit deal before it is too late to be changed.

"We can't predict what is going to happen in two years, and I don't want to sign a blank check," Neil Carmichael, a Conservative member of Parliament, said by telephone. "What we need is the reassurance from the government that Parliament will be properly involved and will be given a meaningful say at the end of this process."

The main opposition Labour party is likely to try to force a vote on giving legislators a binding say over the pact, while some others in the House of Commons may seek faster guarantees that EU citizens currently living in the U.K. will be allowed to stay. May only has a working majority of 16.

The document itself contained little new information. Sections of it were copied word-for-word from May's speech in London last month, in which she announced she wanted to take the U.K. out of the EU single market, regain control over migration and lawmaking, and strike a new customs agreement with the bloc.

Reforms to migration will require legislation and may be pushed back until after a lengthy transitional period lasting several years, the document suggested.

In Parliament, Davis refused to rule out another vote on leaving the European Economic Area. A court will hold a hearing on Friday to decide whether there should be a full-scale lawsuit on whether June's referendum covered membership of the EEA, which as well as the EU's 28 members, includes Norway, Iceland and Liechtenstein.

"Once we are outside the EU, the question of whether we automatically cease to be a member of the EEA becomes a legal empty vessel," said Davis "We will look at that. If we do propose to withdraw from the EEA, we will come back and tell the House."