The UK Internal Market Bill – impact on Brexit negotiations

Britain & The EU / Will the Internal Market Bill help or hinder? – Source:

By late August, despite all the difficulties in the summer, little seemed to have changed. The negotiations were stuck and it was widely acknowledged that top level political intervention would be necessary in the Autumn to kick-start the process.

Well, the UK Internal Market Bill has certainly been a top level political intervention. Introduced in Parliament on 9th September, its powers to override the Northern Ireland protocol of the Withdrawal Agreement, and thus break international law, have energised the negotiations. But rather than a kick-start it might have kicked them overboard.

This has seemed quite a shock. In February this year there were threats from ministers to renege on the Northern Ireland protocol of the Withdrawal Agreement, but they were quietly dropped in the spring and summer. Despite the difficulties with the negotiations, behind the scenes there seemed to be progress. But if the Bill with the offending clauses becomes law that progress will appear as nothing. It’s highly unlikely that the EU would sign up to the preferential deal that the UK would like.

The chances of no deal thus appear to have risen significantly. Yet, despite the Bill and the initiation of legal proceedings against the UK by the European Commission on 1st October, commentators have remained divided on the prospects of a deal.

There are authoritative voices who are pessimistic, notably Sir Ivan Rogers, the UK’s former ambassador to the EU. In an article in the Irish Times on 16th September, he said that Johnson ‘didn’t start off as a true no dealer’. He and his team ‘persuaded themselves that the EU would be so panicked that they would give in eventually’. But that hasn’t happened. Rogers predicted (correctly) that the EU would initiate legal proceedings against the UK after 30th September. He believed that Johnson is now ‘formally in the camp with Dominic Cummings “to hell with it, we should walk away”’.

Despite this, those who have been more optimistic still think that the situation is finely balanced. On 18th September, Peter Foster of the Financial Times tweeted that despite Johnson’s threat to overwrite the Withdrawal Agreement ‘the EU hasn’t walked, and the shape of a Brexit deal is there to be done. The unanswered question is whether the UK wants to do it’. In a later article on 26th September he and colleagues George Parker and Jim Brunsden concluded that ‘a trade deal with the EU, Britain’s biggest trading partner, is within reach and senior Conservatives are now much more confident that Mr Johnson will grasp it, albeit after some further drama and possible walkouts’.

A key point is that if a zero tariff deal with some regulatory alignment, particularly on food and agricultural products, can be achieved, then as Foster points out, ‘the Northern Ireland Protocol issues can be massaged away’. This could be achieved by removing or diluting the offending clauses in the Internal Market Bill after a deal with the EU is reached. That the government has not pressed for the Bill to be rushed through the House of Lords and onto the statute book, indicates that they might be open to compromise (it was introduced to the Lords on 30th September and may not return to the Commons until November).

Some who were optimistic about a deal in July are a little more cautious now, but nevertheless remain hopeful. Charles Grant of the Centre for European Reform who was optimistic on 29th July, wrote a more guarded piece on 22nd September. He nevertheless argued that ‘despite the brouhaha over the Internal Market Bill, both the British government and the EU still want to clinch a deal, and that remains a plausible outcome’. Also Andrew Grice of the Independent, who argued on 29th July that ‘there’ll almost certainly be a deal’, retained some of this optimism on 1st October after the EU had initiated legal proceedings against the UK. Noting the various pressures for a deal and that the negotiations are still continuing, he said that Johnson ‘needs the political success of an EU deal to offset his troubles on coronavirus’.

In an article in The Times on 25th September, James Forsyth said that ‘there is cautious but growing optimism in Whitehall that there will be a Brexit deal’. One of his sources said ‘there’s no doubt that the tone has improved but we really need to begin the intensive talks to resolve the final tricky issues’.

Nevertheless some think that Forsyth’s sources reflect just one view in government. Anton Spisak a former senior civil servant, tweeted on 25th September that ‘key players in No 10 are much less bullish about the prospects for a deal’, while Jennifer Rankin, the Guardian’s Brussels correspondent, tweeted ‘I am just not hearing this optimism in Brussels’.

Pessimism also increased after the vote in the House of Commons on 29th September on the 3rd Reading of the Internal Market Bill. Despite much rebellious talk among Conservative MPs, including former PM Theresa May, none of them voted against it. May herself abstained. This prompted academic Jon Worth in his Brexit Diagram (Deal or No Deal by end of 2020) to downgrade the chances of a deal to 38% with no deal at 53% (from 40% deal/46% no deal on 18th September).

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In early October there has been a similar mixed story. On 7th October in the House of Lords EU Committee, David Frost and Michael Gove both presented an optimistic tone and an apparent willingness to compromise. Gove said ‘the talks are proceeding in a way which gives us cause for steady optimism’. At the same time, however, the UK government is reported to be preparing to pull out of the negotiations on 15th October unless a deal is in sight. And EU leaders ‘are still unclear whether the UK is willing to budge on key red lines’. The big sticking points of state aid, fishing rights and governance remain fraught and tangled. A deal before the end of October still seems unlikely.

Overall the deal or no-deal question remains finely balanced. Perhaps the sting of the Internal Market Bill can be drawn by some dilution and a Brexit deal which makes its offending clauses redundant.

But ultimately the outcome will depend on what political fallout the PM decides to subject himself to. It’s quite likely that at the moment he doesn’t even know himself.

If he goes for a deal, it will no doubt involve significant concessions on state aid, fish and governance. Nigel Farage and the Conservative ultras will denounce it as a sell-out. Some Conservative MPs may vote against it and it may even require a few opposition MPs to get it through parliament. The old Conservative divisions on Europe will be back.

But go for no deal and the political and economic damage will be huge. There’ll be a loss of zero tariff/quota trade, some single market access, and a range of other benefits from medicines to security. There could also be an escalation of EU-UK tensions up to a trade war, destabilisation in Ireland, and a further increase in support for Scottish independence, with the breakup of the UK in prospect. Although enough Conservative MPs would likely support no-deal, there’ll be dismay across country.

Some of the damage could be hidden behind Covid and blame-shifting onto the EU. But only up to a point. The fallout from Brexit will be different from Covid. Conservative poll ratings and trust in the PM are likely to continue to fall.