MNI ANALYSIS: UK Sees Brexit Talks And Legislation Stalled

--However, Stalled Talks Belie What Seems More Upbeat Tone 

--Internal 'Debates' Continue In The UK Conservative Party

By Kieran Williams

     LONDON (MNI) - Brexit talks have stalled. This much was evident to even a

casual observer, but comments Thursday from EU chief negotiator Michel Barnier

that talks had reached a "state of deadlock" that he characterised as

"disturbing" confirmed it.

     Following the ending of a fifth round of talks between Barnier and the UK's

lead Brexit point man, Secretary of State David Davis yesterday, Barnier said

that "Theresa May's speech in Florence gave a needed boost to these

negotiations, but for now we have not taken any great steps forward." 

     The three key areas where the EU demand progress are the so-called divorce

bill, Northern Ireland and the rights of EU citizens.

     Barnier later referred to the section of May's Florence speech where she

said the UK would honour its commitments to the EU, i.e. the financial

settlement, but said "this week, however, the UK repeated that it wasn't ready

yet to clarify this commitment, therefore there have been no negotiations on

this matter."

     Ahead of the EU Council summit next week, Germany and France are seen to be

playing hardball on the divorce settlement, insisting that talks cannot move

forward unless the UK gives a written commitment to accepting financial

liabilities -- even after the UK verbally pledged E20 billion towards the EU

budget after Brexit.

     A leaked draft paper from European Council President Donald Tusk of planned

conclusions for release at the end of next week's summit suggests that trade

talks could begin in earnest in December after EuCo had the opportunity to

"reassess the state of progress," and suggested the EU begin internal trade

talks in the interim. 

     This would effectively pour cold water on plans to progress to "Phase 2" of

the talks at the end of October, as was originally hoped.

     Davis has sounded more optimistic than his European counterpart after every

round of negotiations, but comments from Barnier that "I am sure that with the

necessary will and on the basis of the commitments entered into by Theresa May,

we can find a way out" and "decisive progress is within our grasp" did seem to

strike a more optimistic tone, even if it did not match the jovial insouciance

routinely adopted by Davis.

     UK media have cited "senior British Officials" as describing Barnier's

words as an "elegant cry for help" amid rumours that his hands have been tied by

the strict negotiating position of hard-line European nations that demand a

tangible divorce bill figure. Davis has made several overtures to EU leaders to

ease restrictions on Barnier's mandate. "To provide certainty we must talk about

the future" said Davis and asked the EU to allow Barnier to "broaden the

negotiation."

     Before the abundantly obvious stalled talks revelation, Brexit 'no deal'

talk was gathering steam in the UK. On Wednesday in front of the Treasury Select

Committee UK Chancellor Philip Hammond said that the government would allocate

spending for a 'no deal' scenario, but they would not do just to prove a point.

     "Where it [spending] is uniquely required in a 'no deal' scenario we need

to work backwards from 30 March 2019 and identify where we need to make the

commitment decision in order to deliver on time, but not commit public funds on

a potentially abortive basis before we need to do so," Hammond said.

     The government's intention is to leave allocation of preparatory funds for

a Brexit 'no deal' as late as possible in order to not waste "precious public

money," in Hammond's words.

     Any commitments to spending would be factored into the fiscal arithmetic

prepared by the Office for Budget Responsibility for the November 22 Budget.

That would undoubtedly add to the problems Hammond faces meeting his fiscal

goals with the OBR having already pre-announced a likely sizeable cut to its

estimate of potential productivity.

     "The key issue is making sure that we are ready with a minimum effective

solution on day one after we leave the European Union," said Hammond, "but

making sure that we don't start committing substantial amount of funds any

earlier than we need to, in the hope that a 'no deal' scenario will be something

we don't have to plan for."

     When pressed Hammond said that "any earlier we need to" meant there would

be a rolling programme and that some areas would need to start spending money in

the New Year to move towards a transitional agreement. Such spending, however,

could be met from contingency reserves, avoiding a hit to borrowing projections.

     Following the testimony from Hammond, UK PM Theresa May said at PMQ's that,

in preparing for a 'no deal' eventuality, "where money needs to be spent it will

be spent." This was jumped on by political commentators as highlighting a "rift"

in the cabinet, despite a message that is materially the same. 

     Hammond had already laid out that stg250 million had been allocated to

prepare for 'no deal', the same figure adduced by May in PMQ's. UK International

Trade Secretary Liam Fox further supported the view that members of the Cabinet

were agreed on this position saying "the Chancellor says that we need to spend

money only as necessary. I think that's correct."

     Political commentators have posited that a 'no deal' Brexit scenario is

becoming increasingly likely, and cite a widely circulated poll from Sky Data

earlier this week indicating that 74% of people would prefer no deal to a bad

deal. 

     Upon closer inspection, the poll can be largely ignored. Only two choices

are given: "no deal is better than a bad deal" and "any deal is better than no

deal", with a notable failure to define a "bad deal."

     Hammond went some way to attempting to outline a bad deal earlier this

week, including the possibility of a hostile 'no deal' scenario where "people

are not necessarily acting in their own self economic interest." This saw

Hammond under attack from pro-Brexit conservatives for having a pessimistic

outlook, but Kwasi Kwarteng, the parliamentary private secretary to the

Chancellor said it was simply a realistic view and that all contingencies were

being considered.

     Meanwhile, the EU withdrawal bill debate, slated for next week, has been

postponed as the government struggles to respond to what they categorise as

'hostile amendments' by pro-European Conservative MP's. House of Commons leader

Andrea Leadsom said on Thursday that around 300 amendments and 54 new clauses

have been put forward. The main sticking point seems to be the scope of the

sweeping "Henry VIII" powers that allow the law to be changed without full

parliamentary approval.

     Leadsom has said that the "[the amendments] are being closely evaluated.

That is taking a bit of time to have proper, thoughtful, well-considered

responses." There are said to be 12 amendments that have the support of enough

Tory MP's to be a threat to the bill. MP's now have 8 days to debate the

amendments in the committee stage.

--MNI London Bureau; +44 203 865 3809; email: kieran.williams@marketnews.com

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