MNI INSIGHT: Soft Brexit Fudge Seen Reliant On Labour Votes

--UK Set To Cede On All Red Lines Except Immigration

--Labour Rebels Needed To Offset Likely Tory Split

By Kevin Woodfield

     LONDON (MNI) - The outline of a fudged Brexit deal is emerging but will

require Conservative Prime Minister Theresa May to secure enough renegade votes

from the moderate wing of the opposition Labour Party to succeed, MNI

understands.

     Number 10's strategy is based on May being willing to split her own party

and her alliance with the 10 Democratic Unionist Party MPs in return for hiving

off Labour MPs and cobbling enough votes between cross-party soft Brexiteers to

secure parliamentary approval for the deal.

     With May prepared to relinquish all her demands other than for immigration

controls in order to secure the consent of Brussels and the other EU-27 member

states for an agreement, Number 10 believes it can maximise her chances of

winning by having May present the fudged package to Parliament as "back me or

it's the abyss."

     The parliamentary arithmetic sees May lose around 30 Tory European Research

group hard Brexiteers plus the 10 DUP votes but win over at least as many from

the Labour centrists led by Chuka Umunna and Caroline Flint willing to break

ranks with the bulk of their party under left-wing leader Jeremy Corbyn.

     MOTHER OF ALL FUDGES

     The essence of the package May is understood as likeliest to bring back

from Brussels - and no deal remains a material prospect - will be an agreement

on a Withdrawal Treaty that will contain legally-binding backstop language aimed

at preventing a hard border within Ireland. In return, the UK will get a

transition period under current EU rules through to the end of 2020 and a

loosely-worded political declaration for a future trading and security

framework.

     The latter is expected to be drafted in sufficiently vague terms so that

any of the leading Brexit options could be claimed by their backers to still

apply: a customs union that the soft Brexiteers are anxious to see; a

Canada-style free-trade agreement demanded by hard Brexiteers; and even May's

Chequers plan with its "facilitated customs arrangement" that has been pilloried

on all sides.

     This way, May will hope to keep key Cabinet Eurosceptics like Michael Gove

and Liam Fox on side.

     A key feature of the fudge will be to put in place a customs union for the

UK but to call it something else - and to be ambivalent as to its longevity. The

hard negotiating currently taking place in Brussels ahead of next week's

European Council has centred on the EU's opposition to an end date for allowing

the UK frictionless trade under a customs arrangement when outside the EU. It is

reported that the December 2021 end date for a customs union in the Chequers

plan has now been dropped by May.

     But - again - the language is expected to be fuzzy so that it

simultaneously contains the concepts of a customs union as temporary

('self-abolishing' in the language of the May on the assumption that it will be

possible to negotiate, in time, an improved trading relationship) and a customs

union becoming permanent, to satisfy Brussels.

     4 RED LINES DOWN TO 1

     As reported by MNI on 8 June (see MNI INSIGHT: PM MAY STEERING UK TOWARDS

SOFTER BREXIT) the picture coming into focus is that May is prepared to drop all

her red lines for a Brexit deal except on free movement of people. Under the

very plausible expectation that no trading relationship will be agreed that will

supplant the customs union put in place - not least as its backers will say it

obviates the need to reopen the vexed Irish border issue - it is understood that

EU trading rules under the European Court of Justice will continue to apply, as

will a common external tariff, blocking UK ambitions to transact trade deals

globally. More payments to the EU could also feature.

     It is thought that Brussels, under widespread populist pressure, has

accepted that free movement of people with the UK will end when the transition

period terminates in December 2020. Turkey is in a customs union with the EU but

there is no free movement. Should the transition period be extended for the UK

to remain in the EU Single Market - expect Brussels to demand a lot more UK

funds and not just the initial Stg 39 billion 'divorce bill'.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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