While the October European Council was not the decisive breakthrough in the Brexit talks that the UK had originally hoped for, it was a significant move forward nonetheless. The unanimous decision of EU leaders to instruct the EU to begin “internal preparatory discussions” on transitional arrangements and the future partnership sets the timetable for the talks to formally move on to the next stage at the European Council summit in December. These EU internal preparations are also necessary components of the negotiations in their own right, as a result of the somewhat Byzantine structure of the EU institutions. Despite being the EU’s chief negotiator in name, unlike his British counterparts across the negotiating table, Michel Barnier is not at liberty to negotiate as he sees fit, as he has increasingly taken to pointing out in the post-negotiation press conferences. Instead, he is bound to negotiate only within the confines of a negotiating mandate agreed after weeks of back-room discussions between the European Commission and member states. For Barnier to negotiate on trade, he needs a new mandate to do so – this Council decision fires the starting gun on the weeks of horse-trading which will now go on behind the scenes in the diplomatic corridors of Brussels and European capitals as the EU cobbles together a mutually acceptable set of negotiating guidelines, which we can expect to see appearing in various draft stages over the next six weeks before most likely receiving formal approval at the summit in December. Hence, for all the EU’s talk of “significant progress” not yet having been achieved at this stage, it is worth noting that they have not yet made the “significant progress” on their own side needed for Barnier to actually conduct the next stage of the negotiations on their behalf. By contrast, the UK has already been publishing papers on a range of future relationship issues for months. While there are unresolved Cabinet disputes about the overall end destination of the Brexit talks, they are not relevant to the first phase of the negotiations and are not the source of the current delay, contrary to opposition claims. Where the talks are really being held up is over one simple issue – money. While the EU welcomed Theresa May’s verbal commitment in the Florence Speech to fulfill all of the UK’s existing financial commitments to the EU, more is still being demanded as an additional condition for the near-mythological state of “sufficient progress” to be reached, whether in the a form of a formal written declaration to that effect or a more general UK commitment to significantly increase the amount of cash on the table. Each new concession from the UK on the bill is met by the EU conjuring up further hoops for the UK to jump through. But the EU is not on unshakeable ground here. The fundamental nature of this dispute is that it is political, not legal. The basic legal position, as argued by the House of Lords EU Committee and many others, is that any financial obligations from the UK towards the EU will have no legal basis once the UK ceases to be a party to the EU Treaties on 30 March 2019. The very concept of a financial settlement only emerged gradually over the months following the referendum, as it dawned upon horrified Eurocrats gazing upon the bulging EU budget sheet that almost 10% of it would be wiped out in two years’ time. The first estimates of the ‘Brexit bill’ fed to the press were in the region of a ‘mere’ €20bn – it was only in November 2016 that the mooted figure dramatically shot up to €60bn, as said Eurocrats suddenly wondered who was going to be funding their lavish retirement packages without the British taxpayer to stump up the cash. Similarly, the idea that Britain would need to resolve the issue of their profligate spending and gold-plated pensions first before talks on trade could begin also only appeared at this time, before being adopted as the EU’s formal negotiating position in the negotiating guidelines drawn up in April this year. As such, it comes down to an entirely arbitrary political decision by the EU as to when “sufficient progress” has been reached on the Brexit bill. If the trade negotiations are conducted in good faith and lead to a mutually beneficial outcome for the both sides – assuming a rather more constructive and cooperative spirit from the EU than it has mustered so far – there is no doubt at all that Britain will be fair, and probably even a little too generous, in sticking to its side of the bargain and honouring all appropriate financial commitments previously made to the EU. Holding up talks now simply to secure a more strongly-worded written commitment from the UK on the issue is thus a futile exercise, unless the EU’s intention is not to conduct the trade talks in good faith. If the EU plays fair, the risk of the UK not paying is zero. Instead, the EU’s main aim appears to be to squeeze further concessions out of the UK on the size of the bill to remove as much of Britain’s leverage as possible before the trade talks start. On the basis of the talks thus far, why wouldn’t they? The British media, which would normally be expected to scrutinise demands for excessive spending, has instead been more than happy to play to the EU’s narrative and pin the blame squarely on the UK Government for the slow progress of talks so far. In a bizarre reversal of common sense, the UK is being painted as incompetent by British journalists and opposition politicians for refusing to hand over billions of pounds of British taxpayers’ money merely in exchange for the permission to start talks on trade. Lobby groups like the CBI, supposedly representing the interests of British businesses, do little other than encourage the EU to hold out for further British concessions when they issue alarmist ultimatums to the UK Government, as they did earlier this week, demanding that the talks move on or fancifully negative consequences will ensue. Instead of doing the EU’s dirty work for them, business groups should focus on the fundamentals and not the day-to-day froth of politics and negotiations. The bottom line is that a comprehensive trade deal is overwhelmingly in both sides’ interests and is very likely to be agreed at the end of the day, but it will be far more in the UK’s favour if it is not pressured into making concessions every step of the way by its own side. It is as much in the face of this domestic pressure as it has been under pressure from the EU itself that the UK has ceded ground – not for nothing, but certainly not for enough from the EU in return. Questions have been asked about May’s top Brexit adviser, Olly Robbins, and whether he made a misjudgement by offering all the concessions the UK did in the Florence Speech without being certain that this would in fact trigger reciprocal movement on the EU side and the declaration of “sufficient progress” at this stage. Similarly, the decision to agree future tariff rate quotas with the EU now – in direct violation of the EU dogma that trade cannot be discussed at this stage – surrendered UK leverage on an issue of huge importance to continental producers, particularly French farmers, but of far less importance to the UK. However, the EU is not pushing into a vacuum. The EU may feel that time is on its side for the moment, but there are two scenarios that could cause their strategy to backfire significantly if it tries to push things too far – a breakdown in EU unity, or the UK walking away from the talks. EU leaders have been happy to toe the ‘EU unity’ line thus far, but the negotiations have now reached a point where many in the EU, Michel Barnier included, are beginning to recognise that this phase of the negotiations has gone as far as it sensibly can. Member states having been instructing officials to draw up detailed plans for trade talks, as seen in Germany and Sweden last week. Democratically-elected leaders with a greater sense of of responsibility towards their people than far-removed bureaucrats, particularly in the ‘littoral’ North Sea states whose economies are heavily reliant on UK trade, are keen to get on with the complex business of trade negotiations sooner rather than later. Once the first national leader challenges the EU’s official line, it will open a Pandora’s Box of competing priorities that the EU will struggle to pack back in. Particularly when different sectors of trade start to go up for discussion, different member states will soon start loudly cheerleading for their own divergent interests. Once the facade of unity crumbles, the EU will find it much more difficult to build it up again – it will be open season for member states. This situation is one the EU is determined to avoid for as long as possible, but if they overplay their hand at this stage, they may just end up triggering it themselves, handing the UK what would be a significant advantage in the negotiations. Also, having spent months dismissing it as nothing but empty rhetoric and negotiating bluster, the EU has belatedly woken up to the fact that there is sufficient support in the UK for Britain to walk away without a deal to make this a real possibility – if the EU is not prepared to rein in its more excessive demands. Fundamentally, the EU does not want the talks to fail. Above all, it needs the money, and, for all the grumbling noises made, it does also want a comprehensive trade deal, although on precisely what terms is not clear at this stage. Nor does it want to be negotiating with any British Prime Minister who isn’t Theresa May. The shift in the mood music at the European Council summit shows that the EU is clearly not blind to these potential stumbling blocks in its own path. It is now trying to tread a fine line between continuing to push for further concessions while attempting to warm the mood sufficiently to take the wind out of Brexiteers’ sails and lessen the chances of a political backlash back in the UK which could precipitate a change of leadership, the UK walking away, or both. Similarly, the Commission has come to the view that Robbins, under the watchful eye of his boss Sir Jeremy Heywood, is someone they are comfortable doing business with, to the point of Robbins reportedly being prepared to take dictation from EU officials for parts of the Florence Speech. Any change at the top would plausibly see Robbins and Heywood out of the door too – another eventuality the EU wants to avoid. To this end, Angela Merkel has been dispatched as good cop, talking up the chances of a deal and making conciliatory noises towards the UK, with warm and emollient noises coming from EU leaders in supporting roles while others are sent out to talk down the ‘no deal’ option. Meanwhile, Emmanuel Macron has been assigned to bad cop, insisting that the UK is not even “halfway there” towards making sufficient progress on handing over British taxpayers’ cash. However, the leaked account of last week’s dinner between May and Jean-Claude Juncker, thought to originate from the Commission directly, goes in heavily on personal attacks towards May and and runs directly contrary to this strategy. Merkel’s reported anger may indeed be genuine in this case. At a dinner with only six participants, it does not take a master detective to identify the potential culprits. Juncker and his right hand man, Martin Selmayr – the so called ‘monster’ of the Berlaymont – have both denied responsibility for the leak, as well as rejecting the substance of the report itself, but clear the political editor of a major German newspaper (and conveniently also the same journalist who wrote up the earlier leak from the dinner back in April, which was also blamed on Selmayr) would not have based such an incendiary story on information from nowhere or some low-level source. Leaving petty jabs at May from disgruntled EU officials aside, more concerning were the claims that Britain is preparing to climb down over the role of the European Court of Justice over citizens’ rights, and that member state leaders are holding out for an even higher Brexit bill of €90bn, significantly in excess of the Commission’s already unreasonable €60bn demand. While this may just be spin from certain Commission factions aimed at destabilising the UK rather than an accurate depiction of the situation (the numbers quoted are from the realms of pure fantasy), it underlines the fact that the UK cannot afford to stall in its preparations for ensuring that the country is ready to walk away from the negotiations. Leave supporters have a big role to play by not letting the pressure up, but ultimately the responsibility lies with the Government. This means serious preparations starting immediately, not in 18 months’ time. Next month’s budget is a key opportunity for the UK to lay down a marker that it will not be bullied by the EU into giving unacceptable concessions for the mere permission to start trade talks. This is a clear win-win opportunity for the UK as the vast majority of the infrastructure investment needed to prepare for no deal – in upgraded customs facilities, more customs officers, and increased road and lorry parking capacity around Dover – will be needed anyway, no matter how streamlined and comprehensive the UK’s future trade deal is with the EU. The Chancellor’s argument that spending is unnecessary until the outcome of the negotiations is known is either flawed logic or based on an assumption that a way will somehow be found to keep the UK in a customs union with the EU after Brexit. This fanciful thinking needs to stop, as it is simultaneously harming the UK’s negotiating position and leaving the country underprepared for Brexit. The UK is leaving the Customs Union, as has been the Government’s unequivocal position since Theresa May’s Lancaster House Speech in January. Even if a standstill transitional agreement on customs is agreed – which many including Martin Howe QC have cautioned against – the UK will unquestionably need bolstered customs infrastructure in the near future, whether this is in March 2019 or some months afterwards. Claims that two years is not long enough for transitional period to put arrangements in place are equally flawed. March 2021 is not two years away, it is three and a half years away. Only if the Treasury takes the misguided step of preventing any spending on physical infrastructure now – the vast majority of which will be needed anyway – will this become a tight deadline for the UK. More suspicious observers might even wonder whether there is a deliberate ploy going on to create an artificial justification for an ever-lengthening transition period when the time comes. The problem is that, for all the serious and comprehensive work being done by ministers in other departments, and particularly the the Department for Exiting the European Union itself, if the Treasury fails to give them the financial support to start enacting their plans as soon as possible, this simply sends another signal to the EU that the UK is not putting its money where its mouth is on no deal and encourages them to turn the screws. It is a false economy to defer spending on no deal preparations now – strategically spending a billion now to wholeheartedly support the Government’s preparations would net the exchequer billions of savings in the longer term by strengthening the UK’s hand as it stands up to exorbitant demands for cash from the EU, as well as ensuring that the economy can continue firing on all cylinders the day after Brexit. And this is before even considering the net £10bn+ the UK will save every single year when it stops paying into the EU budget for good. While there have been successes for the UK so far, particularly in areas of citizens’ rights, it is fair to say that the UK has largely been on the back foot during this phase of the negotiations. The EU has largely succeeded in outmanoeuvring the UK up to this point by forcing it to agree the bill before trade talks begin, while the EU’s useful idiots in the UK are only too happy to play to its tune and do their best to undermine the leverage the Government has. But that is no reason for the UK to end this phase of the talks on the back foot too. If all Government departments and ministers start pulling together in support of – let us not forget – the Government’s official policy, and indeed duty, to be fully prepared for all outcomes of the negotiations on Day One of Brexit (as Dover MP Charlie Elphicke has been stolidly making the case), not at some indeterminate point years in the future, the UK can regain sufficient clout in the negotiations to make it clear that a blank cheque from British taxpayers will not be forthcoming under any circumstances. The UK has already given as much as it can reasonably be expected to give at this stage of the negotiations. Now is the time for Britain to show the EU it means it, and take the action needed to get back on the front foot in the negotiations. In the second part of this series to follow, I will discuss how the UK can ensure that it starts the next phase of the negotiations on the front foot as well.