The Government urgently needs to establish its Best Alternative to a deal with the EU

The Government urgently needs to establish its Best Alternative to a deal with the EU

With eighteen months to go before we leave the European Union, does the UK just have to roll over and accept whatever deal is offered by the EU? That’s the calculation that all parties are now looking at – and will be looking at until right up until the talks end.

And who benefits most from the certainty that a deal offers? The EU and its member nations, or UK business who will be putting pressure on the UK Government?

Let’s take that second question first. Whatever you read about German businesses, which sell cars in their hundreds of thousands to Britain, or French agriculture, which exports cheese and champagne in vast quantities to be quaffed in the boardrooms of Britain, the EU is no mood to blink first.

We forget in Britain that the EU is a political project first and foremost, and is not set up to listen to its people or businesses. The EU is a rational project, but only in its own terms – that of politics and preserving the status quo of the euro-elite. If it were otherwise, then so much of what has happened in Europe over the past few years would have been averted a long time ago. So don’t expect the Germans to come to our aid, or the French to show some economic rationality – at least not in British terms. If they do, it’s a bonus, but not something we should bank on.

Would British business like certainty? Well, if you listen to the CBI, the answer is an unequivocal “yes”. But do remember that Britain has a very large services sector – in all areas, but particularly in financial services – and uncertainty is what drives The City. So certainty is not all it’s cracked up to be, particularly eighteen months out from the final deadline.

It’s interesting to read the tweets from the business organisations after Thursday’s talks breakdown. Neither the CBI nor London First could quite bring themselves to criticise the Government directly for the breakdown, instead falling back on the old chestnut of calling for the unilateral guarantee of EU citizens’ rights (I wonder if these organisations have been following the talks, if they think this is an issue of great deadlock).

Clearly, at some stage, the Government should be giving as much certainty as they can offer, and that brings us back onto my first question: whether the UK has to roll over and accept the EU deal.

It’s apparent that the EU hierarchy believes business and the Remain lobby will be putting so much pressure on the Government to cut and run that that they have to accept the worst possible terms.  That’s why they’ve phased the talks in the way they have; that’s why October is moving to December, and who knows, December may move to January or February as the new start of the trade talks. It serves the EU well, in its own terms, to delay, delay, delay.

2017 started with a raft of articles stating that “no deal is better than a bad deal” and it will end with the same. Thankfully, the Government has listened to these arguments (whether belatedly or not) and is preparing. Up until two weeks ago, business wasn’t quite sure the Government really was looking at the ‘no deal’ option, but now it knows it is, although the argument about spending for this preparation hasn’t yet been won. In truth, in order for civil servants to come up with the position papers that have spewed out of Whitehall in recent months, they will have had to think through the ‘no deal’ option.

But the Government does urgently need to get a BATNA. A BATNA? What’s that? It stands for “Best Alternative To a Negotiated Agreement”. It’s the best you can do if the other party refuses to negotiate with you, if they tell you to go and ‘jump in a lake’, which it is clear the EU would love to tell the UK to do about many things unless we agree to their punishment demands. The BATNA is not your ideal outcome, but it’s the best you can do without the cooperation of the other party. BATNAs are crucial to all serious negotiations because, without them, you cannot work out either your ‘walk away point’ or the point at which you should accept terms that it would be in your interest to accept. Having a good BATNA also greatly increases your negotiating power.

And how does the Government improve its Best Alternative? Persuading the Chancellor to spend would be a good start. Our leading economists, Liam Halligan and Gerard Lyons, talk up the opportunity the world offers the UK in their brilliant book Clean Brexit, but business has not yet grasped that nettle (sorry, correction, business organisations like the CBI haven’t).

Nudge theory, currently in the news, shows that this isn’t surprising, since human beings prefer what they know rather than what is necessarily best for them. So a gentle nudge, in the form of an international trade festival, to be staged next year in the summer and go around Britain, would be an excellent way of helping businesses focus their minds on the opportunities on offer. There’s a whole world out there.

Business organisations also need a lesson on the benefits of ‘comparative advantage’. Remain detractors often decry Leavers as harking back to the 18th or 19th century. Well on this, they are right: Britain became the envy of the world in those centuries because it understood the benefits of comparative advantage and opened up its markets to free trade. We can do it again.

You don’t understand comparative advantage? Daniel Hannan’s best advice on this is ‘google it’.

The EU is looking for us to cry foul and think we can do nothing but accept their terms. They are also looking to push back the deadline at which any decision is made until midnight on the last day of the negotiation, by which time they reckon British business will have lobbied the Government so hard to accept any deal that the UK just has to roll over.

There is lots the Government can do to prevent this situation; priming business for international trade and getting a Best Alternative is the solution.