This Commons Library briefing looks at the public debate over the tax treatment of the banking sector in the wake of the 2008 financial crisis, before discussing the different approaches taken in successive years by Labour, Coalition and Conservative Governments.
Documents to download
UK-EU future relationship negotiations update: is an agreement possible? (2 MB , PDF)
The deadline for extending the post-Brexit transition period in the Withdrawal Agreement (WA) passed at the end of June. The UK Government had repeatedly stated that it would not seek an extension to the transition and that it would refuse a request from the EU do so, and confirmed this again in June. This means the transition period will end on 31 December and UK-EU trade arrangements will then revert to World Trade Organization (WTO) rules if no new UK-EU partnership agreement has been ratified and implemented.
Negotiations began in early March, and four full rounds of negotiations had taken place by early June. Rounds two to four took place by videoconference due to the coronavirus outbreak. The UK and EU agreed to intensify negotiations in June, with weekly face-to- face talks taking place in late June and July. The UK Government said it hoped an outline of a deal could be agreed by the end of July and that it did not want talks to go into the Autumn.
The intensified talks in June and July did not bring the hoped-for progress in reaching a deal. On 29 July, the UK and EU published a new schedule involving three further full rounds from mid-August to the end of September with the possibility of additional talks in between these rounds.
The EU has said an agreement would need to be reached by the end of October in order for it to be ratified by the end of the year. A draft EU ratification timeline indicates that the EU would like an agreed legal text ready by the beginning of October, as there will need to be time for legal and linguistic revisions. The EU also envisages political approval for an agreement by the EU heads of state and government at the European Council on 15-16 October. The EU’s formal ratification procedures would require a Commission proposal for a Council decision authorising the signing of the agreement at the end of October or early November. The agreement would be sent to the European Parliament following the Council decision in mid-November. The European Parliament would need to give consent to the agreement, with a vote on this expected in December.
The initial UK and EU negotiating positions are outlined in Commons Library briefing paper 8834, The UK-EU future relationship negotiations: process and issues.
The first three rounds
Developments in the first three rounds of negotiations are summarised in Commons Library briefing paper 8923 The UK-EU future relationship: the March 2020 EU draft treaty and negotiations update. This also analyses the draft future partnership treaty text published by the EU in March. In May, the UK Government published ten draft treaty texts for the separate agreements it envisages with the EU. For a summary of the UK and EU positions across the range of issues as set out in their respective treaty texts and previous documents, see Commons Library briefing paper 8920 The UK-EU future relationship negotiations: summary of positions.
Statements from the UK and EU following the first three negotiating rounds referred to differences between the two sides on several issues, with four principal sticking points: i) governance of the future relationship including treaty architecture and dispute resolution mechanisms; ii) the “level playing field” to ensure “open and fair” competition; iii) fisheries; and iv) police and judicial co-operation in criminal matters.
The fourth round
Following the fourth round of negotiations in early June, the EU’s chief negotiator Michel Barnier said that there had been no substantial progress. He said that the EU was asking for “nothing more” than what was agreed in the Political Declaration (PD) setting out the framework for the future relationship, agreed by the EU and UK Government in October 2019. He gave a number of examples of where he said the UK was distancing itself from the agreed positions in the PD. The UK’s chief negotiator David Frost reiterated the UK’s position on the level playing field, fisheries and other issues. He said the UK was willing to see if the outline of a balanced agreement, covering all issues, could be worked out soon. Both sides agreed on the need to intensify talks and resume face-to-face meetings.
The high level meeting
An intensified meeting schedule for late-June and July was published shortly before the meeting between Boris Johnson and the Presidents of the European Commission, European Council and European Parliament on 15 June. This was the ‘high level’ June meeting envisaged by the PD to “take stock of progress” in the negotiations with the aim of moving them forward.
Following the high level meeting, the UK and EU issued a joint statement agreeing that “new momentum” was required and that the June-July talks should seek to find “an early understanding on the principles underlying any agreement”. Boris Johnson said he had told the EU Presidents to “put a tiger in the tank” and had reiterated the following UK red lines: no involvement for the Court of Justice of the EU (CJEU) in the UK; the UK could not have a system where it was required to continue to obey EU law; and a better deal on fisheries. In a House of Commons statement, the Chancellor of the Duchy of Lancaster Michael Gove said that the UK was committed to negotiating a comprehensive free trade agreement built on the precedents of the EU’s agreements with other sovereign states.
Michel Barnier comments
Michel Barnier met with the House of Commons Committee on the Future Relationship with the EU on 8 June. He said his negotiating mandate had been set by the EU Member States, but that he had room for manoeuvre in the negotiations and was ready to use this to seek out compromise. He said there were grounds for finding an agreement somewhere between the UK and EU positions on fisheries. He reiterated this message in a meeting with the House of Lords EU Committee on 23 June. However, he said that the UK had adopted a dual strategy that was unacceptable. This involved seeking a status that was equivalent to a Member State in many areas, while also wanting freedom to deregulate. He also said that the UK’s refusal to accept a role for the CJEU made agreement difficult, particularly in relation to law enforcement and judicial co-operation in criminal matters. In a speech to the European Economic and Social Committee on 10 June, Mr Barnier said that the UK’s proposals went beyond the precedents of agreements with the EU’s other free trade partners, and the UK was in many areas looking to maintain the benefits of being a Member State and “pick and choose the most attractive elements of the Single Market without the obligations”.
The European Parliament adopted a recommendation on the UK-EU negotiations on 18 June, expressing support for the approach taken by Mr Barnier in the talks. It said any agreement needed to include a role for the CJEU in interpreting EU law; continued UK commitment to the European Convention on Human Rights; and level playing field commitments with effective dispute settlement and enforcement.
The fifth round
After three weeks of more restricted and informal talks, the UK and EU met for a full negotiation round from 20 to 23 July. Following this round, David Frost said it was clear that the two sides would not reach “the early understanding of the principles underlying any agreement” envisaged at the high level meeting. He said considerable differences remained on the level playing field and fisheries. Nevertheless, he said there had been movement on governance where the EU had listened to UK concerns over the role of the CJEU. He said the UK had heard the EU’s concerns about having multiple agreements similar to its relationship with Switzerland and was ready to consider simpler structures. In his statement Mr Barnier said the EU had sought to square the red lines identified by Boris Johnson at the high level meeting with the commitments in the PD. He said the EU was ready to find solutions, but that the UK had not shown a corresponding level of engagement. He said that the UK’s position on fisheries and level playing field meant that an agreement was unlikely.
Is an agreement possible?
Despite disappointment at the lack of progress in the intensified talks in June and July, both sides said they were working to make a deal happen. Following the fifth round at the end of July, it was reported that the UK and EU had started work on a “text-based” negotiation. At a meeting of Member State representatives on 24 July, Mr Barnier said that he remained “confident that a balanced and sustainable deal remains possible, even if less ambitious”. He said that the UK had scaled back some of its aspirations in the trade talks and was now seeking what amounted to a “low-quality, low-profile” agreement. This would still provide for tariff-free and quota-free trade access to the EU market. Mr Barnier said that the level playing field remained the most difficult issue to resolve.
Germany took over the rotating Presidency of the Council of the EU on 1 July. Some reports have suggested that the active involvement of the German Government might increase the chances of a deal in the Autumn. Having reached agreement on the future EU budget and recovery programme on 21 July, Member State governments would also be able to give greater attention to reaching an agreement. A spokesman for the German government said on 24 July that the EU was ready to move negotiations quickly forward but expressed the need for “more realism in London”.
The Financial Times reported on 27 July that both sides had signalled that the range of disagreements was narrowing “clearing the way for a deal in September or at the very latest October” and that officials on both sides say that “compromises are there to be struck”. The negotiations however remained deadlocked on two main sticking points: fishing rights and state subsidies/state aid.
The Financial Times article reported on compromises in a number of areas that were being mooted. On the level playing field, it reported that the EU had signalled a willingness to drop its demand that the UK accepts future EU state aid rules and CJEU oversight. But in exchange it wanted the UK to sign up to a “shared philosophy” on future subsidy policy. The EU has indicated that the EU would be able to compromise on some form of equivalence mechanism with UK standards policed by an independent UK regulator. However, the EU has complained that the UK has not revealed what its future state aid/subsidies scheme will look like. There are reports of opposition within the UK Government to having an independent regulator, which might make reaching a compromise with the EU more difficult.
The Financial Times suggested that both sides saw scope for a compromise on fish. A deal would require the EU to cede quotas to the UK “but in a phased manner that gives medium-term certainty for the EU’s fishing fleet”. On law enforcement and judicial co- operation it reported that Michel Barnier had told Member State representatives that positions were converging. This had been made possible by the EU’s willingness to explore options for keeping the CJEU out of arrangements. But this also means that the depth of future co-operation would be restricted, with the UK losing access to EU law enforcement databases.
Documents to download
UK-EU future relationship negotiations update: is an agreement possible? (2 MB , PDF)
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