My concern is related to the timing issues of the phase 1 exit period and, by implication, of the transition period and, by extension, to how those periods link in to the proposed timing of the phase 2 deal on the future relationship with the EU following Brexit. That is the subject of a number of interconnected amendments.
The key point on timing is that, rightly or wrongly—probably wrongly—we have dropped our initial insistence that the terms of withdrawal, or what is known as phase 1, should be negotiated at the same time as the terms of our future relationship, which is known as phase 2. As things stand, the EU is saying that we should sort out phase 1—Northern Ireland, citizens’ rights and the amount of money—before we start scoping discussions on phase 2. The Government have said that the scoping of phase 2 should start in December, but the EU has threatened delay if we do not move forward significantly on phase 1 within the next couple of weeks.
Clearly, from the EU Commission’s perspective, and I believe from the perspective of British and continental business, the timelines are moving from tight to critical in terms of the need for a transitional agreement and a phase 2 outline. I separate the two because, of course, the transitional period is legally derived from and relates to the phase 1 exit date set out in article 50, providing time, for instance, to change over regulators and to allow companies’ systems to be changed over, too. Incidentally, it will also be used as a standstill period during which the Government can conduct their negotiations on phase 2.
Having heard the debate so far today, both in Committee and elsewhere, I am still unsure as to why we should fix an exit date that will thereby fix the date of the transition agreement. I can see only downside, with the Government losing control of one of the levers they could use to control the negotiations. Briefings I have just received also indicate that removing the flexibility of having different exit dates for different issues could undermine the ability of the banking and insurance sectors to amend their systems in time, risking financial instability.
The proposal to fix a date also possibly pushes us into a corner and unnecessarily increases the EU team’s leverage. Indeed, as has been said, when the Ministers came to the Brexit Committee, the flexibility to set multiple exit dates was described to us as a tool for setting different commencement dates for different provisions and for providing for possible transitional arrangements. What has changed in the Government’s approach over the past few weeks? That is something Ministers have to address.
It is now seemingly the Government’s intention to follow the Bill with further primary legislation to provide for an implementation period and the terms of the withdrawal agreement, along the lines of amendment 7 tabled by my right hon. and learned Friend the Member for Beaconsfield (Mr Grieve), which he says he will now update. The amendment has received a lot of
cross-party support, and we will debate it at a later date. The Government initiative is welcome, but it will not in itself protect us from the dead-end option of fixing the exit date, which seems to pander to those who would welcome a no-deal Brexit.
My right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) tabled new clause 54, which provides for securing a transition period of at least two years. Although the amendment will be substantially debated later, I think it is conservatively worded. When the Brexit Committee went to Brussels recently, Monsieur Barnier talked of the adequacy of two years for negotiations, as has our Secretary of State for Exiting the European Union. However, nearly everyone else, including the European Parliament representative and the representatives of MEDEF—the French CBI—thought that three years, and possibly up to five years, will be needed.
Two years from the exit date may be enough time to settle the provisions of phase 1, but most experts are saying that two years is widely over-optimistic for negotiating an FTA. We need to consider what will happen if the Government do not reach certain targets by certain dates. For the Brexiteers, it may simply be that we go into hard Brexit mode. I personally think that would be extremely damaging to British business, but it is of course the default position under article 50. For those of us who want to have a negotiated phase 2 settlement, more Government attention is needed in this area.
The hon. Member for Feltham and Heston (Seema Malhotra) tabled new clause 69, a thoughtful amendment that asks what should happen if the Government do not secure a withdrawal agreement by 31 October 2018 or if Parliament does not approve the withdrawal agreement by 28 February 2019. Rather than jump off the proverbial no deal, hard Brexit cliff, there is a suggestion of ending the two-year period or agreeing a new transitional period. For that approach to work, we would have to ensure that we do not have a fixed exit date. It would, in effect, involve taking up the offer previously made by the hon. Member for Sheffield Central (Paul Blomfield) and the Government starting to talk to the Opposition. Given where we are, that is going to have to happen one way or another, and we should face up to it now.
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