Nicholas Hallam, chairman of consultancy Accordance VAT, discusses the importance of setting up a Fiscal Representative to address the challenge of Brexit.

Well, at least the Conservative Party is happy.

The ‘Malthouse Compromise’ (named after Kit Malthouse, Minister of State for Housing and Planning, who is credited with having brokered it), is the plan hatched on Tuesday that allowed the party to get behind Graham Brady’s amendment instructing the government to remove or radically change the Irish backstop arrangements presented in the EU-UK Withdrawal Agreement.

Not intended (as one might expect) to be a compromise between the UK and the EU, nor as it sounds a forgotten thriller by Robert Ludlum, the Malthouse Compromise is primarily a device for Conservative Party self-healing. Theresa May will now tell the EU that either the backstop in its current form goes (and the UK signs the Withdrawal Agreement with a transition period up to the end of 2020); or the UK uses a special transition period up to the end of 2021 to prepare for life under WTO rules, thereby avoiding a regulatory cliff-edge at the end of March.

The EU has been quick to dismiss the proposal: as far as it is concerned, the ‘compromise’ has exactly the defect of UK suggestions it rejected while negotiating the Withdrawal Agreement: it risks the creation of a hard border in Ireland once the transition periods end. To do a deal with the UK on the basis of the Malthouse Compromise would be for the EU to renege on unequivocal commitments made to the Irish Government – and would also reward aggressive behaviour on the part of a soon-to-be third country, thereby encouraging remaining member states to strike out for their own a la carte arrangements.

Nevertheless, the EU has a dilemma: according to its own arguments, if no deal is done by the end of March, a hard border in Ireland – the very thing it has pledged to avoid – is the inevitable immediate consequence.

If no-deal is to be avoided, someone has to blink, and quickly. The EU is currently relying on the UK to, in the end, act in accordance with its apparently overwhelming economic interest and swerve away from the potential emergency of a crash-out. The problem with this strategy is that it relies on the UK displaying exactly the instrumental economic rationalism against which the Brexit vote was such a formidable rebellion.

Time to act

As no-deal looms, UK businesses trading in the EU should start considering…

Financial Director

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By |February 1st, 2019|