David Davis and Michel Barnier announcing today’s agreement
UK and Brussels negotiators agreed a 21 month transition period to give businesses time to prepare for Britain’s exit from the EU.
However, the deal was condemned even by some Tories as failing to meet the needs of Britain’s fishing community and for leaving the crucial Irish border unresolved.
The EU’s chief Brexit negotiator, Michel Barnier hailed the agreement as a “decisive step” in the talks.
“We have reached an agreement on the transition period, which the European Council agreed to in principle in December. It will be of limited duration as requested by UK and EU,” Mr Barnier said.
The two sides have provisionally agreed on the three “divorce” issues relating to how much the UK owes the EU, what happens to the Northern Ireland border and to UK citizens living in the EU and EU citizens living in the UK.
Most contentiously, it means the UK is accepting a “back stop” plan of keeping Northern Ireland under EU law to avoid a hard border with the Republic of Ireland.
As such the north and south of the island of Ireland would remain in regulatory alignment.
The UK will retain the benefits of the single market and customs union for “near enough to the two years we asked for”, Davis said, although Britain will lose its role in any decision-making institutions.
However, the prime minister was defeated on her demand that citizens arriving during the transition period would be treated differently to those already in the UK.
Mr Barnier said British citizens and European citizens of the 27 who arrive during the transition period will receive the same rights and guarantees as those who arrived before the day of Brexit.
Brexit Secretary David Davis said the announcement would would give business the stability it had asked for, and would include safeguards for annual fishing negotiations during the transition period.
He said he hoped negotiations on the UK’s future relationship with the EU – including a free trade agreement – could now start “as soon as is possible… we need to get on with this now”, adding that it is set to be “the biggest, most comprehensive, most effective trade deal ever”.
“We must seize the moment and carry on the momentum of the last few weeks,” he said.
“The deal today should give us confidence that a good deal for the UK and EU is closer than ever before.”
Sterling rose above $1.40 on news that came with little warning. David Lamb, head of dealing at Fexco Payments, said: “The pound’s reflexive jump was magnified by the element of surprise. Few marketwatchers had expected an agreement at all, let alone such an apparent convergence of the British and EU positions.
“While this is just one step on the long road to Brexit, the warmth of the language – and the common ground on some of the trickiest elements – suggest the two sides are, for once, heading in the same direction.”
Political reaction split
Labour’s shadow Brexit secretary Keir Starmer described the deal as “a step in the right direction”.
But Scotland’s First Minister Nicola Sturgeon tweeted that the agreement for fishing during the implementation period was “shaping up to be a massive sell-out of the Scottish fishing industry by the Tories”.
She added: “The promises that were made to them during #EUref and since are already being broken – as many of us warned they would be.”
Bertie Armstrong, chief executive of the Scottish Fishermen’s Federation, said the agreement fell “far short of an acceptable deal”.
“We will leave the EU and leave the Common Fisheries Policy, but hand back sovereignty over our seas a few seconds later,” he said. “Our fishing communities’ fortunes will still be subject to the whim and largesse of the EU for another two years.”
Scottish Conservative leader Ruth Davidson said she would not support a deal which fails to deliver the long-term aims of Scotland’s fishing industry.
“During these negotiations, we wanted to gain control over our waters from as early as the end of next year.
“The EU was not willing to move on this. That we now have to wait until 2020 to assume full control is an undoubted disappointment.
“I will not support a deal as we leave the EU which, over the long-term, fails to deliver that full control over fish stocks and vessel access.”
Business largely positive
The CBI welcomed the news. Carolyn Fairbairn, CBI Director-General, said: “Agreeing transition is a critical milestone that will provide many hundreds of businesses with the confidence to put their contingency planning on hold and keep investing in the UK.
“This is what businesses have been calling for since last summer. It brings a welcome gift of time for firms on both sides. While some sectors may need more than 20 months to prepare for post-Brexit life, this is a victory for common sense that will help protect living standards, jobs and growth. It shows what can be achieved when people and prosperity are placed above politics and ideology.
“With a year to go, this breakthrough must set the pattern for the future. Other hurdles on the Brexit path now need to be cleared in the same spirit, including urgent resolution of the Irish border.
“A year ago both sides ruled out an early transition deal; today both sides have agreed one. The voice of prosperity and evidence from the business community is being heard. This spirit of compromise must be maintained, as tough choices lies ahead on the route to a final deal.”
However, James Stewart, KPMG’s head of Brexit, said the transition deal will make little difference to business leaders as they need legal certainty and will continue to plan for a no deal scenario until they get it.
“Today’s progress, although substantial and positive, will make little difference to business leaders in their Brexit planning. Legal certainty is what counts,” he said.
“So until we have legal certainty, our clients will continue to take action to prepare themselves for a ‘no-deal’ scenario.”
Andrew Pilgrim at EY was more optimistic. He said: “Financial Services firms across Europe will be pleased to hear that the terms of the transitional deal have been agreed between the UK and EU negotiating teams.
“Helpfully, the deal provides for continuing legal frameworks and market access between the EU27 and UK until the end of 2020. This includes ongoing recognition of passporting rights, data sharing and contract continuity.”
“We will now await the response of financial supervisors in the UK and across Europe.”
Huw Evans, Director General of the Association of British Insurers, said: “With annual insurance contracts coming up for renewal it was critical to provide some temporary certainty to insurance customers on issues like driving in the EU and the EHIC.
“However, we still need to see agreement that EU and UK regulators can fully co-operate during this period so they can begin to solve issues like continuity of insurance contracts.”