Pressure builds on Truss to do a deal on Northern Ireland

I had thought to write a long piece this week examining Labour’s plans to reboot the EU-UK relationship — and we will get to that — but the events of the last few days have overtaken me. 

For Brexitwatchers the rocky start, to put it kindly, to the Truss era begs an obvious question: does having a suddenly weakened PM make it more likely that she will now cave into Brussels’ demands and do a deal over the Northern Ireland protocol?

On the fringes of the Labour party conference in Liverpool this week, where both the EU and Irish delegations were actively lobbying for a deal to fix the long-running row over post-Brexit trading arrangements in Northern Ireland, there was a determined optimism. 

Although Brussels is still waiting to see how the Brits respond to the diplomatic pressure applied in New York last week a case is being built for the prime minister to be “pragmatic” and unblock the talks process which has been on hold since February.

Of course, when the EU says “pragmatic” in Brexit negotiations it really means “agree to most of what we want”. So what are the grounds to think Truss will — as one well-travelled elder statesman of global affairs put it in Liverpool — “swallow hard” and do a deal?

The first is economic. This argument runs that Truss could hardly square triggering a trade war with the EU when she’s planning a ‘dash for growth’.

The second is political: the hard-Brexit wing of the Tory party is getting a load of Brexit red meat from the Brexit freedoms bill and plans to deregulate like Kwarteng’s ‘Big Bang 2.0’ for the City, so they’ll be happy to soften their demands on Northern Ireland.

The third is also political: Truss’s plan to relax immigration rules in the quest for growth has already demonstrated she’s prepared to prioritise growth over shibboleths on the right of the party. So why not on the protocol too?

The fourth and final point is geopolitical: the Biden White House is seriously determined on the protocol issue and ultimately when a US president makes a very direct request, as he did, it’s hard for a British PM to ignore it.

Stack all those together and many experienced Westminster watchers believe Truss will do a deal — and canvassing seasoned SW1 types in Liverpool, I’d say that a Truss deal scenario was the consensus view.

Not being a political correspondent, I happily defer to their view, but I think it’s right to point out that at this juncture it’s not a consensus shared among Whitehall insiders, who seem considerably more pessimistic.

Why? Well, the first is learned experience. The Northern Ireland file, as one battle-scarred insider puts it, has “persistently shown itself to be immune from normal cost-benefit analysis” and there is no obvious internal indication that that has changed.

Second, Truss’s political weakness, which looks dangerously baked-in now, is a negative not a positive. As one puts it: “Can a PM with [her] back to the wall really then go and cave in to Brussels? The opposite is true.” Another insider goes as far as to say it’s “delusional” to believe she will. 

On Tuesday as the financial crisis raged and pension funds were begging for central bank intervention, I’m told the Downing Street bunker devoted 90 minutes to meetings on the protocol. Yet another indication that this is an issue that still matters.

Third, the ERG is going nowhere. Some might argue the hard-Brexit wing of the Tory party doesn’t really care about Northern Ireland, per se, but just uses the issue as a political weapon to get what it wants. To which the flipside reply is “exactly”.

Since the EU isn’t offering a radical new deal here — it’s lipstick on the same protocol pig, that divides the UK internal market — so why would the ERG accept it? 

Fundamentally, a part of the UK is still being left in the orbit of a foreign organisation, and that’s a visceral issue for Tories on the right (even though they signed up to it). As one more sceptical EU diplomat observed “the ERG is the hungriest crocodile in the political swamp”. 

A weak PM that needs to shore up her political base is likely to stimulate, not suppress, that appetite.

Which brings me finally back to the Labour conference where there was a growing sense of a party now fully expecting to take power at the next election — and promising an entirely new relationship with the European Union.

That creates a secondary negative dynamic that is likely to reduce EU willingness to make concessions. Why secure a suboptimal deal with Truss, when the polls suggest Sir Keir Starmer will be in Downing Street in 2024 ready for a reset?

I’ll come back to Labour and life after Brexit in detail another day, but while the party is still reticent about setting the agenda on future UK-EU relations for fear of getting sucked into a negative binary debate, the overall message is clear.

As Peter Kyle, the shadow Northern Ireland secretary told a fringe event (where, full disclosure, I shared the platform), the party doesn’t want to dwell on the cost of Brexit: “Pointing out a negative, and also wallowing in a negative, does not win elections.”

But it is clear that Labour (even if it is still cakeist and unrealistic about what can be achieved outside the EU single market) will do lots of things — starting with a veterinary deal of some kind — that will make solving the protocol row easier.

Logically, the party will also quietly move to a high-alignment position on regulation in many key sectors like chemicals, agriculture and autos, which will pare back the Irish Sea border since NI and GB will be much more closely aligned.

If that happens, it’s suddenly much easier to see how the protocol deal is done under Labour and the EU can see that. 

All of which explains why I don’t quite yet share the optimism of some purely political analysts that Truss will get there first.

Brexit in numbers

This week’s dismal chart speaks for itself. Britain after Brexit is a place where, for now at least, the markets have lost confidence in a governing party that over the past six years has built up a reputation for deep-seated dogmatism.

The uncosted ‘KamiKwasi’ budget was a unique and extreme event that ignored all the warning signals, but as my colleague Robert Shrimsley observed this week, it is also part of a pattern of post-Brexit behaviour in which ideology has consistently trumped economics.

As he pithily observed, investors have decided that “Britain is not the bet it once was” — a statement that could equally apply to the UK’s diplomatic currency, as I observed last week. 

Coming back from this credibility slump will not be easy for the Truss government, even on its own terms. Ministers trumpet supply-side reforms, like the new investment zones, but investors crave stability far more than they want tax breaks. 

And right now, that that restoration of credibility feels a long way off. 

And, finally, three unmissable Brexit stories

Current and former officials in continental Europe can barely conceal their Schadenfreude at this week’s events, reports Frankfurt bureau chief Martin Arnold. He quotes former vice-president of the European Central Bank Vítor Constâncio: “Since Brexit, the UK has shown a lot of hubris and denying reality, as if it was going back to greatness and the days of the empire.”

Simon Kuper also writes the EU has got its mojo back. “A so-called “union” that was mostly designed to manage rival internal interests is now uniting against its enemies,” he writes.

Just as the UK elite fell out of love with the EU it became engrossed with the US — to the extent that they confuse it for their own nation, writes Janan Ganesh. “People who can’t name a cabinet member in Paris or Berlin (where so much that affects Britain, from migrant flows to energy, is settled) will follow the US midterms in November,” he writes. The reason? A common language.