As Brexit Transition Tears Tories, One Deal Maybe Not Enough

(Bloomberg) -- Britain will have to ask the European Union for two back-to-back transition deals to ease its exit in 2019, according to Charles Grant, director of the Centre for European Reform research institute.

The influential think-tank believes Britain will need years to prepare for Brexit and the two-year transition proposal that Prime Minister Theresa May's Conservatives are still fighting over won't be nearly enough to protect businesses from a cliff-edge.

“There will be two transitions: The first one will be the status quo -- identical to membership but with no votes for the U.K., and two years won't be long enough," Grant said in an interview. “Once you've worked out the new relationship, you then need an implementation phase to phase in the new rules.”

The U.K. leader is seeking one strictly limited, two-year transition and some Conservatives consider even that too long, as the U.K. will continue to pay into the EU budget and obey its rules during that time.

Foreign Secretary Boris Johnson -- a leading Brexit campaigner and a possible successor to May -- set out a red line on Friday that any interim arrangement mustn't last “a second more” than two years, while Jacob Rees-Mogg, another pro-Brexit lawmaker, takes a similar approach.

Read more: Banks Are Said to Begin Brexit Moves Despite Transition Call

Grant's proposal is also controversial, as the one thing both May and EU chief negotiator Michel Barnier agree on is that any transition will have a clear end-date. May, in an effort to placate the pro-Brexit wing of her party, pledged a “double lock” on the interim period, saying it will be “time-limited, giving everyone the certainty that this will not go on for ever.”

The government says that at least the outline of a trade deal will be done by March 2019. “It suits both sides to pretend that transition will only last two years,” Grant said.

But while May wants to settle the terms of the future trading relationship before Britain leaves, the risk for business is that negotiations aren't completed in time, and the transition ends up as extra time for talks. The Confederation of British Industry, which lobbied for a longer transition, was pressing Chancellor Philip Hammond again today for clarity, urging him to get the transition “locked in” by the end of this year.

Hammond replied that Britain has put an offer on the table on the interim period, during which time the U.K. would continue to pay into the EU budget. Transition is a “wasting asset,” he said, suggesting that the longer the EU takes to sign off on it, the less it's worth to the U.K.

“Our European interlocutors know that,” he said at an event on the sidelines of the Conservative Party conference in Manchester, England.

European leaders meet in mid-October for a summit. According to people familiar with the negotiations, governments have been discussing changing the mandate of EU chief negotiator Michel Barnier so that he can start talking about the transition alongside the divorce issues. Initially transition was meant to be discussed after the separation, and future trade deal were settled.

--With assistance from Anna Edwards

To contact the reporter on this story: Emma Ross-Thomas in Manchester, England at erossthomas@bloomberg.net.

To contact the editors responsible for this story: Heather Harris at hharris5@bloomberg.net, Flavia Krause-Jackson, Eddie Buckle