The Malthouse Compromise
Parliament may shortly face a binary choice over leaving the European
Union with an agreed Withdrawal Agreement (WA) or without one.
Many MPs find the WA in its current form unacceptable. Indeed the
Commons have rejected it by a large majority. Others find the possible
economic and logistical disruption of an exit without any WA equally
For too long the Brexit debate and negotiations have been stymied by a
collective gamble over this choice. Each side of a naturally binary debate –
Leave/Remain – was manoeuvering around this fallback arrangement in the
event of the WA’s failing, to the extent that the WA itself was being
neglected and consensus could not emerge about what it should and should
Our intention therefore was to create a degree of optionality to mitigate the
binary quality of that choice – and to do so in a way in which those on both
sides could accept a package as a whole that sought to address their
concerns. The idea is that each side will find in the package proposals that
they might not consider ideal but will find acceptable.
In this way we hope a consensus will emerge across the House and that we
can have an eminently reasonable set of options to present to our EU
partners which could command a majority – something the EU have quite
rightly been asking to see for some time.
The structure of the compromise is to offer the EU a choice of two plans:
Plan A is predicated on achieving agreement on a WA that addresses the
principal weakness of the current version, the perpetual character of the
Irish backstop, and its consequences for the Future Relationship between
the UK and the EU. Plan B assumes that agreement on a WA is not possible
and that both sides accept a responsibility to act so as to minimize as far as
possible the disruption that might arise to people and businesses in the EU
and the UK.
Both Plan A and Plan B involve the UK’s ceasing to be a Member State of the
EU according to the timetable set by Article 50 of the treaties, that is on 29th
In order therefore – Plan A – “The Deal”:
Essentially we would offer the existing WA with two changes:
First we would extend the implementation period until no later than
December 2021. This would involve more money, but also provide a longer
period to agree the Future Relationship (FR), with an immovable deadline to
act as an incentive for talks.
Second, to address the backstop, we recognize the legitimate concern on
both sides of the border on the island of Ireland about the effects of Brexit
on the settled border arrangements, and the profound commitment of all
parties to the Belfast Agreement. However, it is clear that the current
formulation of the backstop is not acceptable to the Commons, and some of
the suggested solutions to this problem essentially mean the backstop isn’t a
backstop at all. We therefore propose a different basis for the backstop that
is capable of being permanent. In essence the nature of the new backstop is
a basic free trade agreement and a brief is attached at Appendix 1. It is
important to note that the NI border arrangement requires no new
technology and relies on existing administrative processes.
All else in the WA remains the same, including, very importantly a
guarantee of EU and British citizens’ rights.
If this is not acceptable to the EU, or they require more time to consider it,
we would propose,
Plan B essentially creates a transitional standstill period, at the end of which
the UK would overnight become a third country in practice but during
which we would have time to avoid disruption in a number of ways:
1. We would keep plan A on offer for as long as the EU was willing to
2. We would offer to pay our net contribution (c.£10bn pa) in exchange
for the Implementat ion Period as negotiated, until no later than
Dec 2021, as a standstill period,
3. We would also offer legal text to support a GATT Art XXIV “zero for
zero” temporary arrangement for execution either at the start of the
standstill in the event the negotiated implementation period could not
be secured, or at the end of the standstill if the future relationship had
not been concluded1,
4. Both sides would prepare for WTO terms fully.
5. We would create an opportunity to discuss our future relationship
with the EU as it would apply from the end of the standstill period.
This transitional period would last until the end of December 2021, during
which time we would pay our net EU budget contribution, and cover our
other liabilities subject to arbitration (pensions etc), and we would “stand
still” on everything else – so we would remain a member of the customs
union and single market, and the various other arrangements to do with
security, aviation and so on. Again very importantly we would unilaterally
guarantee EU citizens’ rights.
In essence this structure throws a safety net around “No Deal” diffusing the
drama and mitigating the possible damage on both sides, with plenty of
time allowed to agree a future relationship, which is the desired outcome for
everyone. It also allows other non-EU countries to see that the UK has proposed something eminently reasonable which protects our supply
1 More here: https://www.wto.org/english/docs_e/legal_e/10-24.pdf
If this structure of two deals is offered to the EU, we would expect it to
receive serious consideration by those concerned to achieve a resolution
that works for both the UK and EU. Plan A is reasonable and workable and
addresses the legitimate concerns about the Irish border. Plan B provides a
transitional period in which we can settle remaining differences without
unnecessary economic damage or logistical difficulties, retaining
optionality for all sides. In both cases there is no prejudging of the form of
the FR. Maintenance of the Common Travel Area on the island of Ireland is
also an important part of both plans.
The only other option is slamming the door, which would seem irrational
and unfair given that the EU have pledged to use best endeavours to agree a
smooth and civilized exit. On this basis, given the widespread support for
this compromise, and the demonstrated majority for it, we would welcome
the opportunity to develop it further with the Prime Minister such that it
could be offered to our EU allies as a profoundly reasonable solution.
Appendix 1: The New Backstop
• A revised Withdrawal Agreement (WA) which can be negotiated with
the EU, thus avoiding No Deal and honouring the referendum result,
whilst protecting the national interest.
• Our proposed new backstop would guarantee departure from the
Customs Union, Single Market and all EU rule-making for the entire
• It can be negotiated because it builds on the EU’s own offer (rather
than asking them to compromise the single market) and the concept
has already been positively received by the EU privately (they will
not publicly back it whilst a permanent customs union is on the table).
• It retains the vast majority of the draft WA but crucially removes the
four poison pills that have prevented the draft WA from finding
widespread support in Parliament and the country at large.
• One of the reasons that Parliament is hostile to the Prime Minister’s
current proposal is that it would place the UK in a “single customs
territory” by virtue of the backstop, giving the EU no incentive to
make concessions in future trade negotiations (thereby putting UK
interests such as fishing at great risk). It should be noted that any
single customs territory that is not the full Customs Union will require
checks and customs certificates, such as Turkey is required to use.
• This alternative WA proposes a new Free Trade Agreement (FTA)
with zero tariffs and no quantitative import restrictions, and a
Customs and Trade Facilitation Chapter that will deploy advanced
customs and trade facilitation measures which include specific
solutions for the Irish border, so the leverage would be the same on
both sides. It also addresses the non-regression clauses so as to make
them two-way and of the language that would be used in any trade
agreement, allowing any potential end state arrangement.
• The new backstop does not imperil the Union as it represents a
permanent solution to the Northern Ireland / Ireland border making
it both a backstop and a frontstop. It does not require any differences
between NI and GB beyond those that exist today.
• The new backstop will include a Free Trade Agreement in Goods, a
Customs and Trade Facilitation Chapter, as well as: commitment by
all parties not to place infrastructure on the Northern Ireland border;
the UK adopting EU rules of origin; regulatory recognition such as in
sanitary and phytosanitary (SPS) measures; in facility and inland
clearance; and level playing field provisions on areas such as labour
– in other words normal practice in FTAs.
• This reformed WA is likely to command a majority in the House of
Commons – it is already supported by both leave-backing and
remain-backing MPs and, crucially, the DUP.
The main changes to Withdrawal Agreement:
1. No “single customs territory” between the UK and the EU, allowing
the UK to regain control over its tariffs and regulations which are
required to carry out negotiations for trade agreements with other
countries. This makes the UK a credible trade partner for third
countries after 29th March 2019.
2. A new backstop to replace the Northern Ireland Protocol which is
based on what the permanent solution to the Irish border should be.
This maintains the territorial integrity of the UK and allows the UK to
regain control over its tariffs and regulation. Crucially to address the
concerns of the Republic of Ireland, this arrangement is capable of
being permanent – a frontstop – It includes:
• a free trade agreement in goods: zero tariffs and no quantitative
restrictions, providing for tariff-free trade in goods plus UK-EU
• no infrastructure on the Irish border: a commitment by all parties not
to place infrastructure on the border.
• regulatory recognition based on deemed equivalence because we
will be identical on day one of Brexit: on sanitary and phytosanitary
(SPS) and animal health measures and mutual recognition of
conformity assessment, with measures to ensure that the animal
health and disease control zone on the island of Ireland can be
• level playing field provisions: on labour, the environment,
competition and state aid, consistent with normal practice in FTAs, as
opposed to the highly one-sided commitments in the Withdrawal
• a Customs and Trade Facilitation Chapter with an Irish border
protocol: an agreement to deploy advanced customs and trade
facilitation measures, including specific solutions for the Irish border.
This will allow us to use a range of proven solutions for our customs
procedures, while reducing the burden of formalities on traders and
avoiding congestion at ports, and include the principle that any necessary
formalities and inspections are carried out with the minimum of delay and, to the maximum extent possible, away from the border. This will employ:
• Inter-agency cooperation and information sharing, and recognition
of the other party’s inspections and documents for certification of
conformity with country or import or export
• Simplified procedures and data processing at departure and
destination for the import, export and transit of goods
• Expedited procedures for qualifying operators, with mutual
recognition of trusted trader schemes like authorised economic
operator (AEO) programmes, and making them available to as many
traders as possible
• Self-assessment for importers to declare imports periodically and
account for duties payable, plus support to encourage uptake
• Inland, in-facility checks and participating in EU systems (such as
TRACES) so all SPS related goods will be registered with these
• Inland, in-facility checks for small businesses (who are already filling
out VAT forms)
• Adherence to international standards of the WTO and other
• Special facilitations for specific sectors like agriculture.
3. We would propose and extension of the Implementation Period to 31
December 2021, but no further.