Brexit: UK must accept EU laws during transition to prevent 'dramatic' economic impact, warns Treasury Committee

MPs said the Government should consent to a "standstill" transition deal with Brussels, which would include remaining in the single market and accepting the European Court of Justice (ECJ) jurisdiction

Nicky Morgan, chair of the Treasury Select Committee, warns of 'dramatic and damaging' consequences if no agreement is reached (Getty)

A transition period after Brexit where the UK continues to accept EU rules would be a “price worth paying” for economic stability, an influential Commons committee has said.

Cross-party MPs on the Treasury Committee said the Government should consent to a “standstill” transition deal with Brussels, which would likely include remaining in the single market and customs union, and accepting judgements from the European Court of Justice (ECJ) after Britain leaves the bloc in March 2019.

The move will provoke anger amongst pro-Brexit MPs, many of whom feel Britain should not accept any EU rules after the official exit day. Several Tory former Cabinet ministers, including Iain Duncan Smith and Nigel Lawson, recently declared that remaining under ECJ jurisdiction was a “red line” Theresa May should not cross.

But in a strongly-worded report, the Treasury Committee warned that businesses could start activating their Brexit contingency plans in the New Year if there is no deal in on the cards and would risk damaging the economy due to “arguments over arcane points of principle”.

Conservative chair Nicky Morgan, a former cabinet minister, said: “The consequences of failing to reach an agreement are dramatic and damaging. Many businesses will begin to prepare for a ‘no deal’ outcome – moving jobs and activity, and incurring potentially unnecessary expenditure – early next year.

“Transitional arrangements must therefore be straightforward enough to negotiate in a matter of weeks.

“Speed is of the essence. Delays to agreements caused by arguments over arcane points of principle could damage the economy. The Government should be prepared to accept the terms on which transition is offered by the EU27.

“This may well include accepting EU rules beyond those of the Single Market and Customs Union; and it is likely to involve retaining, on a temporary basis, the jurisdiction of the ECJ, and the direct effect and supremacy of EU law.

“That is a price worth paying for stability and certainty after 30 March 2019.”

It comes after leaked papers detailing EU plans for future talks revealed the UK would have to comply with EU regulations after Brexit, including new rules made after Britain leaves the bloc.

For certain sectors, including financial services, an effective “standstill” transition period would likely require a separate “adaptation period” once the terms of a future trading relationship are hammered out, the committee said.

Without a similar agreement, the committee said there is a risk of a “no deal” Brexit that would force the UK back into World Trade Organisation tariff arrangements.

The first quarter of 2018 has been dubbed the “point of no return” for banks that are expected to start moving staff and part of their UK business to rival financial hubs in Dublin, Paris, Frankfurt and Luxembourg.

Banks like JP Morgan – which currently has 16,000 UK staff – will ramp up operations at a number of its EU sites with plans to move up to 1,000 London front and back office roles, while HSBC has said it is on course to shift as many as 1,000 jobs to France, where it already has a full-service universal bank after buying up Credit Commercial de France in 2002.

Ms May put forward plans for a two-year implementation period in a speech earlier this year, although the terms of the arrangement are still under discussion.

A Government spokesperson said: “The Prime Minister proposed a strictly time-limited implementation period in her Florence speech, to give people and businesses time to prepare for our future partnership with the EU.

“Our goal is to agree the details for how this will work as early as possible as doing so is in the interests of businesses both in the UK and the EU.”