Embargoed to 0001 Thursday May 4 File photo dated 16/11/2015 of CBI Director-General Carolyn Fairbairn. The next government must have a long-term vision for the economy and help firms prosper, a leading business group is urging. PRESS ASSOCIATION Photo. Issue date: Thursday May 4, 2017. The CBI said the UK was at a "crossroads", facing Brexit negotiations and dealing with new technologies that will define prosperity for generations. See PA story INDUSTRY CBI. Photo credit should read: Anthony Devlin/PA Wire
Carolyn Fairbairn, CBI director-general, said companies have been changing their plans and slowing investment © PA

The head of the CBI on Thursday called for the UK to stay inside the EU single market and customs union until a final deal between Britain and the bloc was “in force” — a demand that will be anathema to hardline Eurosceptics in Theresa May’s cabinet.

Carolyn Fairbairn warned that Brexit “uncertainty” was starting to damage the UK economy, as new data showed a 9 per cent drop in the number of jobs created by inward investment in Britain during 2016-17.

The CBI director-general said companies were changing plans and slowing investment because of the prospect of “serious disruption” if the UK crashed out of the EU without an exit deal.

Ahead of a meeting on Friday involving business groups and ministers, Ms Fairbairn said: “Uncertainty is biting on our economy and our firms.”

The head of the employers’ organisation said the business world was committed to making a success of Brexit but argued that staying in the single market during a “limited transition period” would pave the way to a better future by avoiding multiple problems with tariffs, red tape and regulation.

Ms Fairbairn said the CBI was, therefore, proposing “a bridge” from March 2019, when the UK is due to leave the EU, “to the new deal, maximising continuity for firms and avoiding a damaging cliff edge”.

A preliminary survey of CBI members has found many cutting back investment because of Brexit uncertainty. One leading European engineering and electronics company, for example, has shelved plans to build a UK innovation centre, according to the study.

The Department for International Trade released figures outlining a 2 per cent rise in the number of inward investments and expansions by overseas companies in the UK, to 2,265 in 2016-17.

But the figures also showed a 9 per cent drop in new jobs, to 75,226, over the same period.

Tim Farron, leader of the Liberal Democrats, called the figures a “disaster”, asking. “If the international trade department cannot grow international trade, what are they actually for?”

Chancellor Philip Hammond who, since the general election has emerged as one of the most influential cabinet advocates of a “soft Brexit”, is seeking to keep the UK as closely aligned to the customs union as possible. He said last month that the UK had to leave the EU “via a slope not a cliff edge”.

One government official said some moderate cabinet ministers had floated a “two plus two” scenario in line with the CBI’s demands.

This would mean two years of negotiations ending in March 2019, and then two years where Britain keeps membership of both the single market and customs union.

But an ally of Mr Hammond said it would be inaccurate to think in “such a specific timeframe” given that the cabinet was still debating the issue.

David Davis, the Brexit secretary, suggested last month that the UK could be out of the customs union in March 2019.

Mrs May is against staying in the single market in the long term because it would mean the continuation of the EU’s free movement of people principle.

David Cameron, her predecessor, is thought to have privately voiced the idea of Britain emulating the so-called Norwegian model, according to some allies. That would mean retaining membership of the European Economic Area, meaning full access to the single market, without any involvement in how its rules are formulated.

Mr Davis will try to assuage business fears about Brexit as he hosts a group of corporate guests at Chevening, the country residence of the foreign secretary, Boris Johnson.

Those due to attend the meeting include the chief executives of Barclays, BT, easyJet, Shell, Discovery, HSBC, Lloyd's of London and Tesco.

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