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Archive for March, 2019

What happens next for Brexit?

Last night Parliament overwhelmingly rejected the slightly revised Withdrawal Agreement put before them by Theresa May. The government was defeated by 149 votes, a narrower margin than the first meaningful vote (230) but still one of the largest defeats by any government in parliamentary history. The Attorney General’s legal opinion that ‘the legal risk remains unchanged’ that the UK could remain trapped in the backstop torpedoed the Prime Minister’s efforts to reassure Conservative Brexiteers and the DUP.

Attention will now turn to votes to be held in Parliament today and tomorrow on the prospect of a no deal exit and on whether to request an extension to the Article 50 process. Neither vote is straightforward and will be subject to multiple amendments but they allow Parliament to take on a formal role in shaping the direction we now take.

The vote on no deal tonight is highly likely to result in Parliament seeking to take no deal off the table. While this is clearly not fully within Parliament’s power – as no deal remains the legal default if a deal or extension is not agreed – it is expected to pave the way for Parliament to instruct the government to request an extension to the Article 50 process in tomorrow’s vote.

The key questions are how long such an extension should last and what it would be designed to achieve. Should it be kept short to avoid the UK having to participate in the European Parliament elections in May or should we go long and provide time for a substantive renegotiation? Parliament has the opportunity to indicate its preferred answer to both questions but ultimately the EU will have to agree to any extension unanimously and may seek to impose unpalatable terms on it.

The EU itself has yet to coalesce around its preferred extension scenario and the indications are that they will wait for the UK to put forward a ‘reasoned’ request i.e. it must have a clear purpose. It is expected that any such request would be considered at the next European Council summit on 21st and 22nd March. If we simply ask for more time to consider the same deal or to renegotiate terms that have already been rejected by the EU then there is a clear possibility the request will be rejected and we will head towards no deal at the end of this month.

This now leaves us with significant uncertainty over the ultimate outcome of this process. But there are several scenarios that remain in play.

A shift to a softer Brexit, facilitated by an Article 50 extension

The path to this could come from a cross party shift to remaining in a customs union and significant elements of the single market as favoured by the Labour leadership. Theresa May has steadfastly resisted this and it would require a significant portion of the Conservative Party to break ranks to deliver it but there is a possibility it would have the numbers in Parliament to back it.

There is still a possibility that Theresa May’s deal could eventually be brought back before MPs for consideration a third time and passed

This would require a huge climb down from a large number of Parliamentarians and is only likely once all other options have been exhausted but remains a distinct possibility. There are several ways this could play out: if an Article 50 extension request is rejected by the EU, leaving a stark choice between this deal and no deal; if an Article 50 extension is only available for a very long period of a year or more and with extremely unpalatable terms (potentially scaring the ERG into viewing Brexit itself to be at risk); or at the end of a short extension, most likely until June, which failed to produce an alternative deal, with the choice again between this deal and no deal.

No deal remains a distinct possibility

If Parliament continued to reject May’s deal and no extension can be agreed (or is not requested) the UK will leave the European Union without a deal on the 29th The government has this morning published its short term plans for this scenario in relation to the Northern Ireland border with Ireland and tariffs. These essentially amount to deliberately not policing the border in the immediate period after Brexit and not charging import tariffs on the vast majority of goods entering the UK from the EU (though with notable exceptions such as agricultural imports and cars).

Whatever plays out in the coming days there will be significant and lasting consequences for both main political parties. The Labour Party has so far attempted to tread a careful line, refusing to back May’s deal and hoping to either force a shift to a softer Brexit (for which they can claim credit) or to allow the Conservatives to take the blame for a shambolic no deal Brexit. However, much of their membership is desperate for a second referendum and if the UK does go over the no deal cliff edge then their refusal to back a deal will have been a major contributing factor.

Most significantly, the future of the Prime Minister feels more precarious than it ever has. There is an increasing feeling that her tenure in No 10 has been drastically shortened and it is hard to see how she could oversee the implementation of a softer Brexit that she has consistently opposed. However, her remarkable durability has already seen her carry on in circumstances that would have been terminal for any other Prime Minister and there is still no obvious, viable alternative leader among the Conservative ranks.

Ultimately, the decisions taken by Parliament in the next 48 hours will go a long way to shaping the final outcome of the Brexit process and the future of this government.

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Defeat looms in the second meaningful vote

Late last night Theresa May and Jean Claude Juncker announced that a deal of sorts had been reached over the Withdrawal Agreement. Today the deal has been rejected by the ERG and DUP and looks set to be defeated in the second meaningful vote this evening.

The agreement announced last night consisted of three new documents:

  1. A joint interpretive instrument which has legal force clarifying that the backstop is not intended to be permanent. It points to the fact there is a so called ‘good faith’ clause in the Withdrawal Agreement to negotiate a free trade deal to avoid the backstop coming into force. It also points out that the UK can point to this clause if it wants to raise a complaint to an arbitration mechanism that this isn’t being followed.
  2. A joint statement that is essentially an addendum to the political declaration on the future relationship making further commitments (not legally binding) to explore ‘alternative arrangements’ based on new technology to negate the need for the backstop.
  3. A unilateral statement from the UK government (not agreed by the EU) that states the UK’s interpretation of all these documents taken together is that it would be able to ‘take measures’ that could ultimately disapply the backstop if the EU does not negotiate a free trade agreement or alternative arrangements in good faith.

Theresa May wasted no time in claiming these documents amount to ‘legally binding changes’ to the Withdrawal Agreement. In the joint press conference Jean Claude Juncker stuck to the form of words that this is ‘consistent with the Withdrawal Agreement’.

Theresa May’s hopes of persuading MPs to back the ‘new’ deal were dealt a significant blow this morning by Attorney General Geoffrey Cox’s legal opinion. Cox stated that ‘the legal risk remains unchanged’ that the UK would have no legal means to exit the backstop if no alternative arrangements can be agreed despite the best endeavours of both sides.

The two key groups that May was looking to win over in the Commons, the DUP and ERG, have both reportedly indicated this is not enough and are not expected to back the deal. The Labour leadership have also said they will vote against as they don’t believe anything substantive has changed, with little prospect of large numbers of Labour backbenchers defying the whip to back the Prime Minister. The deal therefore looks set to be defeated again in tonight’s vote.

Should this be the case, attention will then swiftly turn to the promised votes on whether to rule out no deal (due tomorrow) and whether to request an Article 50 extension (planned for Thursday). Parliament is very likely to take no-deal off the table. However, an instruction to request an extension, while likely, may be muddled and unclear. The key questions are: for how long and to what end? While Parliament can indicate its preference on these questions, they will ultimately be dictated by what the European Union will accept and may come with very unpalatable conditions.

A second defeat for May’s deal tonight will be a major blow. It potentially opens the door to Parliament taking control of the process with the likely outcome being a delayed and softer Brexit. It also, yet again, ratchets up the chances of a no deal outcome (either in March or at the end of a short extension). Finally, it will inevitably raise further questions about the longevity of Theresa May’s premiership and, should it be entering its final phase, what comes next.

There may be further twists and turns to come before today is over but, as things stand, the situation for Theresa May and the government looks bleak.

 

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Just turn it off and on again? The digital economy blow back

As the digital economy continues to balloon, influencing markets, people and society, policy makers are wrestling with its impact and how it can be managed better. While these questions began to take shape in 2018, thanks to exposés on the sheer quantity of data storing and poor practices of social media giants leading to inquiries and calls for action, concerns have continued to gather pace in 2019.

Consumers have reaped the benefits of digital advancement for years, such that negative aspects either seemed unimportant or possibly did not impact them. Faster internet, easier shopping, greater convenience, and access to the latest tv shows; all were noticeable and popular benefits. Yet, while advances have continued, consumers and the media have become more discerning or simply unwilling to accept the negative consequences of the unfettered digital economy.

One of the most obvious instances is the impact on high streets and business who have lost out to the convenience of internet shopping. Unable to sustain themselves, with chains like HMV citing rising costs and business rates pressures, businesses are leaving the high street behind. One in 12 shops have closed in town centres since 2013, with some communities losing over a fifth of high street shops. Traditional financial services like bank branches are also leaving communities behind as more consumers use digital payments and bank online. According to Which?, 60 bank branches are closing a month with some areas such as Scotland being disproportionately impacted.

The decline of physical retail stores and financial services puts some consumers at a disadvantage. Not every community has the broadband or connectivity to live a digital life, and some consumers simply prefer not to. Rural communities, older consumers and the financially vulnerable are acutely impacted by these changes, and forced to become adopters or travel sometimes excessive distances to continue their way of life. This is not the convenience the digital economy promised.

Moreover, the digital economy is now more clearly and negatively impacting the lives of others in our society. Safeguarding has become a key concern, with greater scrutiny on the content children can access on social media and the freedom allowed to post malicious and hurtful content. Government has at least in part sought to address this, if slowly, with the industry still awaiting the results of the Internet Safety Green Paper consultation. Internet safety and the responsibilities of companies such as Facebook have come under intense scrutiny and every additional story contributes to the push for action.

Yet it also extends more widely into mediums that, until now, were niche interests. Video games and interactive entertainment used to be the focus of a select few consumers and policy makers. Now, with an expanding market and interest from a wider audience, policy makers too are looking more closely. The Digital, Culture, Media and Sport Committee has openly sought views on expanding duties of care to video game developers to prevent exploitative behaviour, and the Labour Party wants to crack down on loot boxes and micro-transactions, fearing that they are similar to gambling.

Not only are parts of the digital economy leaving consumers behind, in the minds of some in media and political circles it is now actively harming and exploiting them. This is a far cry from the days when digital innovators were admired as entrepreneurs and champions of consumers.

As greater numbers of companies and sectors are pulled into scrutiny of the impact of the digital economy, it is tempting to see the case for clear intervention. Policy makers openly consider the benefit of new regulations, levies, taxes and restrictions to overcome these issues. In the last 12 months we have seen proposals for a digital services tax, a social media regulator and levy plan, an expert panel on digital competition, and wider proposals for a digital super-regulator to take the place of self-regulation. Andrew Tyrie’s plans to bulk up the powers of the Competition and Markets Authority (CMA) also open up the prospect of more investigations into this space as well.

For some of the companies that make up this sector, particularly those outside the giants of the industry, these could have a significant impact on their business’ outlook and ability to grow and compete.

Companies caught in the cross-hairs must accept there is no easy ride and that the cultural and societal impact of the digital economy will now always leave them open to scrutiny. The digital economy has helped to empower consumers and address some imbalances old markets did not or would not address. While this should not be lost, companies must be ready to address the wider ecosystem they are a part of and have in part helped create. This means digital platforms will have to not only be able to address their direct impact, but also be prepared to answer questions on how their platforms have facilitated undesirable outcomes and what mitigating steps they are taking. Policy makers are now far less likely to accept deflection or give companies the benefit of the doubt.

Telling the story of a company and its work, communicating the beneficial role it plays and managing criticism is now essential corporate messaging and not the nice extra it once may have been. Without it, digital and technology businesses may be at the mercy of quick political fixes, or find themselves left isolated as others take the lead on safety and responsibility in the digital environment.

 

 

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With pharma pricing in the spotlight, US scrutiny could lead to UK ramifications

Pharma companies and their approach to pricing are back in the political spotlight. While there are major differences between US parties on most issues, the debate on drug pricing has united them as last week top executives from seven major pharmaceutical companies were called to testify in front of Congress. A combative session lasted several hours, with industry leaders laying out their position on why innovative treatments bring the price tag they do.

President Trump has set out a blueprint on medical pricing, a key aim of which is to base US drug prices on a basket of treatment prices in other developed countries. The response from pharma executives to Trump’s proposals was largely dismissive, but it has upped the pressure on pharma companies around their approach to pricing as well as increasing public scrutiny of their approach.

The ramifications for pharma companies may also now be felt here in the UK and the timing is important.

While the UK health system is markedly different to that in the US, there is mounting political awareness at home over drug pricing. And the longer the public debate goes on, the greater the willingness of politicians to take up a challenger role on the issue will be.

Today, the UK’s Health and Social Care Select Committee is gearing up for a showdown with US pharma company Vertex – as concerns escalate over the impasse between NHS England and the company on agreeing a deal for its cystic fibrosis drug Orkambi.

NHS England state they have ‘offered the best deal in its history’ to Vertex, but you can bet that it is significantly lower than the US offer, and Vertex will be seeing this in the broad global context.

Put the US’s scrutiny over globally unequal drug prices together with the UK’s bullish approach to cutting the medicines bill, add in a dose of post-Brexit trade negotiation and a heightened political atmosphere. Medicines pricing could stay in the spotlight for some time to come. And pharmaceutical companies will be on red alert, as all moves in this political chess match points towards a squeeze in prices for manufacturers.

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Will the Augar Review see cuts, caps and chaos?

Despite its publication seemingly caught up in a Brexit gridlock, the higher education sector is braced for the highly anticipated Augar Review of post-18 education.

Launched by the Prime Minister just over a year ago to tackle concerns over high tuition fees and spiralling repayments rates, the review is set to make a number of wide ranging – and potentially sector shocking – recommendations that send a tough message to universities about value for money.

Numerous leaks from the inquiry and rumours over its potential recommendations have been shared over the last couple of months, but it remains to be seen if Augar will set out radical, long-term higher education reform, or if his review will fall flat on arrival.

 What’s Augar got in store?

The most attention-grabbing rumour is that the review is expected to recommend a cut in tuition fees. Reports suggest this would vary depending on the degree, with prices potentially falling as low as £6,500 for most students on arts and humanities courses, and STEM subjects more than doubling to £13,500 or more. This premium level is intended to reflect both the costs involved in running an intensive laboratory-based subject such as medicine, and the additional earnings expected by graduates.

Estimates have put the cost of such a cut at around £3 billion. Unsurprisingly, this hasn’t settled well with the sector, with heads of universities warning of the devastating impact this would have on teaching and research, particularly as the extent of any replacement funding from government remains unclear.

Besides issues with funding, the sector has suggested this would create a ‘two-tier’ system, with lower funding and consequently lower status for courses in the arts and humanities compared to other subjects. This would also have consequences for social mobility, with poorer students being pushed away from more expensive degrees and onto cheaper courses.

The Russell Group has recently come out to warn this approach would lead to a de facto cap on student numbers, particularly if the funding gap isn’t covered by the Treasury. This argument is likely to face a strong push back from government, with recently appointed Universities Minister Chris Skidmore being clear on his opposition to a cap. However, if courses come under pressure due to cuts in funding, this could become a reality for many universities in England.

In addition to fee cuts, the Augar Review team is rumoured to be considering a minimum A-level grade threshold for student loans, with students who fail to achieve three Ds at A-level becoming ineligible. Similarly, this has been branded as a further blow to disadvantaged students, with MillionPlus, a group representing almost half of the UK university sector, criticising the move as a “cap on aspiration”. Vice-chancellors have also argued this would reduce disadvantaged student numbers “by the back door”, going directly against the DfE’s, and the Prime Ministers’ own, social mobility agenda.

 How likely is this?

A headline cut in fees will be seen as an important outcome by No.10, with political commentators viewing the decision to launch a review as an attempt to reconcile the Conservatives’ poor electoral performance in 2017 among young people. As such, the government will be under pressure to agree proposals that reduce the overall cost for students, or come up with a ‘retail offer’, to compete with Labour’s pledge to abolish fees in a general election. However, the Treasury is unlikely to be keen to provide additional funding for universities at a time of uncertainty about future public finances post-Brexit.

It’s clear that universities are expecting this to be a challenging review. Arts institutions are most likely to be holding their breath, with ministers having been dismissive of their role since the review was launched. With the additional pressure from Brexit, the creative industries are feeling particularly at risk.

Beyond the arts, any cut in tuition fees could have a considerable impact on scientific research and teaching, reducing the government’s chances of meeting its target for research and development spending, and undermining its own Industrial Strategy. Again, with Brexit looming on the horizon, the drive to deliver growth and improve productivity is more important than ever, and universities have a major part to play.

Whatever Augar decides to recommend, he has been set a difficult task of finding attractive solutions without incurring significant additional government expenditure or a loss of income for universities. With tuition fees the most politically contentious issue being considered, the sector seems likely to face tough questions about the value for money they offer for students, while continuing to face pressure to widen access for disadvantaged groups.

Skidmore has attempted to reassure the sector by stating that any funding changes would be subject to consultation and introduced gradually, offering longer-term opportunities to influence the government’s final approach. While there has been a strong sector-wide lobby to date, HE providers now need to consider their individual positions within this debate and ensure they can demonstrate the value of their specific provision and the need to protect funding for, and access to, their courses.

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An update on last night’s Brexit activity, what happens next?

After the chaotic scenes of last night’s Commons votes on whether to rule out no deal we take a look at what happened, what it means and what might happen next.

What happened last night?

What does this mean?

What happens next?

Where does this leave us?

 

 

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Blind faith or regulatory teeth: how can the UK’s regulators stop rising consumer bills?

For millions of consumers across the UK, the findings in this week’s report from the National Audit Office (NAO) would have come as no surprise. Faced with rising costs – resulting for many in rising debt levels – consumers are feeling the pinch in their pockets and an overwhelming feeling they are getting ripped off.

The NAO was clear: the UK’s regulators (Ofwat, Ofgem, Ofcom and the FCA) need to do more to prove they are offering enough protection to those consumers that need it most. According to the NAO, there is a 70% increased likelihood of consumers in deprived areas using unarranged overdrafts. This alarming rise is no surprise as between 2007 and 2018, there was a 28%–37% real-terms increase in average gas and electricity prices.

A combination of high prices and poor customer service has severed trust across a number of consumer markets, and there is seemingly no silver bullet to remedy the lack of confidence. In the energy market, Ofgem’s latest market report noted that consumers continue to be feel let down by poor customer service from suppliers. The outlook is similarly bleak in the water industry, as only last summer, Ofwat criticised water companies for their financial structures and top executive pay, claiming they had damaged customer trust.

Labour believes these failings are down to the fact that regulators have limited ability to protect consumer interests. In their eyes, private companies can maximise profits at the expense of bill payers, without being kept in check by regulators. In response, Labour wants to fundamentally reform the regulatory system – and in the water industry absorb Ofwat into the Department for Environment, Food and Rural Affairs to create a National Water Agency. While this would give government greater oversight of the way the market operates, it would represent a large shift from existing government policy.

It would be unfair to say the government has not sought to reform consumer markets. The introduction of the energy price cap, a temporary rather than permanent solution was supposed to help reduce consumer bills by limiting the price a supplier can charge per kWh of electricity and gas used. However, around 11 million households are set to see their bills increase by an average of £117 per year after Ofgem hiked the price cap due to higher wholesale gas and electricity prices.

Clearly the price cap isn’t a long-term solution and Ofgem are considering several measures to drive competitiveness in the energy market. To start with, they are in the process of developing a Consumer Vulnerability Strategy which is set to be launched in the spring. The Strategy will guide Ofgem’s understanding of vulnerability and guide expectations of the types of services that should be offered to consumers with different needs. Alongside this, Ofgem have been instructed by the Competition and Markets Authority to develop a database of disengaged customers, which includes 8 million people that have been on the standard variable tariff with the same supplier for over three years. Encouraging these consumers to change supplier will go a long way to addressing disengagement in the market – helping consumers save money.

In the face of rising prices and dissatisfaction across a range of markets, regulators are faced with the unenviable task of finding solutions with limited resources. The ongoing debate surrounds whether regulators need fundamental reform or incremental change to deliver better consumer outcomes and in the end it’s likely that future change will be driven by a combination of the both. The National Infrastructure Commission’s ongoing review into regulators placing them firmly under the microscope, meaning they will need to show their value and worth to consumers. In the short term, regulators will hope that the existing measures they have to jump start engagement help to place power back in the hands of consumers.

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A taxing question: is globalisation compatible with national sovereignty?

Amid the political turmoil surrounding Brexit, you would be forgiven for missing the recent row about British Crown Dependencies and financial transparency. On 4 March, the House of Commons was due to vote on the Financial Services Bill, a piece of legislation concerning the regulation of financial services in the event of a ‘no deal’ Brexit. However, the government pulled the bill at the last minute because they feared that they would be defeated on an amendment requiring Jersey, Guernsey and the Isle of Man to introduce public registers detailing who owns companies registered there.

The government’s move to delay the bill was not just an attempt to avoid the embarrassment of yet another defeat; it was also done to avert something much more serious – a constitutional crisis. Legislation passed in Westminster does not usually apply to Crown Dependencies, and their consent typically accompanies legislation that does apply. The UK government does have the power to impose legislation on the Crown Dependencies as a last resort, but this power is seldom used and would represent a break with convention. As such, any attempt by Westminster to interfere in the domestic matters of Crown Dependencies without their consent could present the UK with yet another constitutional headache.

Following the release of the Paradise Papers in 2017, in which Jersey and the Isle of Man featured prominently, there has been an increased focus on the Crown Dependencies and the role they play in facilitating tax evasion, tax avoidance and money laundering. The move to force the islands to publish details of anyone owning more than 25 per cent of a company registered there aims to increase transparency. In response, the dependencies argue that they are already committed to transparency and provide ownership details to law enforcement and tax authorities within 24 hours of a request.

However, while stricter rules on financial transparency in the Crown Dependencies may make it more difficult for some to engage in activities that are either illegal or deprive governments of revenue, the debate masks an even greater problem: tax. Guernsey, Jersey and the Isle of Man all have a standard corporation tax of zero per cent, with some higher rates (but not greater than 20 per cent) applicable to firms in certain industries, for example, Jersey charges financial services companies ten per cent corporation tax. The rate of corporation tax in the UK is currently 19 per cent and set to fall to 18 per cent by 2020. The average corporate tax rate in the EU is 22.5 per cent; France has the highest corporation tax at 34.4 per cent and Hungary the lowest with nine per cent.

The advantageous corporate tax rates available in the Crown Dependencies have played a large role in attracting companies to register there; as of December 2018, collectively they were home to 76,000 companies. This amounts to one business for every three residents, whereas the UK has one firm for every 11 residents. In 2017, the EU placed the Crown Dependencies on a ‘grey list’ of jurisdictions that had committed to reform their tax structures to avoid being branded ‘tax havens’. The EU is particularly concerned that firms route profits via the Crown Dependencies to avoid paying taxes in EU member states, weakening the tax base in those countries. In response, the Crown Dependencies have introduced stricter requirements on businesses to prove they are truly resident in either Guernsey, Jersey or the Isle of Man. However, it is unlikely the new regulations will significantly reduce the number of firms registered in Crown Dependencies.

The Crown Dependencies are not the only entities to have drawn the attention of the EU over their corporate tax rates. Ireland has a corporate tax rate of 12.5 per cent, a rate that has encouraged companies such as Apple and Google to base their operations there. In January, the European Commission published a proposal to remove national vetoes of tax matters and to use qualified majority voting instead. The move has been strongly opposed by the Irish government, on the basis that a new voting system will remove Ireland’s ability to set corporation tax rates at the level it wishes.

At heart, the debate about financial transparency and tax comes back to one question: how can national sovereignty be reconciled with a globalised economy? Governments, in competition with each other to attract businesses, have an incentive to lower taxes and loosen regulations. The only way to avoid this potentially damaging race to the bottom is global cooperation, either voluntary or enforced. However, the former may not be possible because of the incentives faced by governments, and the latter would involve countries voluntarily giving up power over tax policy.

The UK is finding out first-hand that determining the ‘optimal’ amount of sovereignty is a tricky business, but it is a question that many more countries will have to grapple with in the near future. Globalisation has made it easier for capital to cross international borders, while public opinion concerning which decisions should be made at the level of the nation-state has remained relatively static. Harmonised tax and regulatory systems may win the economic argument, but as the political landscape confronts a more globalised world, it’s not always the economy, stupid.

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View from the Summit: hard questions and honest answers for UK rail

WA was at the Transport Times Rail Summit this week, joining industry and political leaders to talk about what’s coming down the line in 2019 and well beyond.

There were fascinating discussions about HS2, Crossrail, vast numbers of new rolling stock, regional devolution and smart ticketing that gave a real sense of ambition and exciting glimpses of new innovations that will transform passenger experiences almost in real time.

But following a horrendous 2018 for large parts of the network and many operators, it was left to the Rail Minister, Network Rail, and Keith Williams – the person tasked with a root and branch review of the UK’s rail network – to deal with the big-ticket questions of performance and trust that overshadow improvements and swell support for more radical reform (as supported by the Labour Party’s leadership), that could pose more existential challenges for the industry if enacted.

The political context is febrile. There is a Conservative government no longer willing to defend the rail industry based on its private sector instincts alone, and a Labour opposition with a clear plan to take franchises back into public ownership at the point of expiry.

The contributions from the Summit’s leading voices were strikingly honest and thought-provoking.

We know now that Keith Williams is half way through his rail review. He has spoken to over 130 groups and received over 200 submissions from operators, regulators and passenger groups. The basic task set to him by the Department for Transport in late 2018 was to examine, outside of HS2 and Crossrail, what we do with the railways in the next century?

Among his long list of considerations includes the relationship between train and railway operators, accountability, industrial relations and skills, and how to ensure the innovative and fair use of railway data, sits the question of affordability.

This doesn’t just mean addressing high ticket prices for passengers. Half the UK’s entire transport budget goes on the railways, yet rail journeys account for only two per cent of all transport movements. Can this be justified and sustained going forward? Perhaps part of the answer lies through sharing the responsibility for more of the infrastructural parts of the railway, but it wasn’t clear how deeply the review will delve into this issue. In fact, Williams didn’t give an inch on what was going into his final report but he did emphasise his appreciation of industry’s passion for delivery, absolute focus on safety, and recognition of huge investment. It felt like an early commendation.

The Rail Minister, Andrew Jones MP, who seemed genuinely delighted to be back in the job, expressed the view that industry could make the case for that level of investment through the simple metric of “bums on seats”. Increasing demand, he cheerfully stressed, showed the system was working, strengthening passenger confidence as well as UK manufacturing and those all-important post-Brexit supply chains. Jones’ mood only appeared to chill when it was time for him to leave the Summit and return to the Commons for more Brexit votes.

Network Rail’s Chief Executive, Andrew Haines, gave a startlingly candid appraisal of his organisation and the wider industry’s shortcomings and future challenges. He admitted that franchise specifications were set up to encourage bidders to “promise the Earth” beyond the realms of realistic delivery, only to then seek to renegotiate the terms of their operating contracts. His criticism wasn’t just for others; he said Network Rail needed to be honest about where others could better fulfil elements of its current role – an astonishing admission. But was this a nod to private interest, or perhaps to local government?

Certainly, London’s Deputy Mayor for Transport, Heidi Alexander, has a clear view – she outlined plans for Transport for London (TfL) to take over responsibility for the tracks themselves, from Network Rail, in and around Greater London’s suburban network to fully maximise track capacity. TfL’s full plan for a metropolitan suburban rail service is expected shortly.

On the devolution point, there appeared to be no shying away from these challenges in other regions. Far from being deterred by witnessing the recent woes of Network Rail and private operators over performance and timetabling, representatives from Wales, Transport for the North and TfL all gave the same message – they see these challenges and want to grasp them.

On paper, the Rail Summit may have only been rail industry wonks talking to each other. But far from feeling like an echo chamber there was a palpable sense of self-examination and determination. It really wasn’t a case of “we’d better change or Jeremy Corbyn will nationalise us” (he wasn’t mentioned all day); the ambitions are sincere and there at least appears to be a genuine appreciation that the route to industry’s success and the expectations of passengers are coterminous. All change? We’ll see.

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How meaningful was this week in Brexit?

Where are we?

In fourteen days the UK will leave the European Union, with or without a deal, unless an extension to Article 50 is requested by the UK and granted unanimously by all remaining 27 EU member states. Parliament has instructed the UK government to request an extension, but it has not indicated for how long this should be or what it should seek to achieve. It has also voted against a no deal outcome, against a second referendum and against giving itself an opportunity to express its view on an alternative approach in a series of indicative votes next week.

Brexit has broken the UK political system. Both major parties and almost all the various Brexit factions are deeply split and whatever path we take is likely to wreak more havoc and damage on the established political order.

What happened last night?

The instruction to request an Article 50 extension was delivered last night via approval of a government motion. This set out two possible extension scenarios; a short extension (likely until June) if Parliament finally approves May’s deal in order to pass the relevant legislation to enact it, or the prospect of a much longer extension if the deal is not passed, likely to be accompanied by unpalatable conditions from the EU.

This motion passed, unamended, by a large majority in a free vote in which MPs were not instructed which way to vote by the whips. All amendments to the motion were defeated, including a call for a second referendum (by a significant margin with Labour abstaining) and an attempt to grant the Commons the chance to hold indicative votes on alternatives to May’s deal (by just two votes). This appeared at first to be a qualified success for the Prime Minister, until it emerged that two thirds of all Conservative MPs and eight Cabinet Ministers opposed the motion.

What comes next?

The next staging post in this process is now expected to be a third meaningful vote on the Prime Minister’s deal next Tuesday. Intense efforts are now underway to find any mechanism to win round the DUP. They are seen as the key to unlocking this process. If they fall in line, many of the ERG Brexiteers and a number of Labour MPs are expected to swing in behind them. Attorney General Geoffrey Cox is again at the heart of these efforts via additional attempts to construe further legal interpretations & clarifications. It currently appears unlikely, though not impossible, that these efforts will bear fruit by Tuesday.

Should the deal be rejected a third time by MPs the only course of action left to the Prime Minister will be to seek an extension to Article 50. There is no precedent for this process. It is expected that the details of whether, and on what conditions, any extension will be granted will be hammered out between EU leaders at the European Council summit next Thursday and Friday (21st and 22nd March).

There will be an expectation that the UK will need to provide a clear rationale for the request. This could be in the form of significant changes to its negotiating stance and there is even speculation that a second referendum will be demanded as part of the price of an extension (though this would represent a very hard-line approach indeed).

Responding to an extension request will be a fiendishly tricky challenge for the EU leaders. They will be balancing the risk of pushing the UK into no deal with the need to end the current uncertainty and the desire to avoid ending up in exactly the same scenario at the end of whatever extension period is granted. This is all complicated by the requirement for unanimity, any single member state can veto an extension. The outcome of this process is highly uncertain, it is by no means a given that an extension will be granted.

How could this play out?

Should the Commons refuse to back May’s deal again next Tuesday, it is likely that MPs will be faced with a final reckoning in the last week of March with just days to go until time runs out. At this point there will be certainty over whether, and on what terms, an Article 50 extension is available and the options on the table will be crystallised.

Should Article 50 extension only be available for a very long period on condition of a softer Brexit or even a second referendum, the ERG Brexiteers and the DUP will have to choose between the lesser of two evils; extension, or May’s deal. It is entirely possible, though not certain, this would finally bring them in line behind her deal. It will be a very close call.

Should Article 50 extension be denied for anything other than a short term administrative period to pass May’s deal, then it is hard to see how Labour MPs, the SNP and other remain supporting groups could do anything other than hold their noses and vote for May’s deal. Otherwise they will facilitate the no deal scenario the Commons has voted to rule out in all circumstances.

It appears then that a significant extension of Article 50 or a last minute backing of May’s deal, under extreme duress, are now the most likely outcomes. Either scenario calls into greater question the future of Theresa May’s premiership. Either she will be faced with implementing a deal the vast majority of Parliament hates or adopting a fundamentally different approach to the Brexit negotiations that she personally disagrees with, during a delay she has consistently opposed. Neither scenario looks like a recipe for a return to predictable and stable government.

UK politics looks set to be dominated by Brexit and characterised by unpredictability for some time yet to come.

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