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Deal or no-deal for May?

Words by:
Associate Director
December 7, 2018

It has been another extraordinary week in Westminster. The Government started the week with two significant defeats in the Commons. In doing so, it became the first government in history to be found in contempt of parliament, was forced to publish the full legal advice provided to the Cabinet on the Withdrawal Agreement, and handed parliamentarians a greater say over what should happen if (when?) the government loses the meaningful vote.

This has been followed by speculation around how much the Government is expected to lose by in next Tuesday’s vote and even about the possibility the vote itself might be delayed. Theresa May, however, appears set to press ahead, insisting that this is the only deal available. Her message remains clear; the only alternatives to her approach are no deal or no Brexit. But is this still the case following the success of Dominic Grieve’s amendment?

To answer this, it is important to understand what this amendment does. It essentially allows Parliament the opportunity to express a view on what it wants to see happen if the meaningful vote is lost. This would be achieved by tabling and voting on non-binding motions. This allows different options, not currently backed by the government, to be tested to see if they can command the support of a majority in the Commons.

However, having the tool to this in theory is not the same as being able to organise a majority of parliamentarians in favour of a credible alternative approach with a hope of being accepted by the EU in practice. Remember, no deal will happen unless Parliament can actively agree on an alternative. So let’s examine the various outcomes that could be put forward by Parliament under this mechanism.

Another kind of Brexit – Norway-style EEA arrangement or Canada +++?

Any expression of a desire for a Norway-style EEA deal or a ‘Canada +++’ fails to account for the fact that both these options remain very much on the table by the open nature of the political declaration. Parliament expressing a view in favour of either approach does not obviate the demand from the EU for the Withdrawal Agreement and, specifically, the Northern Irish backstop. The EEA option would mean accepting free movement of people and undermining the UK’s ability to strike independent trade deals, while the Canada option would fail to prevent a hard border on the island of Ireland. There appears to be more MPs willing to back Norway than Canada but, in either scenario, there will still need to be very painful trade offs and the EU’s demand for a fall-back option for Ireland will remain.

Renegotiate the deal

The message from Brussels has been very clear on this point. They will not reopen negotiations on the Withdrawal Agreement unless there is a material change in the UK political landscape, widely interpreted as a second referendum or a General Election leading to a new government. There may be some wiggle room to make cosmetic changes to the political declaration on the future relationship or a declaration. While this might buy off some of the dissenting Conservative MPs, it won’t address the fundamental concerns held by the most hard-line Brexiteers and, importantly, the DUP over the nature of the Northern Ireland backstop. Ultimately, if Parliament does issue a command to attempt re-negotiation it won’t solve anything if the EU refuses to budge.

A second referendum

This is the one option likely to represent a significant enough shift to persuade the European Commission and remaining member states to pause the clock on Article 50. Its popularity appears to have increased as a back-up option to avoid no-deal. However, it is still far from clear that a parliamentary majority can be found for it. Were the Labour leadership to pivot its position and back a second referendum (as appears possible) that would be a significant step but there remains deep concern across the Conservative Party about the long term implications. Being seen to tell people, in effect, that they were wrong and they need to vote again risks either another leave vote (thereby solving nothing) or opening a real Pandora’s box should a remain win be seen to further undermine faith in the political process among those that thought the outcome of the first referendum would be binding.

It may not be possible to move forward until all these various options have been explored and tested against parliamentary opinion. Should none of them command a majority, or prove possible to agree with the EU, then Theresa May will have been proved right and MPs will be left with the stark choice between May’s deal and no deal. When the other options have been examined forensically, these two options still appear by far the most likely outcomes.

But will Theresa May survive long enough to be proved right? Potentially yes. She has demonstrated extraordinary resilience so far, though this will likely depend on the scale of the expected defeat in the meaningful vote. The DUP look set to support the government in a formal parliamentary vote of no confidence, thereby protecting from an early election by default. But their approach to the confidence and supply deal with the Conservative Party thereafter could have a significant bearing on the Prime Minister’s future.

May is still vulnerable to another move against her within the Conservative Party, either via the 1922 48 letters process, or by a move against her by sufficient numbers of the Cabinet. Refusal of the DUP to back a May-led government could prove fatal to her. The fact remains though that replacing Theresa May would not, in itself, unlock the Gordian knot that is Brexit.

So what does all this mean for businesses and investors? Firstly, that Brexit uncertainty still has some way to run, at least until the end of the calendar year and possibly into January. But we are now nearing the end of this particular phase of Brexit. The clock is ticking and, unless the votes for a second referendum materialise in Parliament, the UK will still be leaving the EU on 29th March next year. The nature of that departure should be settled one way or another in the coming weeks.

At that point, this exhausted government and parliament will be forced to turn its attention back to domestic matters. Next year will see a spending review and the first Queen’s Speech for over two years. In the absence of an election, these will be overseen by a weakened minority government operating in a Parliament that has reasserted itself. This will present big opportunities for influencing how the country takes itself forward regardless of what happens in the next month.

It is impossible to predict what will happen in the next two weeks, but it is both possible and necessary to prepare for the moment when attention eventually turns back to other matters.

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