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From the Queen’s Speech to the next election: what now for the government’s agenda?
From the Queen’s Speech to the next election: what now for the Government’s agenda?

Archive for the ‘EU’ Category

WA Explainer: What is the Northern Ireland Protocol and why is the government trying to change it?

Many people thought (or hoped) that the need to keep up with Brexit stopped in 2019. As the WA Investor Services team and other seasoned Westminster watchers will tell you, Brexit has been bubbling under the surface since the initial deal was signed, with the UK and EU locked in ongoing, and not entirely productive, negotiations ever since.

Now, after months of hinting at the need for more dramatic action to break the negotiating deadlock, the government has published the highly controversial Protocol Bill, which it argues will solve some of the issues that the current Brexit deal has created in Northern Ireland.

The Bill has huge consequences for UK-EU relations, the stability of power sharing in Northern Ireland and Prime Minister Boris Johnson’s own political fortunes. With all that in mind, we’ve put together an explainer of the position of the UK and EU on the Northern Ireland protocol, what the Bill seeks to change, and what it will mean for both sides in the future.

What is the Northern Ireland Protocol?

The Northern Ireland Protocol is the part of the Brexit deal that sets out special customs and regulatory arrangements for Northern Ireland in light of its land border with the Republic of Ireland, an EU country. Both sides agreed that avoiding a ‘hard border’ between the Republic and Northern Ireland was a key priority. The eventual compromise was to create a customs border in the Irish Sea, rather than on the island of Ireland. Goods crossing into Northern Ireland are checked as though they are entering the European Union. Northern Ireland must, in certain areas, follow the jurisdiction of the European Court of Justice (ECJ).

In return, both sides agreed that Northern Ireland businesses would have access to both UK and EU markets without the need for further checks. This arrangement appears to have resulted in economic benefits for Northern Ireland. Data from the Office for National Statistics shows that the only regions in the UK to have seen GDP recover to pre-pandemic levels are Northern Ireland and London, though Northern Ireland recorded the largest drop in GVA of any region in Q1 2022.

The current terms of the Protocol are strongly opposed by Unionist parties in Northern Ireland, who argue that the presence of a customs border between Northern Ireland and the rest of the UK undermines the union. The Democratic Unionist Party (DUP) is now refusing to form a new power-sharing government in Northern Ireland until a solution to its concerns is found. Despite this, the Protocol is not universally opposed in Northern Ireland. On 13 June, 52 out of 90 members of the Northern Ireland Assembly wrote to Boris Johnson to “reject in the strongest possible terms your government’s reckless new protocol legislation”. The letter is an indication that the government’s proposals do not guarantee an end to Brexit-related tensions in Northern Ireland.

What is the government trying to change?

The government is arguing that the current agreement undermines the Belfast/Good Friday Agreement in Northern Ireland and creates additional, unnecessary bureaucracy for businesses trading between Northern Ireland and the rest of the UK. Protecting the Agreement is key to the government’s reasoning for introducing the Bill. In a summary of its legal position on the protocol, the government said it is relying on the “doctrine of necessity,” which it argues would “lawfully justify non-performance of international obligations” because of Northern Ireland’s “genuinely exceptional situation.”

The Bill proposes to override some parts of the protocol unilaterally. Under its proposals:

Can the government secure the changes it wants?

Johnson has been criticised by opposition parties and some Conservative MPs for seeking to override a deal he only agreed to in 2019. The UK government has argued that the deal has had “unforeseen consequences”, particularly for the stability of the Good Friday Agreement. Some MPs are also concerned about the legality of the Bill. Others are concerned that the UK’s actions will undermine its international standing, particularly as it still seeks to negotiate trade deals with major developed and emerging economies.

As a result of these concerns, the Bill will face a challenging journey through Parliament before it can become law. This process is likely to take months. It is extremely likely that members of the House of Lords and MPs will seek at least to amend the Bill to water down some of the proposals.

The key political test for Johnson, however, will be whether he faces a significant rebellion from his own backbenchers. The European Research Group (ERG) of pro-Brexit MPs have also yet to give the Bill their backing and plan to scrutinise the Bill line by line before announcing how they will vote. It is likely that at least some of the One Nation group of Conservatives will vote against the Bill over concerns that it breaks international law, but they will not have enough votes to defeat the Bill alone. If a broader coalition within the party chooses to rebel on the issue, and Labour chooses to vote against the Bill, there is a risk it could be defeated. However, the size of Johnson’s majority and the lack of organised opposition to Johnson or the Bill itself within the Conservative Party make a rebellion of the necessary size difficult to achieve.

What is the likely response of the EU?

The EU is strongly opposed to the UK’s current action and has stated that there will be serious consequences if the UK moves to change the Protocol unilaterally. In the short term, expect the EU to put forward revised proposals of its own to try to continue dialogue between the two sides. Continuing negotiations are supported by the UK and EU, and therefore we are likely to see ongoing talks take place even while the UK government seeks to pass the Protocol Bill.

The European Commission is also expected to relaunch legal action against the UK, which was previously paused to allow for negotiations between the UK and EU over the Protocol to continue. The EU argues that the UK has already failed to implement large parts of the existing Brexit deal, breaching the terms of the agreement. This process is unlikely to move quickly, but provides the EU with an option of escalating its response.

The EU’s response is likely to be limited to continuing negotiations and its legal proceedings for now, but a significant escalation can be expected in the event the Bill passes in its current form. The EU has been clear that it will trigger a full-blown trade war with the UK — something neither Johnson nor his chancellor Rishi Sunak wants in the middle of the cost-of-living crisis. Compromise remains in the interests of both parties, so the government will hope that the Bill will push the EU into changing its position, rather than expecting the Bill to pass in its current form.

Where do we go from here?

The government has sought to play down the scope of the Bill, with Boris Johnson labelling its proposals as “a trivial set of adjustments”. In reality, Johnson sought a more moderate version of the Bill after Chancellor Rishi Sunak and Health Secretary Sajid Javid raised concerns about the consequences of the original, more hardline version of the Bill proposed by Foreign Secretary Liz Truss. However, fresh from a bruising vote of confidence in which 41% of his party unsuccessfully tried to unseat him, Johnson has been forced to move back closer to the original proposals tabled by Truss. Johnson’s changing position is indicative of the political position he finds himself in. Weakened by the vote, Johnson will now be more vulnerable to the views of his own backbench MPs, making government U-turns – and inconsistent policymaking driven by their views – more likely.

The proposals are also extremely likely to have diplomatic consequences. The EU has warned that the Bill undermines trust between the two sides and makes finding a compromise harder. US President Biden has also warned that the UK’s actions make it less likely that a UK-US trade deal can be agreed. Although the UK’s actions are likely to cool UK-US relations, a trade deal was already unlikely, with lead UK negotiator Crawford Falconer admitting in May 2022 that negotiations had “stalled”.

Johnson is likely to find it extremely difficult to compromise on the Bill to break the impasse with the EU while retaining the support of pro-Brexit backbenchers. This, rather than legal challenges at home or in the EU, is likely to be the real flashpoint of the legislation. Johnson risks finding himself in the same position as former Prime Minister Theresa May, caught between the demands of the party and the need for a workable solution with the EU. The Bill begins the process of establishing whether he can find the solution Mrs May could not to the question of the Northern Ireland Border,  but is unlikely to settle it.

To discuss the government’s approach to the Northern Ireland Protocol, please email Lizzy Cryar on lizzycryar@wacomms.co.uk.

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From the Queen’s Speech to the next election: what now for the Government’s agenda?

The Queen’s Speech on 10th May will be one of the Government’s last opportunities to set out its policy agenda ahead of the next general election.

With the Conservatives trailing in the polls and expected to lose seats in this week’s local elections, will Boris Johnson take the opportunity to reset and galvanise his premiership, or will rising inflation and the cost of living mean that the Government continues to lose ground as the general election approaches?

WA’s new report on the Queen’s Speech takes a close look at the Government’s latest legislative agenda, assessing where its priorities are likely to lie in the coming months and what that will mean for businesses.

You can download the full report here:

Queen’s Speech 2022: A look ahead (PDF)

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Solvency II reforms: a key Brexit win for the government?

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The final countdown: Brexit explained in five minutes

How did we get here?

Negotiations have been ongoing since the Brexit referendum in 2016. The UK was initially scheduled to leave the EU on 29 March 2019, two years after it triggered Article 50, but a series of extensions led to the UK’s eventual exit from the EU on 31 January 2020. The UK then entered a transition period during which EU rules continue to apply in the UK and the UK remains part of the EU’s single market and customs union. The transition period will end on 31 December 2020.

The negotiations currently taking place are seeking to agree the UK-EU trading relationship after the transition period ends. These negotiations are between the European Commission (the executive body of the EU) and the UK Government. The UK negotiating team is led by David Frost and the EU team by Michel Barnier. Interventions have also come from Boris Johnson and the President of the European Commission, Ursula von der Leyen, usually at times where political impetus is required.

Where are we now?

The UK and the EU have both said that the vast majority of the components needed for a free trade deal have been agreed. Two main issues are outstanding: fishing rights and the so-called level playing-field provisions.

Fishing rights have become a totemic issue. The UK government views fisheries as a key part of “taking back control” of British territory and regulation. The UK is thus fighting hard on the issue, despite fishing being worth only around than 0.1% of UK GDP. Indeed, in terms of Gross Value Added, the entire UK fishing industry is comparable to the single Harrods store, yet fishing rights now appear to be the single largest obstacle preventing a trade deal.

In seeking level playing-field provisions, the EU wishes to ensure that the UK either maintains equivalence with EU regulations, or faces tariffs, to prevent it from gaining what the EU sees as an unfair competitive advantage. The issue has proven intractable because both sides can argue that their position is reasonable, given the precedent of previous free trade agreements. An agreement on this point is particularly important for investors and businesses in the UK because, without one, tariffs and other regulatory barriers could impede the untaxed flow of goods between the UK and the EU, and vice-versa. In recent days, both sides have hinted that some progress has been made, but the precise nature of this progress is very far from clear.

Compounding these issues is a sense from both sides that they must not be seen to be giving too much ground, as this would set an unhelpful precedent for any future trade negotiations with other countries.

What happens next?

Face-to-face negotiations are continuing. With two weeks to go before the end of the transition period on 31 December, any agreement will require an accelerated approval. This kind of shortened timetable is not impossible, but it is highly unusual. It is likely to mean any deal agreed lacks the depth or complexity that will be necessary to cover the future UK-EU relationship in full for the long term.

In the UK, the ratification process is comparatively simple. A debate in Parliament is likely to take place (though this is not a formal requirement) and the government has set out plans to recall MPs from their Christmas holidays if necessary, to ensure a vote can be take place before time runs out. Normally, a treaty can be ratified only after 21 sitting days have passed since it was first presented to parliament, but the government has the power to push ratification through in a single day.

Given the sizeable Conservative majority of 80 in the Commons, we can assume with a high level of confidence that any deal put before Parliament at this stage would be passed.

The EU system of ratification will take longer. Once a deal has been agreed, the European Commission (which has negotiated it) will recommend that the European Council approve the deal and set out its opinion on whether the final deal is a ‘mixed agreement’ or not. The European Council is the EU’s supreme political authority made up of the heads of state or government of the EU member states, along with the President of the European Council and the President of the European Commission. A mixed agreement is a trade agreement that also deals with regulatory issues or one that covers the oversight powers of each side. The UK-EU deal will not be a mixed agreement, meaning that as long as the Council approves the deal, it can pass without any separate approval procedures in individual member states.

After the Council approves the deal, it will be sent to the European Parliament. Like the UK Parliament, it cannot change or amend the deal, but it can veto it. However, any deal approved by the Commission and the Council is almost certain to be approved by the European Parliament.

After this approval, the Council must then confirm the agreement. As soon as this has been published in the Official Journal of the European Union (OJEU), the ratification process for a non-mixed agreement is complete.

How ready is the UK for the transition period to end?

The government has faced criticism for its post-Brexit preparations. The Business, Energy and Industrial Strategy (BEIS) Committee held evidence sessions on business preparedness for Brexit in early December 2020. Following the sessions, committee Chair Darren Jones MP warned that expected border disruption would lead to issues for imports and exports, with the food and manufacturing sectors particularly likely to be affected.

The treatment of the border between the Republic of Ireland and Northern Ireland is politically and economically complex, but a future arrangement has been agreed. Checks will not take place at the Irish border. Instead a new “regulatory” border between Northern Ireland and Great Britain (England, Scotland and Wales) will be introduced. Northern Ireland will continue to follow many of the EU’s rules, meaning that lorries can continue to drive across the NI/RoI border without having to be inspected, but some checks on goods moving between Great Britain and Northern Ireland will be required.

Some sectors face disruption regardless of whether a deal is reached or not. Most issues affecting the services sector, such as market access, are unlikely to be included in a trade deal. Most large firms have already sought to offset this risk by moving headquarters or establishing operations within EU. UK financial services currently benefit from the ability to ‘passport’ into the EU’s single market, which allows them to sell funds, debt, advice or insurance to clients across the EU unimpeded, as if they were domestic, rather than foreign, businesses. This ability ends when the transition period ends. Disruption caused by the end of passporting will be limited if the EU formally states that the UK has regulatory equivalence with the EU. This would allow British firms to serve EU clients if Brussels deemed British regulations to be closely aligned with its own. This system is more limited than passporting and can be revoked by the EU with 30 days’ notice. The process for approving an equivalence agreement is separate from the trade negotiations and is unilaterally decided by the EU.

The movement of data across borders is also key to the trade in services. Whether EU-UK transfers will be allowed is subject to the EU declaring that UK data regulations are equivalent to EU regulations. This decision is separate to the agreement of a trade deal and has not yet been made.

An agreement has also not yet been reached on whether to continue mutual recognition of professional qualifications (MRPQ). An agreement could make it easier for UK service providers to continue operating in the EU (and vice versa) and remove the expense of securing new qualifications or recruiting appropriately qualified staff. If a deal is not agreed the UK and EU member states could decide to unilaterally recognise each other’s professional qualifications or provide streamlined routes to re-qualification.

Can the transition period be extended?

There is no legal basis for extending the transition period, as the deadline for doing so passed on 1 July 2020. It is technically possible that, if both sides agreed, an extension of no more than a few weeks could be arranged through international law, though this is highly impractical. It is, therefore, a very unlikely outcome.

What could a deal look like?

Both sides have sounded more confident that a deal can be struck in recent days. Ursula von der Leyen, President of the European Commission, told MEPs on Wednesday 16th December that “there is a path to an agreement now”, albeit a narrow one, with Boris Johnson echoing this sentiment in meetings with MPs. A deal primarily affects the goods and manufacturing sectors. The key part of any deal will be the tariffs and quotas system. Both sides are aiming to continue the current tariff- and quota-free trading relationship, and this is the most likely outcome if a deal is agreed. The UK and the EU are looking to negotiate an agreement that would include measures to simplify customs procedures as far as possible.

A deal would still involve some level of customs checks at borders. However, these could be much simpler than in a no-deal scenario. Full regulatory controls on medicines, chemicals and industrial goods are likely to apply, as in a no-deal scenario. A mutual recognition agreement could be included in the trade deal to partially offset this regulatory burden, but compliance costs are likely to increase regardless.

What would the impact of a no-deal Brexit be?

The UK would begin trading with the EU on World Trade Organisation (WTO) terms, meaning that ‘most favoured nation’ tariffs for all good and services will be in place, replacing the current tariff-free arrangement. This is also referred to by the government as an “Australia-style deal”.

For most goods, the tariffs charged by the EU are not significant, but some sectors are at risk of considerable disruption. Agricultural goods and food face regulatory hurdles and additional tariffs as does the automotive sector, where car imports face an EU tariff of 10%. All goods would face greatly enhanced border checks, increased compliance costs and increased time for goods to reach their destination. The absence of mutual recognition agreements would mean that businesses would potentially have to certify their goods on both sides of the UK–EU border. This would lead to significant costs in particular for the chemical and pharmaceutical industries. Amid the Covid-19 pandemic and rising unemployment, the political implications of disrupting food and medicine supplies into the UK could be severe for the government. A Cabinet Office “reasonable worst-case scenario” document published over the summer set out a strategy for coping with the event of a no-deal Brexit during the Covid-19 pandemic, which includes the possibility of significant disruption throughout the UK. This is a scenario which the government will be extremely keen to avoid. Disruptions or shortages of food, medicine or other essential supplies during the pandemic would severely harm the government’s reputation domestically and abroad, as well as compounding the economic damage which the pandemic has already done.

A no-deal situation is by no means permanent. A deal could be struck with the EU at a later date and the UK hopes that the signing of new trade deals with other major economies in the future will offset the immediate Brexit impact and provide new opportunities for British businesses. The UK has signed 29 agreements covering 58 countries or territories that will roll over the trading relationship the UK had while it was an EU member. Additionally, a new trade deal has been signed with Japan. These deals are intended to mitigate the impact on non-EU trade and the UK government will look to sign new trade deals with major economies as soon as possible.

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What is the government’s plan for state aid?

Two of the Margaret Thatcher’s most steadfast beliefs were the benefits of European economic integration and the folly of governments providing financial aid to support particular businesses and industries, both of which she said contributed to the UK being labelled the ‘sick man of Europe.’ Ahead of the UK joining the European single market in 1992, Margaret Thatcher addressed businesses and encouraged them to think about the opportunities access to the single market would create. She said: “Just think for a moment what a prospect that is. A single market without barriers – visible and invisible – giving you direct and unhindered access to the purchasing power of over 300 million of the world’s wealthiest and most prosperous people.”

How times change. The current Conservative government, in its negotiations with the EU, is willing to sacrifice access to the single market so that it can offer state aid to British businesses. This about-turn raises a fundamental question: why is this government so keen to be able to financially support businesses, and what does it hope to achieve?

What are the rules on state aid?

State aid, broadly speaking, is any advantage granted by the government on a selective basis to businesses, and it can come in many forms: direct cash transfers, preferential tax treatment and financial guarantees offered by the state. Under EU rules, there is not a blanket ban on state aid. State aid can be provided if it is approved by the European Commission, it is of a small sum or if it is covered by the General Block Exemption Rule. The General Block Exemption Rule allows state aid to promote new activities that would not otherwise have taken place and promotes economic development without distorting competition. State aid that falls outside of these parameters and is viewed to distort competition by offering an advantage to a particular business or industry is illegal under EU law.

The UK and the EU are currently at loggerheads over state aid and a future free trade deal. The EU is demanding that in return for a free trade deal, the British government should commit to ‘dynamic alignment’ with the EU’s state aid rules – the so-called ‘level playing field’ commitments. The UK government, however, wants to have its own ‘separate and independent’ policy on state subsidies. The EU’s fear is that if it gives British firms free trade access to the single market without assurances on state aid, the government in the UK could subsidise green technology, for example, and undercut European made products, undermining the principles of the single market. The EU’s objections are quite reasonable – if you want to be a member of a club, you need to play by the rules. If there can be no agreement between the two sides, the UK will leave the EU on 1 January 2021 without a deal, an outcome that is looking increasingly likely (and even desirable to some within Downing St).

What’s the plan?

Should the UK leave without a deal, the government will not be able to splash the cash wherever it wants, as it will still be bound by World Trade Organisation (WTO) rules on state aid. One crucial difference though is that the WTO state aid restrictions only cover goods, while the EU’s rules cover both goods and services. This opens the door to the UK being able to financially support a range of industries in the service sector, an area where the UK already has a competitive advantage, especially in financial and professional services.

Dominic Cummings recently told civil servants in the Department for Digital, Culture, Media and Sport that he was working on a plan to help the UK build ‘$1 trillion tech companies.’ Cummings views a no-deal Brexit and the removal of EU state aid restrictions as an opportunity for the government to support British start-ups to become genuine players on the world stage, having historically lagged behind the United States and China.

Looser rules on state aid would also help the UK be more flexible in times of emergency. At the height of the Covid-19 pandemic, HM Treasury was restricted in its ability to offer CLBILS loans to private equity-backed firms due to the EU’s rules on ‘businesses in difficulty.’ Due to the leveraged financial structure of these firms, under EU rules, they were not eligible for government financial support. Outside of the EU’s legal framework on state aid, the government would be free to financially aid whichever businesses it chose to, an option that will only become more appealing as the reality of increasing unemployment kicks in.

Will it work?

The idea of a British tech giant is an appealing one for the government. Foreign technology firms are difficult to tax, and it would make the government’s life a lot easier if it had a homegrown firm it could draw revenue from. The creation of high quality, well-paying jobs would also be a bonus.

There are some problems with Cummings’ plan, though. Historically, the British government has a chequered record of success in ‘picking winners.’ When compared to the private sector, governments lack the knowledge, expertise and market discipline to sustain and grow companies. This means risk is often not weighed effectively, leading to either over or under-investment. There is also the risk that business decisions get made not for sound commercial reasons but to fulfil some other government priority.

The interaction between the state aid tech giant plan and the government’s levelling up agenda also throws up some inconsistencies between its wider priorities. Tech firms tend to thrive in big cities and those that are home to elite universities. These are precisely not the areas the government wants to ‘level up’: post-industrial towns in the north and midlands. The price of state support for the tech sector would be the government trading off the UK’s remaining manufacturing base in the north and midlands by removing tariff-free access to its biggest market.

State aid is an appealing idea, but to be implemented well it requires a government to have patience, skill and good judgement. It will also involve the government having to make an unappealing sacrifice that will undermine its levelling up agenda. The deeper message of the government’s interest in state aid is that it is no longer ideologically wedded to the ideas of the past and it is more than willing to deviate from them if it is politically expedient to do so.

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Brexit explainer – what is the Internal Market Bill and why does it matter?

For avid Brexit-watchers, the headlines from the past week may seem like the country has been transported back to October 2019. With restless backbenchers, strongly worded statements from EU Chief Brexit negotiator Michel Barnier, and journalists running to the nearest legal expert, Westminster is suffering from a collective case of déjà vu. For those just tuning back into the Brexit negotiations, here’s what you need to know.

What is the Internal Market Bill?

The Internal Market Bill is intended to create a framework for trade to operate across the four UK nations post-Brexit. The Bill attempts to ensure the whole UK operates as its own single market. It would establish two legal principles – mutual recognition and non-discrimination – to ensure there are no new barriers for businesses trading across the UK, allowing a good or service to be sold anywhere in the UK without any internal standards blocking the movement of goods.

Why is the Bill so controversial?

The principal issue is that the Bill would reverse the Northern Ireland protocol contained in the Withdrawal Agreement, which was signed by Boris Johnson and passed by the current Parliament on 24 January 2020. The protocol settled the issue of post-Brexit trade across the Irish border by applying some EU customs regulation to goods travelling between the rest of the UK and Northern Ireland to avoid checks at the Irish border. The Bill would contravene the Agreement in three ways:

  1. It gives ministers powers to not to apply EU standards on paperwork for goods leaving Northern Ireland going to the rest of the UK.
  2. It gives ministers the power to disapply or modify state aid rules in Northern Ireland, which the Withdrawal Agreement stated would continue to be governed by EU state aid rules. Those powers also allow the UK Government to ignore decisions of the European Court of Justice and EU legislation on state aid.
  3. It would prevent individuals from enforcing the provisions of the Withdrawal Agreement in UK courts by stating the measures in the Bill are ‘not to be regarded as unlawful on the grounds of any incompatibility or inconsistency with relevant international or domestic law’.

The second issue with the Bill is the decision to apply mutual recognition to the devolved nations without their consultation. Mutual recognition means goods lawfully produced in England according to English standards can be sold in Scotland, even if Scotland has higher (and thus more expensive) standards. This means the devolved nations are not allowed to exclude goods from other UK nations made to lower standards, undermining their ability to set their own regulations.

What has the reaction been?

Reaction has been strong from both sides of the Brexit debate, fuelled by Northern Ireland Secretary Brandon Lewis admitting in the Commons that the Bill ‘does break international law in a specific and limited way’. Domestic opponents of the Bill suggest that it will damage the UK’s international reputation, preventing it from being taken seriously when addressing illegal acts conducted by other nations and making trade talks harder.

Scottish First Minister Nicola Sturgeon has described the Bill as an “assault on devolution”, an accusation that is unlikely to hurt the SNP’s standing going into the Scottish Parliamentary elections next year. Sturgeon has now pledged to campaign to demand a new independence referendum as “the only way to protect the Scottish parliament from being undermined and its powers eroded”.

The European Commission has threatened the UK with legal action and trade sanctions if it does not withdraw the controversial clauses in the Internal Market Bill by the end of September. Irish Taoiseach Micheál Martin has also personally criticised the Bill, stating that he is now pessimistic about the chances of agreeing a trade deal with the UK. Despite this, the EU has no intention of immediately shutting down  its talks on the UK/EU future-relationship, saying it would amount to falling into a trap set by the UK.

Across the Atlantic, US Speaker Nancy Pelosi has warned that there is “no chance” of the US signing a trade deal under a Biden presidency if the UK goes ahead with the Internal Market Bill in its current form because it undermines the Northern Irish peace process.

Why has the government done this?

The government has stated that the Bill is merely its way of tidying up “loose ends” in the Withdrawal Agreement that it says were caused by passing the Agreement “at speed”. The policy is described as a ‘safety net’ by ministers, to protect Northern Ireland’s position if a deal on future relations with the EU cannot be reached.

The UK has also claimed Michel Barnier has threatened not to include the UK on the list of “third countries” on food standards, which would effectively make it illegal to move food from Great Britain to Northern Ireland.

This defence has been met with scepticism by political commentators, the EU and some UK politicians, who believe the UK Government is either trying to force more concessions from the EU, attempting to force the EU to walk away from negotiations or simply did not realise the implications of the Withdrawal Agreement during the negotiations.

Of course, more than one of these reasons can be true at the same time, and it is entirely possible the UK Government feels it is a necessary action to take to protect trade with Northern Ireland, while also using the Bill as a way of shaking up, or perhaps deliberately destabilising, the trade talks.

What happens now?

The government has told the EU it doesn’t intend to withdraw the Bill, meaning it will be debated in Parliament. Conservative MP Bob Neill has tabled an amendment that would give parliament a veto on any decision to breach the Withdrawal Agreement. A significant number of other amendments are also expected. The passage of any amendment would require a significant Conservative rebellion, as well as the support of Labour, the SNP and the smaller opposition parties.

The Bill must also pass in the House of Lords, where it has been widely condemned, including from Conservative peers. The Lords are highly unlikely to block the Bill but may introduce amendments to force the Bill back to the Commons. It is almost certain to back any amendments passed in the Commons designed to water down the Bill. The Bill can’t pass into law until both Houses pass the same version of the Bill in full.

What happens if the Bill passes?

The passage of the Bill in its current form is likely to cause a serious impasse between the UK and the EU. European Parliament leaders, representing a majority of MEPs, have issued a statement declaring they will block the EU-UK trade deal if there is any breach of the Withdrawal Agreement. This marks a line in the sand from which neither side is backing down and makes the possibility of leaving the transition period without a trade deal significantly higher.

While it is highly unlikely the Bill will be voted down, it may be passed with amendments that either remove or significantly waters down the current provisions. The government is considering implementing sanctions, including a ‘nuclear option’ of withdrawing the whip from rebel Conservative MPs.

The Bill also has implications for the union. The Scottish and Welsh Governments have set out strong opposition to the Bill and with Scottish Parliamentary elections on the horizon in 2021, the Bill is set to further provoke anti-Westminster sentiment among Scottish nationalists. Polls have consistently shown a majority in favour of Scottish independence since the onset of the coronavirus pandemic, and this Bill is likely to cement opposition to the current Westminster Government in Scotland.

The matter may well be settled in the courts. Although the UK Supreme Court is unlikely to have jurisdiction over the issue due to parliamentary sovereignty, the EU may choose to take the case to the European Court of Justice which has jurisdiction over the interpretation and implementation of the Withdrawal Agreement.

Whatever happens over the next week, the UK Government has chosen a provocative approach that will have significant implications for the outcome of the UK-EU trade negotiations, its relationship with its own MPs, the strength of the union and its international reputation.

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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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What happened in the land of Brexit last night and what happens next?

Last night, Conservative MPs united for the first time in months around a course of action, backed by the Prime Minister on the next steps in the Brexit process. That is the most optimistic take on yesterday’s events for the Prime Minster.

A more realistic, but still generous, assessment of events is that Theresa May beat a tactical retreat to avoid yet another large defeat in Parliament that would have seen MPs seize control of the Brexit process directly. A yet more pessimistic take is that she capitulated to the ERG hard-Brexiteers and the DUP, making an almost undeliverable promise to renegotiate the Withdrawal Agreement to change or remove the hated backstop.

The facts are that the Prime Minister opened yesterday’s debate by announcing that she would seek to reopen negotiations on the Withdrawal Agreement to secure legally binding changes to the backstop. She then asked MPs to back an amendment tabled by 1922 Committee Chair Graham Brady that backed the Withdrawal Agreement as long as the backstop was replaced with unspecified ‘alternative arrangements’.

May also had some warm words for the so-called ‘Malthouse compromise’ proposals that had been hastily briefed to the media. This essentially calls for the use of technology to avoid the need for a hard border (and therefore the backstop) or for a managed no deal that takes place with a longer lead in (December 2021). This is a long way from being acceptable in Brussels but has demonstrated that the rival factions within the Conservative Party are finally coming together.

This proved to be enough to swing the Conservative Party behind her. Amendments tabled by Dominic Grieve and Yvette Cooper that would have seen MPs seize control of the Parliamentary timetable and processes in order to find an alternative approach (likely a softer Brexit) were defeated. The Brady amendment was passed. The only government defeat occurred on an amendment that expressed Parliament’s desire to avoid a no deal Brexit but is not legally binding.

Attention now turns back to Brussels. The European Commission and several remaining EU Member States (including Ireland) immediately rejected May’s call to reopen negotiations on the Withdrawal Agreement. There have been briefings to the media about the possibility of using a ‘Joint Interpretive Instrument’, essentially an addendum to the Withdrawal Agreement, that could have legal force as one possible route forward. However, it is far from clear that this meets the threshold demanded by the Brady amendment last night.

Theresa May has spent the last two years trying and failing to find a way through the hard-line positions of the DUP and ERG on one side, and the EU’s red lines on the other. She now has two more weeks to try to solve this riddle before facing MPs again on 14th February. Should she fail, we will be back to square one, with a likely repeat of last night’s series of votes on various different options.

So where does this leave us?

Firstly, the chances of a second referendum are receding. There appears to be little appetite from most MPs for this approach and without a majority in the Commons it is a non-starter.

Secondly, the chances of an immediate election are also lengthening. The Conservative Party’s (likely temporary) truce strengthens the Prime Minister’s position in power in the short-term with time now almost out to hold an election before March 29th (assuming no extension of Article 50). However, questions remain over her tenure in the medium-term and the prospect of a Corbyn-led Labour Government in the foreseeable future has not gone away.

The chances of a deal getting through Parliament will depend on two things: whether the initial no from the EU really does mean no; and whether the newly forged mood for compromise within the Conservative Party extends to considering compromises from the EU that fall short of the ERG’s redlines. The ticking clock of no deal may help nudge MPs in this direction but there is deep scepticism among other EU leaders that May can actually deliver a deal even if they offer more concessions. Changing this perception will be a key task now for the Prime Minister.

If this latest attempt at renegotiation fails, the prospect of Parliament seizing control of the process will likely be revisited. If and when MPs do get another opportunity to shape the process more directly, it seems likely that a significantly softer Brexit will be the likely outcome. But the question remains, to what end? MPs last night backed away from shouldering this responsibility. Once again, the impending prospect of no deal might make them bolder if they get another chance.

Finally, no deal remains the legal default and is looming ever larger with the clock ticking. An optimist could say last night was a step in the right direction with Conservative MPs finally uniting behind something, even if it isn’t the ultimate solution. A pessimist might say we shuffled closer to the cliff edge of no deal. Nothing has yet been resolved.

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What are the Brexit options now?

Tonight is the night that Parliament will finally be given its say on Theresa May’s Brexit deal. After weeks of delay, the question on everyone’s lips is not whether Parliament will reject Mrs May’s deal, but by how much she will lose. With just hours left until the vote, there is no indication that enough MPs have switched their public opposition to the deal to prevent a significant defeat for the government.

It is time, therefore, to take a look ahead at the potential scenarios that might play out in the coming weeks. We have outlined below our analysis of several potential outcomes from the current chaos.

 

Defeat so big – May has to go?

There is talk of tonight’s defeat surpassing the worst defeat for a government in living memory. So is there a chance this could precipitate a move against May that could force her downfall or her voluntary resignation? In short, no. Theresa May has given no indication that she has any intent of stepping aside and even the most strident critics of her deal have not called for the Prime Minister to resign. Indeed, the DUP have stated they will continue to support her government in a confidence vote.

Likelihood: not happening

 

Parliament takes control

What of recent press reports that MPs are mobilising to seize control of the business of the House of Commons to prevent a no deal Brexit? Nick Boles is reportedly ‘plotting’ to pass a Bill that would force the government to seek an extension to Article 50 or to revoke Article 50 altogether. Even if control over the Commons order paper was wrestled away from the government, this would still be a very tall order to organise and pass before March 29th and is not realistic. Furthermore, proposals for the Liaison Committee to take control of the process from the government were quickly dismissed by the chair and vice-chair of the Liaison Committee. While Parliament is certainly flexing its muscles, it cannot ultimately seize total control of the Brexit process.

Likelihood: not happening

 

May’s deal passes at the second (or third) attempt

The government has had plenty of time to plan its next steps should Parliament reject the deal first time round. One of the most likely next steps will be simply to have another go in a second parliamentary vote, and perhaps even a third attempt too.

The success of this approach will be influenced by a number of factors. First up, the scale of the defeat in the first vote. Losing by more than 200 votes will make it much harder to simply ask MPs to try again, whereas a better than expected showing for the government will encourage them that all is not lost. The fact that 100 Conservative MPs voted against her in the no-confidence vote is likely to set the benchmark against which the scale of defeat is measured.

Secondly, can the PM secure any further concessions from the EU? So far the Commission and remaining member states have held firm to the line that there can be no change whatsoever to the legal text of the Withdrawal Agreement. Clarifications were offered round the sides of the deal on the EU’s desire to avoid using the backstop (while stopping short of placing a time limit on it) in the build up to tonight’s vote but it is difficult to see how much more can be offered.

Thirdly, will MPs be given the opportunity to test parliamentary opinion on other alternatives? A series of votes on alternatives such as no deal, Norway-plus or a second referendum might actually play into the Prime Minister’s hands if it demonstrated that none of them can actually command a Commons majority.

Finally, the way in which the world outside Westminster responds to a rejection of the deal can’t be ignored. The markets have been subdued for some time due to Brexit uncertainty and a drastic reaction to rejection of May’s deal (such as a sterling crash or a major crisis in the FTSE 100) might give MPs something else to think about. However, given the widespread expectation that the deal will fall at the first vote it is entirely possible that this outcome is already built into market assumptions.

So what needs to change between tonight’s anticipated defeat and a successful subsequent attempt? The most likely route to reversing the result will involve Theresa May providing concessions targeting Labour MPs on issues such as employment rights, the growing realisation that other alternatives are not realistic options and the simple fact that the clock continues to tick towards no deal. It may also include giving a more specific, and accelerated, timetable for the Prime Minister’s departure.

Likelihood: The most likely outcome, but one which requires the Prime Minister to limit the scale of tonight’s defeat and for Parliament to test and fail to agree on several alternatives.

Timing: It will need to happen soon and would probably require a short (‘technical’) extension to Article 50 (see below).

Implication: This may allow a return to something resembling normal service in UK politics but May will have been severely weakened and it is likely that more detail on an accelerated and specific timetable for her resignation will have formed part of the process of getting approval.

 

Article 50 extension

If the UK is to avoid a no deal Brexit, this now looks almost inevitable. Even if May’s deal is approved tonight, we are still on a very tight timetable to get the relevant legislation implementing the Withdrawal Agreement on the statute books by March 29th. Any further delay means that an extension is likely to be required for any sort of deal to be ratified without the clock ticking down to a no deal scenario that nearly everyone wants to avoid.

However, it is important to distinguish between two different Article 50 extension scenarios. The most likely outcome would be what the European Commission has described as a ‘technical’ extension. This would be for a month or two simply to allow more time for the deal to be ratified once the UK Parliament approves it in the meaningful vote. This would be very likely in the scenario considered above where the deal is approved at the second or third attempt.

The much trickier scenario would be a longer-term extension intended to facilitate the reopening of substantive negotiations. The EU has been clear that there can be no changes made to the legal text of the Withdrawal Agreement and a longer-term extension would likely only be considered if there was a material change in the UK political landscape, or a radical shift in the UK’s negotiating position. This most likely means a decision to hold a second referendum or a General Election.

Furthermore, it is important to remember that the decision to extend Article 50 must have the unanimous backing of all remaining member states. One single dissenter can block an extension and trigger no deal.

Likelihood: Very likely for a ‘technical’ extension but anything more substantial could only be the result of a significant change in the UK political landscape (such as a second referendum or a General Election).

Timing: Likely to push Brexit day back by a month or two.

Implication: Brexit is delayed but not reversed while more time is dedicated to passing Brexit-related legislation rather than focusing on domestic priorities.

 

No Deal

In one sense, a no deal Brexit is getting more likely with every day that passes without an alternative approach being agreed. No deal remains the default scenario that will happen by automatic operation of law on March 29th 2019. There are only two ways to avoid no deal; vote for May’s deal or extend (or revoke) Article 50. If the whole Brexit saga has demonstrated anything, it is that opposing no deal is much easier than finding a viable alternative.

Likelihood: Getting more likely by the day.

Timing: 29th March 2019.

Implication: A severe economic shock and a step into truly uncharted territory which could bring an end to Theresa May’s premiership, or even the Conservative government.

 

Second Referendum

Support for a second referendum has grown within Parliament in recent weeks but both the government and the Labour front bench still strongly oppose it. It is therefore difficult to see how a parliamentary majority in favour can be manufactured. The position adopted by Jeremy Corbyn is critical. If he decides to swing behind a so-called ‘people’s vote’ it could be a game changer. But that is a very big if.

The official position of the Labour Party is to first push for a General Election with all other options remaining on the table if they fail to secure this. But Jeremy Corbyn has given no indication that he is willing to swing his support behind a second referendum.

There is also genuine concern among many MPs of all persuasions around the potential impact on trust in the democratic process if a second referendum is held. Furthermore, the divisiveness of the first referendum and its consequences for the tone of political debate will still weigh heavily in the minds of many MPs. For now, this looks unlikely but it can’t yet be completely discounted.

Likelihood: Slim but not impossible.

Timing: If Parliament is to express a preference for this it will need to do so soon after tonight’s vote, although fierce debates over the precise nature of the question and passing enabling legislation could take months.

Implication: Huge. Potentially a loss of what little trust there is left in the democratic process as well as yet more (much more) valuable time spent focusing on something other than domestic policy priorities.

 

General Election

The likelihood of a General Election taking place before 2022 has significantly increased as a result of the political turbulence surrounding Brexit and the weakening of May’s already fragile minority government. However, there is very little appetite among Conservative MPs and (crucially) the DUP for an immediate (pre-March 29th) election. The spectre of a Jeremy Corbyn led Labour Government casts a very long shadow and is likely to ensure that the Conservative and DUP benches support May in the vote of confidence that Labour plans to call following defeat in tonight’s vote. Nevertheless, the medium-term reality is that governing without a Commons majority is extremely difficult. If the fallout from tonight’s vote further hastens May’s departure as Prime Minister, her successor is likely to seek their own (stronger) mandate well before 2022.

The one scenario with the potential to trigger an election before March 29th would be if the government decides to pursue a managed no deal Brexit. In this scenario, several remain supporting Conservative MPs have indicated they may go as far as resigning the whip and voting against the government in a confidence motion. Whilst extreme, this scenario is no longer unimaginable.

Likelihood: Increasingly likely in the medium term, possibly later in 2019 or Spring 2020.

Timing: Not necessarily before March 29th unless the Conservative Party splits over impending no deal Brexit.

Implication: Opens the door to a Corbyn administration.

 

Whatever the outcome of tonight’s vote, the UK is set for a period of continued political uncertainty which will be challenging to navigate. If you are interested in the support of our expert team of consultants, please do get in touch.

 

 

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While Brexit rumbles on, WA is welcomed into new home

Last night, we marked the next milestone in our development – moving in to our new offices at Artillery House in Victoria. WA is cementing itself as the consultancy of choice for organisations with complex reputational, policy and regulatory issues, and has experience sustained year-on-year growth and our new office is the latest sign of this success.

To celebrate WA’s expansion, we invited George Parker, Political Editor at the Financial Times, to give his insights on the latest Brexit developments, based on his three decades of experience at the heart of UK and EU politics.

Clients, senior business executives, policy specialists and Westminster insiders joined us for our first party in our new office to catch up over wine and canapés and to meet many of our exciting new team members.

“The crystal ball is hazy”

As Brexit draws nearer, George gave us an insight into his thinking on the big question of the day. While many aspects of the process remain uncertain, despite being only 50 days until Brexit day, many in the room agreed an extension of Article 50 is likely regardless of the deal passing or not.

While there is seeming lack of progress, George told us he believes there is life in Theresa May’s deal yet. The DUP seems to be more open to working with government than they have been recently as the prospect of no-Brexit looms. Similarly, the ERG fears a substantial delay or no Brexit at all and are also softening their position to a certain extent. Whilst they are warming to the idea of a tweaked May deal, in private discussions the threats of pulling support from government if May softens her stance on Brexit in a more Europhile direction very much remain.

On Labour, while sections of the party and its leadership are becoming less hostile to working with May and supporting her deal (as outlined in Corbyn’s letter spelling out Labour’s five Brexit asks), George was clear this would still take time. He set out how Corbyn and his top team, supported by union boss Len McCluskey, are slowly creating a permissive environment to enable the “Great British compromise” that Richard Burgeon, Shadow Justice Secretary, has teased.

Whilst the competing Brexit groups and positions seem to be dynamic and uncertain, with government policy today resembling something nobody could have envisaged three years ago, there remains the prospect of a last-minute deal. With the clock ticking, George highlighted how EU negotiations often go to the wire, so there may be space for May’s deal to scramble over the line.

There are two main set-piece events to watch going forward. The EU-League of Arab States summit in Sharm El-Sheikh later this month, which May is likely to attend, is an opportunity for further progress or concessions on both sides as all EU heads of states will be at the event. Leaders are also set to convene at the European Council on 21-22 March, if any last-minute agreements are to take place, this is likely where they will happen.

So, whilst the crystal ball is hazy and Brexit continues to surprise us all, there remain avenues for a Brexit deal with sufficient support to be cobbled together.

Thank you to all who joined us last night and to George for his excellent commentary on such a complex subject. We’re incredibly excited about the year ahead and look forward to hosting many more events throughout the year as we settle into our new home and share our ongoing success. Stay tuned!

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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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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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Two significant shifts for Brexit

After weeks of stalemate and delay over Brexit, we now finally have two significant developments in the form of evolving positions from both main Party leaders.

Firstly, Jeremy Corbyn has bowed to pressure to support a second referendum if an amendment calling for Labour’s preferred approach to Brexit (a customs union and close alignment with the single market) is defeated. Secondly, Theresa May has confirmed that MPs will be allowed to choose between no deal and an extension to Article 50 (most likely for around three months) if she is unable to get a deal through the meaningful vote by 12 March.

Both shifts are highly significant and, taken together, appear to reduce, but by no means eliminate, the likelihood of a no deal outcome on 29th March and increase the likelihood of an Article 50 extension. However, no deal ultimately remains the default at the end of any extension period should a deal still prove elusive. In both cases, May and Corbyn appear to be moving against their own preferences under pressure to avoid further resignations, either from front bench roles or from the Party altogether. The creation of the new independent group of MPs last week has clearly been an influencing factor in both decisions.

Labour’s new position is particularly interesting. While the headlines have been focussed on their backing for a second referendum, their bottom line is that they want no deal off the table and will refuse to back May’s deal. They will therefore back whichever alternative avoids both those scenarios. Should a second referendum fail to command support in the Commons, as still seems likely, they will presumably back an extension to Article 50 and continue advocating for an alternative approach.

Theresa May’s approach, on the other hand, represents a major concession to the remainers and softer Brexiteers in her Party. This poses a big question to the ERG and Cabinet level Brexiteers who will be infuriated at this approach. They may now be faced with a straight choice on 12th March between some variant of May’s deal and the prospect of a delay to Article 50. But they have limited cards left to play and appear to be outnumbered in the Commons. Ultimately, it appears they will not be able to out-vote an amendment favouring delay over no deal.

So where does this leave us? The two most likely outcomes now are some variant on May’s deal, almost certainly accompanied by an Article 50 delay to facilitate ratification, or a delay to Article 50 to allow negotiations to continue. Either outcome would still only represent the next small step in an increasingly protracted and politically divisive process with plenty of drama and recriminations to follow. But they would at least allow business and investors to breath a sigh of relief. At least for a short while.

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Brexit delayed

In the early hours of this morning it was confirmed that the United Kingdom will not leave the European Union on Friday. The remaining EU members states have granted the UK a six month extension to Article 50 to 31 October 2019 with minimal conditions attached. The strong indication is that a further extension will be granted if there is still no deal at that point.

This allows MPs to stagger into the Easter recess to rest and recover from what has been an exhausting few weeks. Meanwhile, cross party talks continue between the government and Labour to try to break the Brexit deadlock, albeit with little hope on either side for a positive outcome. So what happens next and what does this mean for the Brexit process, the future of the government and for businesses and investors?

Firstly, there is still little prospect in the near future of securing a majority in the Commons for any specific form of Brexit and the pressure of the ticking clock has now been removed. No deal now seems extremely unlikely to ever happen. If the EU weren’t willing to contemplate this last night when the UK requested an extension without presenting any clear plan for what it would be used for, they probably never will.

Parliament now has more time to try and find a resolution and, while it is hard to see consensus emerging any time soon, the most likely long-term outcome still appears to be a softer version of Brexit, though it could take quite some time to arrive at this point.

Meanwhile, Theresa May is planning to stay put as Prime Minister until a deal is agreed. There remains a clear appetite among many Conservative MPs for her to go sooner but they lack a formal mechanism to oust her. However, her tenure does appear to be in its final days. If a Brexit deal is not in sight soon then the collective mood of the Party, expressed via the 1922 committee and/or the Cabinet, may eventually force her from office regardless of whether a Brexit deal is secured.

Indeed, the next Conservative leadership contest has essentially already started. Multiple leadership hopefuls have been brazenly setting out their stall at events with think tanks that look very much like hustings (see Matt Hancock and Penny Mordaunt speaking at an Onward event earlier this week) or via set piece interviews in the media.

Brexit will continue to dominate the political agenda for some time to come, with a Queen’s speech is now unlikely to be brought forward until the Autumn. But this extension provides breathing space in which these leadership hopefuls will continue to set out their vision for the future. It will also allow diligent ministers to return some focus to their day jobs and move forward domestic policy initiatives that have been starved of political attention in recent weeks (as long as they don’t require primary legislation).

This remains a hung parliament with no party holding a majority, while half the Cabinet are openly auditioning to be the next Prime Minister. Power and decision making is more diffuse than ever and this presents unique opportunities for businesses and investors seeking to influence policy. But capitalising on these opportunities will require detailed understanding of the political drivers in a fragmented and complex environment.

The Brexit question drags on but there is plenty of work to do for those seeking to influence the UK political environment.

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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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The tough sell: getting a Brexit deal through Parliament looks harder by the day

This afternoon’s news of Jo Johnson’s resignation as Rail Minister throws into sharp relief the challenges still facing Theresa May in getting any kind of Brexit deal through Parliament. Confidence has grown over the past fortnight that a deal is likely to be struck between the UK government and the European Commission / remaining EU Member States. However, the parliamentary arithmetic that the government will need to confront back in Westminster if and when they secure an agreement remains daunting.

Johnson’s resignation follows hot on the heels of reports in The Times that May’s attempts to reassure the DUP have simply increased their suspicions that she is about to sign up to a deal that retains some Irish border backstop element that will be unacceptable to them. If the Prime Minister is unable to rely on the support of the DUP, on top of the anticipated opposition of hardcore Brexiteers, the numbers start to look very difficult indeed.

It remains to be seen whether Johnson’s resignation will be an isolated incident, or whether further resignations will follow in the coming days. If it is the former then No 10 will hope to ride this out, as they did following the other Johnson resignation earlier in the year. If it is the latter, then this could be the start of a very uncomfortable week indeed for the government.

Either way, there is no escaping the significance of the fact that Johnson was a remain supporter and his resignation is a clear indication that May’s Brexit strategy is pleasing very few people indeed. Of course, there is still a feeling in No 10 and elsewhere that the spectre of a chaotic no-deal will ultimately prove too scary an alternative for the majority of MPs, but this approach represents a high degree of gamesmanship that will leave many in the business community feeling very nervous.

What is clear, is that as the negotiations enter the final straight (at least over the withdrawal agreement) there is an enormous job facing the Prime Minister to sell whatever emerges from the negotiation to Parliament. That job is getting harder by the day.

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End game for May or end of the beginning?

With events moving fast in Westminster today, the WA team set out our take on the challenges facing the Prime Minister. Further updates will follow as the situation develops.

After two years of negotiation and speculation, Theresa May has finally delivered a draft Withdrawal Agreement text. The Prime Minister has tied the future of her premiership to the 585 page document. ‘Collective agreement’ of the Cabinet late last night has been followed this morning by two Cabinet resignations, one of them the Brexit Secretary Dominic Raab. This is a fast-developing situation, so what are the key questions that will inform what happens next?

Will there be more Cabinet resignations?

Brexit Secretary Dominic Raab was first out of the blocks this morning, followed closely by Work and Pensions Secretary Esther McVey. Penny Mordaunt (International Development) and Andrea Leadsom (Leader of the House) are on the resignation watch list and there is intense focus on Environment Secretary Michael Gove. Gove is also rumoured to have been offered and rejected the vacant Brexit Secretary role. May is clearly planning to plough on and force the deal through but every Cabinet resignation represents another valuable vote lost in the meaningful vote and makes the job of leading her Party and the country that much more difficult.

Will Graham Brady receive 48 letters?

There has been significant speculation that Graham Brady, Chair of the 1922 Committee, is close to (or may already) have received enough letters to trigger a formal vote of confidence in Theresa May’s leadership of the Party. Jacob Rees-Mogg has now openly done so and, while it remains to be seen how many other members of the ERG will follow his lead, the level of anger among Brexit supporting Conservative MPs does appear to be reaching its peak, making a leadership challenge increasingly likely. No 10 has officially confirmed that May would fight any challenge and, if she were to win, then she would be safe from another formal challenge for another twelve months.

How does a meaningful vote pass?

This is the most challenging question of all. The DUP have come out strongly against the deal and the confidence and supply agreement now appears dead in the water. It is already clear that a significant number of Brexiteer Conservative MPs will oppose the deal, with their numbers swelled by resignations from government positions (every PPS, no matter how unknown is still another vote May has lost). With the Labour front bench also lined up against the deal, the only hope for the Prime Minister appears to rest on sufficient numbers of Labour MPs crossing the House and supporting the deal in the national interest. There is currently very little evidence that enough of them are willing to do so. If the Prime Minister survives the week then this is a picture that may shift again before the vote takes place in early December but, as things stand right now, things look bleak for May.

What if May loses the meaningful vote?

This is currently unclear. It is difficult to envisage how the Prime Minister could continue if she were to lose the vote. The options available to her or her successor would be very unpalatable: to attempt to re-open negotiations with the EU; to call a General Election (no longer as straightforward as it was due to the Fixed Term Parliaments Act); or to call a second referendum. The truth is all bets would be off and the UK would be heading for a period of unprecedented political turbulence.

What are the immediate next steps?

The remaining members of the Cabinet will have a big decision to make over whether to follow Raab and McVey out of the door. Gove, Sajid Javid and Jeremy Hunt are seen as bell-weathers. They have the potential, in the next 48 hours, to decide the Prime Minister’s future.

Undecided Conservative MPs will look to the remainder of the Cabinet for a steer on what comes next and there will be many on the backbenches mulling over whether to submit their own letter.

The Prime Minister herself will have to reflect seriously on the implications of the clear challenge to securing a parliamentary majority in favour of the deal. So far, she appears determined to press on and call the bluff of her various detractors. But the situation is getting more challenging by the day.

 

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Deal or no deal? Theresa May faces rebels as withdrawal agreement talks stall at “95 per cent” complete

Negotiations with the EU have stalled after Prime Minister Theresa May offered “nothing new,” according to the President of the European Parliament, in a presentation to EU leaders at the October summit on Brexit.

EU leaders decided not to call for a further summit in November as not enough progress had been made in negotiations, though reportedly stand ready to call an ad-hoc meeting if there is a breakthrough. They reiterated their confidence in Michel Barnier as Chief Negotiator for the bloc, while German Chancellor Angela Merkel told all EU countries to prepare for a no-deal Brexit.

At home, Theresa May faces the prospect of rebellion by members of the Conservative party after her proposal for an extended transition period of 33, rather than 21, months caused outrage amongst both pro-Brexit and pro-Remain MPs. The extended period had been designed to de-toxify concerns over the Northern Irish backstop – the provisions which will come into operation if Britain and the EU are not able to negotiate a full trade agreement during the transition period. However, this proved neither acceptable to Parliament nor to Ireland. Ireland will not accept a time-limited backstop.

To placate the members of the pro-Brexit wing of her party who have threatened to depose her in retaliation for what they see as an overly soft approach to negotiations, May has committed to four ‘mini red lines’ for a backstop agreement. Any backstop must contain:

May meanwhile has said the EU withdrawal agreement is “95 per cent” complete, with the backstop for the Irish border among the final details to be settled.

Irish news site RTE has today reported that the EU will offer a UK-wide customs union as a way around the Irish backstop issue, but it will have to be negotiated beyond the withdrawal agreement as a separate treaty. Such an agreement may not meet May’s first mini red line.

WA’s analysis

May’s mini red lines promised to the Commons yesterday, reportedly taken by the EU as a snub, and her position on the Irish backstop mean that unless either side gives ground there is little prospect of a Brexit deal being reached within current timeframes.

Only a backstop without a time limit will be acceptable to the Irish government, which has a veto over whether to accept the final withdrawal agreement as all EU countries must agree for it to pass. Indeed, the Irish Prime Minister has reiterated his commitment to this position today.

It is also doubtful the withdrawal agreement as it currently stands can pass a vote in Parliament. Labour has said it will only vote for a deal which keeps closer ties to the EU, such as the UK remaining in the customs agreement and single market. In addition, 44 backbench Conservatives are now members of Stand Up for Brexit, a campaign group whose pledges are incompatible with the Chequers agreement.

While there is still the possibility Britain and the EU will be able to reach an agreement acceptable to both sides, the latest developments increase the likelihood of a no-deal scenario.

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May be she can keep it up? The great survivor survives another crisis

One of Theresa May’s surprise talents as Prime Minister has been her ability to survive almost perpetual political crisis. Time and again we have seen pundits and politicians predict that she will be out the door within weeks, and yet, two years later, she’s still there.

After the latest EU Summit in Brussels passed without much progress being made, it seemed like this might finally be it for May. Not only had she failed to progress talks beyond the deadlock on the Irish border, she had also indicated that the UK would be willing to extend the transition period. The combination of these two announcements provoked outrage across the political spectrum, making May’s position uncertain once again. Against the backdrop of the march advocating for a second referendum, which was attended by an estimated 700,000 people, Brexiteers spent the weekend briefing against the Prime Minister, seemingly preparing for an imminent vote of no confidence.

High profile Brexiteers have continued to put pressure on May, arguing that her decision to propose an extension to the transition period amounts to a betrayal of the Brexit vote. Boris Johnson, never one to shy away from making such a suggestion, described the move as “a cheat and a fraud on those who voted leave” and announced he had joined Stand Up 4 Brexit, a group of 44 MPs campaigning for a “clean break” from the EU, including David Davis, Iain Duncan Smith and Priti Patel. Steve Baker, the man credited with orchestrating the strategy of the pro hard Brexit faction of MP’s, also seemed to be launching an attack on May, tabling an amendment to the Northern Ireland Bill that would require the Northern Irish Assembly to give approval to any Brexit deal that would treat Northern Ireland differently from the UK.

And yet, the Prime Minister seems to have pulled it off yet again. While on Monday morning, momentum seemed to be building against May, with threats not only of a no-confidence vote, alongside Brexiteers, and the DUP planning to begin to vote against government Bills as a means of undermining the Prime Minister. the threat later appeared to melt away. Baker withdrew his amendment, apparently overestimating the support he could expect to have on the day. Outrage over the violent imagery used by anonymous MPs against the Prime Minister united the majority of Parliament in sympathy for the Prime Minister. All this allowed her to deliver an update on negotiations to the House of Commons relatively unscathed.

How long May can keep this up remains to be seen. The 1922 Committee meet on Wednesday, always a risk for the Prime Minister, with an estimated 40 of the required 48 letters of no confidence submitted to Committee Chair Sir Graham Brady. Fears that the Prime Minister may resort to a softer Brexit over a no-deal may push yet more MPs to submit letters of no confidence in an attempt to trigger a leadership contest. It remains highly unlikely that there are enough Conservatives willing to vote against the Prime Minister to force her out, but there are other options available to those willing to undermine her yet further. Rumours that Brexiteers are planning to deliberately derail Bills as a show of strength have yet to materialise, but clearly have the government worried. The Offensive Weapons Bill, a rumoured target of Brexiteers, has been pulled from the parliamentary agenda for two weeks running.

Theresa May is the great survivor of British politics, but with her own MPs becoming increasingly disruptive as Brexit talks grow in urgency, her future in office looks increasingly uncertain. With the Budget less than a week away, she needs to maintain at least public unity among her backbenchers, while ensuring the continuation of the confidence and supply deal with the DUP. The Prime Minister may be in a less precarious position than she was at the weekend, but it is doubtful that speculation on the future of May’s position is over.

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May survives the twelfth day of Christmas as her Brexit deal hangs by a thread

As the carol goes, the twelfth day of Christmas is usually associated with the sound of drummers drumming.

However, in this extraordinarily chaotic year, it is no surprise to learn that the drummers were replaced by relieved Conservative MPs, banging desks in relief as Theresa May faced down a vote of no confidence in her leadership. The Prime Minister remains in office, but is she in power?

A vote of confidence in Theresa May’s leadership became almost inevitable after she decided to pull Tuesday’s meaningful vote at the eleventh hour. The fact that Ministers were on the airwaves only hours earlier, confidently proclaiming the vote would go ahead, only added to the sense of betrayal felt by many Conservative MPs. In their view, the Prime Minister’s deal betrayed Brexit and now she was denying them their chance to throw it (and maybe her) out.

The quick turnaround of the vote of no confidence certainly played to the Prime Minister’s advantage. After the shambolic attempt by the European Research Group a few weeks ago to oust May, they clearly needed time to corral sufficient support. In the end, time was against them. The 200-117 victory in favour of the Prime Minister means that a vote of confidence cannot be called in her leadership for at least a year, securing her position in the party. However, 117 rebellious MPs is sizeable, and should Cabinet ministers decide to resign en masse over the coming weeks, her position could become untenable. For the Conservative Brexiteers, they end the week the way it began: with a Prime Minister and deal they cannot support.

While the Conservatives have been tearing themselves apart, Labour has surprisingly, sat by watching the drama unfold.  The scale of Conservative opposition to Theresa May’s leadership would naturally lead you to believe that it is only a matter of time before Labour tables a vote of no confidence in the government. However, Labour leader Jeremy Corbyn wants to be certain that he can defeat the government. While it is festive season, it remains to be seen whether Turkeys would actually vote for Christmas (Conservative MPs voting against the government in a vote of no confidence). It may also be the case that Corbyn is also unsure of what exactly his next move should be. Those in his party that are pleading for a vote of no confidence are mainly advocates of a second referendum (Chuka Umunna, Margaret Beckett). While the People’s Vote campaign has certainly picked up momentum in recent weeks, the only hope of ever having one is if Labour can get behind it. As Jeremy Corbyn plots his next move, it remains to be seen whether he will give the Remainers inside and outside of his party what they want.

With enemies on all sides demanding different things from Brexit, what next for Theresa May?

Overnight, her position became all the more precarious as EU leaders united to reject renegotiating the Withdrawal Agreement. May’s plan had been to secure concessions from Brussels, mainly around the Northern Irish backstop. The Prime Minister’s plan was to secure a target for a UK-EU trade deal by the end of 2021, thereby ensuring the backstop contained a time limit. Yet the backstop is fundamental to the Agreement for the EU, and the Irish Prime Minister, Leo Varadkar, while happy to offer assurances, will not budge on something that he believes is a fundamental assurance to maintaining peace in Northern Ireland. Despite this, it is still likely that May will secure some form of assurances regarding the backstop, which she will then take back to her Tory Brexiteers and the DUP ahead of a meaningful vote, pencilled in for January 14th. As Parliament stares into the abyss of a no-deal, it is impossible to predict whether political opponents on all sides of the House of Commons will support the Prime Minister’s deal.

Arguably, the most admirable quality about the Prime Minister is that she can often kick issues into the long grass, when defeat seems inevitable. However, with March fast approaching, that grass is running out and attention quickly turns to whether she can command the support of MPs from all sides to pass her deal. If she does, this is only the start of the many painful battles that lie ahead. As we look ahead to the New Year, deal or no deal, Parliament is certain to play a fundamental role in determining our future relationship with the EU.

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Brexit, Boris and the Budget

Expectations could hardly have been lower going into the Conservative Party Conference. The Boris Johnson show promised to derail any carefully choreographed messaging from Number 10. The Tories themselves seemed desperately short of ideas, particularly following the radical ideas from Labour in Liverpool the previous week and Ministers ranging from Sam Gimyah to Liz Truss were queueing up to criticise the direction of the party. Yet despite all this, Theresa May has emerged in a stronger position and there were a number of policy announcements that appear to signal a change of strategy. May has successfully bought herself time with which to negotiate Brexit, but big questions remain about her long term future and that of the Conservative Party.

Confounding the expectations of some in her party, Theresa May delivered one of the most accomplished speeches as Prime Minister, setting out a new, more centrist policy direction for the party. Similar in theme to her first speech as Prime Minister, where she pledged to tackle the ‘burning injustices’ within British society, May set out a vision of an inclusive Tory party that would enforce a form of responsible capitalism. This serves a dual purpose. Firstly, it establishes Mayism as clearly separate from policy visions of Boris Johnson and others in the ERG. Secondly, it attempts to formulate an answer to the popular Labour policies that have developed as a result of voters feeling that the government is ignoring issues of inequality and the funding of public services. The positive reception to the speech will likely serve to quieten critics in the short term. However, May has not offered solutions to the Brexit negotiations that will please either wing of her party, and will need to find a resolution to the issue if she is to remain as party leader in the long term.

Housing is also likely to be high on the Budget agenda, after the housing crisis dominated the speech of several high-profile speakers, including Theresa May and Boris Johnson. Both had a similar message: that as the party of opportunity, the failure of young people to get on the housing ladder was a failure of the conservative message. May described the housing crisis as her domestic priority and laid out plans to scrap the cap on the amount councils can borrow to build new houses, but more will need to be done to address regional variation in both housing prices and housing availability if the Conservatives are to prove they can maintain a successful social agenda.

While it is clear that May has some new ideas, it will be down to Chancellor Phillip Hammond to find the money for them, suggesting that the Autumn Budget, due on the 29th October, will be one to watch. Hammond has a tricky challenge ahead of him, needing to follow through on his signature promise to eliminate the fiscal deficit, while finding the money to fund the promised NHS budget increase, and freeing up money for the Conservatives to implement the social spending needed to tackle the messages of Jeremy Corbyn. There are indications that some of this money will be found in the form of new taxes, particularly for sectors accused of not paying enough. In his speech, Hammond set out plans to increase taxes for large digital companies, calling for an international approach, but saying that the UK was willing to introduce its own taxes to tackle the problem. While this will likely be a popular measure, Hammond will need to do more to find additional spending money without alienating business or voters. The Spending Review next year will be the key test of whether the Prime Minister’s suggestion that austerity is over, is anything more than warm words.

While May outperformed expectations, the problems that have made her leadership so tenuous remain and will resurface in the coming weeks. Boris Johnson’s fringe speech was widely reported and popular with his pro-Brexit base. Stepping outside his usual Brexit comments to address the housing crisis and May’s record as Home Secretary, it is clear that Johnson is now attempting to position himself as a credible leadership candidate on more issues than just Brexit. This will do little to alter his relatively poor reputation within the parliamentary party but will, in the coming weeks, add to the pressure on May to drop the Chequers agreement. While she gave no indication that she will do so, it is significant that when referring to the UK’s Brexit proposal in her speech, May avoided using the term ‘Chequers’, instead only referring to the content of the proposals. This has been taken as a sign by some that May is altering her stance on Brexit, but it could be a simple rebranding of the agreement to focus on the content of the proposal, rather than the connotations for Brexiteers.

Despite all her promises of a new, centrist party message, May will only get the opportunity to act on her proposals if she can secure a Brexit that can at least pass a parliamentary vote. Finding a deal with the EU and selling it to her party will be no small task, to say nothing of the DUP, SNP and Labour, who have all made it clear that they will vote against any deal that does not align with their interests. A strong speech and promises of better days ahead will not be enough to preserve her position without measurable success in the next few months and clear progress on Brexit at the next EU Summit on 18th October.

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Deal or no-deal for May?

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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No-deal legislation abandoned with prorogation – what’s the impact?

As the country was watching mystified at last night’s extraordinary antics in the House of Commons, it was easy to forget that the prorogation of Parliament has a greater impact than simply making a lot of MPs furious. Buried beneath all the ceremony and speeches, is the reality that five key bills designed to prevent the UK facing regulatory black holes in the event of a no-deal Brexit have fallen and will not be carried over into the next session of Parliament. The Financial Services Bill, the Trade Bill, the Agriculture Bill, the Fisheries Bill and the Immigration Bill have now been effectively abandoned by government, raising questions about the future for key UK industries, and the UK’s workforce in a no-deal Brexit scenario.

The Financial Services Bill: what was in it?

The Financial Services Bill would have given HM Treasury the temporary power to match any changes to EU financial services law made before the UK leaves the EU for two years following a no-deal Brexit. This would effectively ensure the UK would maintain the same financial services regulatory regime as the EU in the short-term, even in the event of no-deal. The Treasury would then have been allowed to implement any changes without needing a parliamentary vote for two years, speeding up the process.

The Bill previously stalled in the House of Commons due to an anticipated rebellion on a cross-party amendment that would have forced new tax transparency rules on British Overseas Territories, including the Channel Islands. The amendment would require Crown Dependencies to set up public share ownership registers by 2020. The likelihood of the amendment passing resulted in the government cancelling a vote on the Bill on 4 March 2019, has and it never returned to the House of Commons.

Will the Financial Services Bill return to Parliament?

Like other Bills not passed by the time Parliament was prorogued, the government had the option of carrying the Bill over into the next parliamentary session but has chosen not to do so. The Bill could be reintroduced when Parliament returns on 14 October, but this is unlikely given the government’s concerns with the Crown Dependencies amendment and the loss of any hope of a majority for its legislative agenda. Given the high chance of an almost immediate vote to call a general election when Parliament returns, the most likely option is that the fate of the Bill will be left for the next government to consider.

What happens if we leave the EU without the Bill passing?

In the event of a no-deal Brexit, the UK will be recognised as a ‘third country’ by the EU. As a third country, UK-based financial services would lose automatic access to the EU. If the EU does not recognise regulatory equivalence between the UK and EU, additional restrictions are likely to apply. The Financial Services Bill was a means of ensuring the financial services sector could avoid regulatory divergence – its absence presents significant regulatory risks for the sector. The government has said the legislation is needed to keep financial services regulations up to date and that not having the power to do this “represents a risk to the reputation, global competitiveness and efficiency of the UK’s financial markets.”

Failure to pass the Bill is unlikely to cause any initial issues for the Financial Services sector in the event of a no-deal Brexit, but it creates a long-term risk of regulatory divergence that may create issues for cross border financial services. If the UK needs to introduce new legislation to match EU law every time one is introduced, we face the prospect of continually attempting to catch up with the EU, creating short term regulatory divergences that may disrupt business flows while legislation makes its way through Parliament (assuming Parliament is willing or able to pass legislation at all).

How can we help?

The loss of the government’s majority has made the future of no-deal planning legislation and all other Bills highly uncertain. WA Investor services can support investors in scenario planning for the months ahead, ensuring you are ahead of the curve when it comes to the unpredictable world of policy and regulation in the current climate.

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