02 February 2019 | Hodge Foundation Insights
After ‘fifty-shades’ of Brexit, discussions are still on-going on options and we are no further forward than we were 6 months ago when we were supposed to exit the EU. The focus is still on “Deal or No Deal” v “No Brexit.”
To begin to understand the present predicament it’s worth remembering how we got to where we are today:
It started with the deal David Cameron tried to negotiate with the EU back in 2015/16. The empty plate that Cameron returned with was the start of the Brexit process and was an important factor behind the vote to leave – it was not just the poor performance of the Remain campaign.
The best place to begin is with the Withdrawal Agreement (WA). Despite long debates in Parliament – and across the media – there is still a lot of misunderstanding about the WA.
Firstly, it’s about Withdrawal !
The EU Commission has insisted on managing our departure from the EU before engaging in talks on the future trading relationship. Remember we lost this battle very early on.
Losing this battle so early in the negotiations effectively meant that we essentially lost the negotiating war – the negotiations became very one-sided. Essentially we didn’t really have a negotiating position after that initial concession. But the EU did – it was simply ‘”well if you don’t like it, then get lost! And the clock is ticking.”
To us the Commission has been a difficult negotiating partner. It has treated this withdrawal process as essentially a technocratic one of “de-accession” – when a country applies to join the EU it goes through a tedious and laborious 3 to 5 year process of accession. The Commission simply sees the WA as the reverse of the long process the UK went through when it joined.
And, the European Commission are experts at this sort of thing – they’ve negotiated a dozen of these in the last few years. We have little or no expertise!
Above all the WA is just a treaty designed to make Britain’s departure from the EU as smooth a process as possible i.e. smooth for the European Commission.
They’ve stuck to their Main points: Firstly, the rights to be enjoyed by EU citizens; Secondly, the divorce settlement – the £39bn; [One wag said that under the divorce bill the UK might end up with custody of Greece….]
Third the Irish border (and other dispute resolution process) – i.e. the role of the ECJ. But fourthly, and very importantly, it offers a degree of continuity. The Transition period.
[One might ask: Why do we need a transition period? Answer – It allows us to go from bad to worse …..]
The transition means there will be little practical change on Oct 31st 2019 (or from whatever date we actually leave) for at least the next 21 months with an option to extend – plus of course, it includes the famous backstop — it tries to secure a degree of continuity until both sides agree permanent new arrangements.
This focus on de-accession has been seen by us as unreasonably rigid. However, you could say there is a good reason -: the UK has never agreed with itself (or the EU) what sort of permanent future relationship we want.
Do we want Norway’s single market membership plus a permanent customs union on top? Then the WA allows for that
Or a harder break, a Canada-style agreement? That is possible too, so long as the EU retains control over the Single Market – and importantly without physical border infrastructure on the island of Ireland. Hence the backstop.
Even a Canada agreement requires the backstop – some would say even a ‘no deal’ requires some form of backstop – the UK has been sucked into this ridiculous position.
The backstop will require more checks on goods shipped from Great Britain into Northern Ireland. Until a permanent arrangement is agreed.
And the WA specifically states that the backstop will remain until it is replaced by ‘alternative arrangements’ . These arrangements could pre-empt the backstop ever coming into force.
The Malthouse agreement – and various groups – have sought to identify these – “alternative arrangements” but no one has come up with alternative arrangements that can do the job (short, of course, of a permanent customs union that would obviate the need for border controls).
One claim is that technology and existing best administrative practice can solve the Irish border problem. But the EU has already rejected technology based alternatives. The EU says the UK’s alternative arrangements are not feasible without a customs union– e.g. there are some minor border checks on the Sweden – Norway border and Switzerland – EU borders – not significant but they exist.
The problem is that since December 2017 – when we lost the first battle – we have agreed that a solution must involve no physical infrastructure on the border. Why did we agree to this?
With no physical infrastructure the EU asks – how do we know that what is declared on the export form or via technology is what is actually transported in the truck? And why are these arrangements not in use already on the EU-Norway or EU-Switzerland borders?
But this argument over the backstop is very strange – PM Varanker and the Commission have recently agreed that in the case of a ‘no deal Brexit’ they will strive to avoid any hard border in Ireland and “they are confident they can avoid that.”
But ….. If they can do this in the face of No Deal – why not in the case of a deal? !
[Inevitably the Spanish are jumping on the bandwagon and demanding a backstop over Gibraltar– this has been called the Spanish Acquisition!]
The WA has been rejected 3 times by a curious coalition of hard Brexiteers, Remainers and opportunistic political opponents of the government.
So where are we? Some say the only way forward is to go back to the people. Remainers hope that a second referendum will overturn the 2016 result. And LibDems simply want to Revoke the WA. But Opinion polls suggest, that peoples’ views have not changed much.
True, a 52-48 vote, say, in favour of Remain would allow a future government to revoke Article 50. The country, however, would still be divided. And a second referendum that only narrowly overturned the result of the original vote would have no greater political legitimacy. It’s an idea that’s half-baked.
In my view the best way forward is some version of the WA. With minor concessions from the EU the WA is likely to be back on the table later this month – will it pass? That is the main question. We are now definitely in a ‘deal’ or ‘no deal’ situation or ‘no Brexit’
No deal is definitely still possible – Indeed the ERG – the so-called ‘blue Corbynites’ – have been trying for months to march the UK to a no-deal Brexit. The ERG are fanatical i.e. they are united and cocksure of their position and are heading straight for a no deal Brexit.
[The ERG strap line seems to be : We don’t need to be part of a failing EU – we are big enough to fail on our own……!]
Has the recent vote against a no-deal, closed this off?? Not really. The Brexiteers are still in strong legal position.
To achieve a negotiated Brexit by Oct 31st, the government must, first, win a meaningful vote (MV4) on the Withdrawal Agreement and, second, pass legislation to implement the Withdrawal Agreement. And third the government of the day would then need to persuade Brussels, Berlin, Paris and Dublin etc. that the plan is sustainable. So we could still stumble out of the EU with no deal.
An early election is inevitable …. but not until after Oct 31st.
The trouble with the Remainers position is that there is no agreed plan B or even a secret plan – even Baldrick had a plan! Mrs May’s plan had simply been to survive until tomorrow. Instead we are moving inexorably into the ‘Theatre of the Absurd’.
Yes it’s amazing how many European leaders have begun quoting comical sketches from British TV – e.g. the dead parrot sketch. And also a lot of British theatre – we have had them referring to Beckett’s Waiting for Godot – Saying things like: Godot has more of a plot than Brexit. And of course Godot doesn’t actually turn up ……
It’s all very worrying. And one of the biggest questions is: what do we do with the millions of commemorative 50p coins that were minted to mark Brexit? Designed around the theme: “Peace, Prosperity and Friendship with all Nations” and stamped 29 March 2019 ….. Millions of them ….
For many Labour and Tory MPs they do not know when the votes will be coming, what the votes will be on, or what the party leadership’s position is on these votes. Both parties are completely split and can’t chart a way through this impasse. There is probably no majority for any of the options and our political parties are becoming increasingly polarised.
Will Boris survive? If Mr Johnson resigned as prime minister to avoid having to write a Brexit-extension letter, a government of national unity could be formed, supported by Labour, the Lib Dems, etc..
Its initial mandate would be to ask for an extension, and then bring about elections. Of course its participants may change their mind when they realise that they have nothing to gain from an election. They could stay in power all the way until 2022, when the next election is due. This could stop Brexit: and as such it is attractive for Remainers. This is Project ‘Reset the Clock’.
Mr Johnson would be making a mistake if he believes that he could quickly bounce back after resigning. He may find that even if his popularity is rising, parliament continues to deny him an election to win.
It’s Important for him that he stays in power and goes to the European Council, whose members are the prime ministers and presidents. This body does not take orders from parliaments, nor from judges in courts in the nation states.
If Mr Johnson were to write a letter asking for a Brexit extension, the other prime ministers and presidents would surely ask him, in a closed-door session, whether he really meant it. He will say NO! They may act against his unofficial advice, but I would not bet on this.
The law passed by parliament to force Mr Johnson to ask for an extension is well-drafted but not watertight. The European Council could say, for example, that it would extend the Brexit deadline beyond October 31 but only if the UK were to hold elections or a second referendum. Johnson refuses and so we could crash out.
EU law allows for a unilateral revocation of Article 50. But it does not allow the UK to take no-deal off the table without choosing an alternative. Extensions are possible, but are in the gift of others.
The Remainers best hope is to gain executive power. The only way finally to frustrate Brexit is through a government that believes in such a course. There is no other way. Parliamentary resistance is essentially time-limited.
Moreover, spinning all this out beyond November could be counterproductive. With no clear majority or settled question for a second referendum, a general election will inevitably happen.
But defeat for Boris in the election will almost certainly signal a second referendum and a Labour government or Labour-led Lib-Lab coalition — probably under Mr Corbyn.
But the LDP’s election strategy is simply to Revoke Article 50. And their entire Revoke strategy now rests on one eventuality — an election before Brexit. Because if Mr Johnson gets his deal with the EU, the Lib Dems’ offering is going to look pretty bare. Indeed it seems far easier to say what the Liberal Democrats are against than what they are for. If this moment does indeed offer a historic opportunity for Jo Swinson to become PM she does not seem ready to grasp it. The party has again adopted an ‘unserious’ policy it never expects to have to carry out. If this represents the scale of Lib Dem ambition, it also signifies its limits.
And as for the prospects of a tri-party alliance of Labour, SNP, (Plaid Cymru?) and Liberal Democrat opponents of no deal. How long would that coalition last? They can’t stand each other!
Things are equally problematic for the two main parties. For example, despite both the government and the PM having a ridiculously low approval ratings, the Tories are ahead of Labour in the opinion polls. Every government disaster is quickly followed by a Labour debacle. There is no agreed policy on Brexit and Sir Keir Starmer continues to have to refer to a “suite of options”. You couldn’t make it up. And the Brexit party is busy picking up the pieces.
The only people in parliament that are currently sure of their position are the DUP and the ERG!!
But as the philosopher Bertrand Russell said: “The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.”
How true is that!
Annex 1: Ending the Impasse
“In the game of dwindling outcomes, a practical solution or compromise must be crafted”
i) Revoke Article 50
Would involve Ripping up the referendum result and is against the Tory and Labour manifesto – but according to Ken Clarke the manifestos don’t matter – Parliament should simply start the whole process again. Return to Go and collect £200
And 3 more government ministers have tried to resign this week to support this option – but on ringing No 10 they were put onto a recorded message= Thank you for offering to resign from the Cabinet, unfortunately you are currently being held in a queue.
Also Might not be able to trigger Article 50 again – LibDem policy was never likely to be a runner
Unlikely to get a majority in parliament
ii) People’s vote
Again it involves Ripping up the referendum result and is against the Tory manifesto –would definitely postpone Brexit and probably kill it
Unlikely to get a majority but only 40 votes short of majority
iii) The WA4 and MV4
Has it’s problems! But all other options have problems.
Once these are compared with the WA4 it could yet pass
No Irish backstop so can’t be negotiated with the EU – would need a Customs Union
No majority for it
v) Customs Union
Seen by many in Parliament as the Least bad option and supported by Labour
It would have to be WA plus C.U.
It would solve the Irish Border issue but no free trade deals. No majority
vi) EEA plus – Common Market 2.0
It would need to be WA plus CU plus EEA
It would require free movement of people
Not backed by Labour. No majority
vii) No deal
No majority and legislation in place to stop it but it remains the default position
What happens now? Halloween 2019
The exit could be pushed back indefinitely.
WA via MV4 looks increasingly likely to be put forward
some fudge around the Back Stop could be included so it could be voted on
but it also looks likely to fail.…….
Conclusion: Boris probably only has a slim chance of getting a deal – so MV4 could be his last shot before orchestrating crashing out with no deal. Or he successfully calls an election. Dangerous stuff – It’s a great deal easier to predict how it could fail than how it can succeed,
Annex 2: The Economics
(i) If we leave with a deal :
Forecasts are for UK GDP to rise by 1.6% to 2% in the period up to 2023 (OBR, Capital Economics) unemployment will stay low at 4% CPI at 2%
The budget deficit will be near zero by 2023 and national debt around 70% of GDP. Not difficult to live with
The stock market will probably rise after Oct 31st if we leave with a deal – so FTSE above 7500 by year end! 7700 by mid 2020.
Sterling will strengthen somewhat – $1.33 and €1.20 (and base rate will remain very low and may rise in line with stated policy)
Also, If business investment picks up after a ‘deal’ Brexit, GDP will grow by more than 2% and if Gov’t investment is also forecast to increase – at the cost of slightly more debt – GDP growth could be even higher – so >2% for 2021
(ii) If we leave without a deal :
Base rate will have to be reduced immediately to 0.25% and QE will be back in fashion.
This will prevent a catastrophic fall in expenditure and GDP, but economic growth will fall to zero – probably for two or three years. Unemployment will rise towards 5% but CPI unlikely to be hugely affected
The government will have to relax its fiscal rules even further than that announced by Javid earlier this month; the budget deficit will rise to 2 or 3% or even 5%. National Debt will return to 80% + of GDP
Sterling will be back down at €1.10 and $1.25 (base rates at 0.25%)
The stock market (FTSE) will probably fall below 6,700
How long this continues will depend on Business Investment and Consumer Expenditure; Exports are unlikely to surge. If Investment and Consumption remain subdued then UK GDP could go into a mild recession……. But we are not talking about 2008 let alone 1933!