In focus - Economic Views
Brexit plan B looks like plan A as prime minister rules out delay
The government risks losing control to parliament but probability of no deal remains as high as ever.
- Prime Minister Theresa May will work with parliament to win support for her Withdrawal Agreement, but has ruled out a delay to Brexit
- MPs are pursuing a variety of amendments to gain control of the process and sterling has risen on hopes of a Brexit delay
- We think the chance of no deal is as high as ever, but parliament may yet back a deal as the clock ticks towards to 29 March.
Having survived a vote of no confidence last week, Prime Minister Theresa May was forced to update the House of Commons on the government’s “plan B” for Brexit yesterday. In her statement, May promised to work with members of parliament (MPs) to seek a way forward on crucial issues that would then win support for some version of the current Withdrawal Agreement. These include:
- The Northern Ireland backstop within the Withdrawal Agreement – and whether the UK has the right to break away at some point, in order to avoid being trapped by the EU, and also to avoid regulatory divergence between Northern Ireland and Great Britain.
- Enhancing the role of the devolved regions in deciding the next stage of the relationship with the EU.
- Examining the strengthening of social and environmental standards and workers’ rights from future governments.
In setting out her next steps, the PM ruled out a delay to Brexit and admitted that a short delay would require the backing of all EU27 member states, which is not guaranteed without a general election or a second referendum. She also ruled out the only guaranteed way to delay Brexit, revoking Article 50, as it goes against the result of the 2016 referendum.
The prime minister also criticised the main opposition Labour Party, the leader of which, Jeremy Corbyn, has so far refused to meet with the government to talk about a solution. Instead, Corbyn demands that the government rule out “no deal” before he can begin to discuss Brexit. The PM correctly stated that unless Labour backs the Withdrawal Agreement, the only way to rule out no deal would be to revoke Article 50.
It seems that the process is stuck. Arguments are often circular with little being offered to break the deadlock. The situation is complicated by the fact that MPs are pursuing several policy options, some of which are contradictory. If the PM could win some concessions from the EU, then she could win the support of some MPs, but possibly lose the support of others. The only announcement that seemed to gain universal support was the waiving of the application fee for EU citizens to remain in the UK.
Could parliament wrestle control from the government?
MPs will continue to discuss Brexit ahead of an advisory “neutral” vote on 29 January. MPs have started to put forward amendments in the hope of wrestling control from the government. Meanwhile, May plans to head back to Brussels to seek at least further re-assurances over the backstop, but ideally, a legally binding change in the agreement text.
Whether she succeeds or not on the backstop, the bigger problem is that she will struggle to overturn the deficit of 116 MPs from the last “meaningful vote” with simple changes to the deal. Especially while MPs believe that there is still time remaining to negotiate, and while they believe that an extension is possible.
One amendment from remain supporting Conservative party MP Dominic Grieve attempts to rescind the permission given by the Commons to parliament for no deal when it voted for Article 50. His amendment also seeks to give other MPs control over debating time in the Commons.
The Grieve amendment would help a bill proposed by Labour MP Yvette Cooper. The bill would enable parliament to force the PM to seek to extend the Brexit date from 29 March to 31 December 2019 if there is no resolution on the negotiated Withdrawal Agreement by 26 February 2019.
While these proposals would be helpful in unlocking the Brexit deadlock, they are also controversial and dangerous not only for this government but for future governments. Such a precedent would hurt the powers of the executive, and potentially reduce the incentive for consensus building within coalitions, leading to more volatile and unpredictable governments. For these reasons, we may see several parties including Labour oppose these motions. For them to pass, defectors from the Conservative party would have to back them.
Separately, Jeremy Corbyn has tabled an amendment that calls for two options. First, for the renegotiation to include “…a permanent customs union with the EU, a strong relationship with the single market... and dynamic alignment on rights and standards...”. The second option is a “…public vote on a deal [or] a proposition that commands the majority in the House of Commons.” The first option should be voted down as most MPs accept that the EU is not yet negotiating the future relationship. The second option does however have some support, but is unlikely to carry a majority.
Finally, the most sensible amendment yet has come from Hilary Benn MP which calls for a series of indicative votes to gauge whether any of the four options he sets out have the support of the majority in the house. These include:
- Holding another vote on the Withdrawal Agreement without any material changes;
- Leaving the EU with no deal on 29 March 2019;
- Calling on the government to renegotiate, seeking either to change the backstop arrangement; or to seek a Canada-style deal; or seek a softer Brexit (EEA membership);
- Hold a second referendum to allow the public decide on which kind of Brexit deal they want, or whether they wish to remain in the EU.
The new amendments have raised hopes amongst investors that the UK will not leave the EU on 29 March, as reflected by the small rise in sterling against the US dollar and euro in recent days. However, this government is clearly against any type of delay to Brexit. Without ratification of the current agreement, an exit without a deal will be the outcome.
Our view remains that the probability of a no deal Brexit is as high as ever, but we think that when faced with the prospect, parliament will support whatever deal is on the table.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.