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Hanover - Uncertain Times Require Uncommon Sense

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14 Jun 2018

The Brexit fog appears to have deepened. After two days of debates and votes on the Lords’ Brexit amendments, few MPs can even agree on what they have voted for or against. At the end of the first day of the two-day debate, I asked a senior minister whether he could see what form the end of Brexit will take. He is a minister who is fairly astute at reading the rhythms of politics. Without hesitation he replied: ‘There are a hundred potential endings’.

Yet take a step back from the hourly twists and turns, and there is a little more clarity as businesses seek to plan in the deep fog. There have been several developments in recent days that provide a route map of sorts. I will go through each of them and show what light they shed for businesses as they wonder what will happen next, albeit with the very big qualification that there are those potential one hundred endings. With little time to go, nothing is certain.

  1. The Customs Union or a ‘A Customs Union’.  Although the  Lords’ amendment in relation to the Customs Union was defeated, the majority of MPs support membership of a customs union. The key vote is next month on the Ken Clarke/Anna Soubry amendment proposing a customs union. Some Conservative MPs, beyond the small number of regular dissenters, indicate that they are willing to back the amendment. More significantly for now, Theresa May refused to specify a firm date in the Government’s latest statement on the so called ‘backstop’ arrangement for what happens in Ireland if the Brexit deal does not secure the soft border. The Government ‘expects’ to move from a ‘temporary customs arrangement’ to a ‘future customs arrangement’ by 2021 but accepts it cannot do so if there is no agreement by then that the soft border arrangements are secure. The EU is unswerving on the Irish Question even if it is willing to compromise on some other matters. May knows this. Indeed, May agrees with the EU. She is genuinely committed to a soft border but accepts there is no solution yet.
  2. The Single Market. The focus on the big Labour rebellion in favour of the Single Market membership obscures the bigger picture. There is no majority in the Commons for continued membership of the Single Market. The approach of the Labour leadership has softened considerably, but while free movement is a condition of membership, Labour MPs – largely representing northern constituencies – will remain opposed. Both front benches are opposed to continued membership. Given the parliamentary arithmetic, businesses must work on the assumption that the UK will be out of the single market by 2021 – but as yet there is no alternative set of arrangements that have been agreed. There is a huge amount of work in Whitehall on sector-by-sector arrangements that May hopes will lead to benefits similar to a membership of the single market. The EU shows no indication yet that it is willing to concede. Senior UK civil servants involved in the negotiations are pessimistic. Given the current void, this policy area is still fluid, which is remarkable and alarming given the time left for the negotiation.
  3. Labour. The Parliamentary Labour Party is divided over the Single Market. But of much greater significance for now is that Labour MPs will, with a few exceptions, unite to vote against May’s deal when it is presented to the Commons in the autumn. This means all the main opposition parties – but obviously not the DUP – will vote against the deal. Keir Starmer has been working tirelessly to move the Labour leadership towards a ‘soft Brexit’ position – in favour of a customs union and vaguer support for ‘alignment’ with the single market. His private calculation is that, if Parliament were to vote against the Brexit deal in the autumn, there will have to be a pause in the Article 50 timetable and an extension negotiated. He is not alone. There is a lot of talk in Westminster of the need for more time to sort all this out.
  4. The Meaningful Vote. There is a lot of intrigue over whether May conceded ground to the potential Tory Remain rebels as they believe (as does David Davis), or whether she largely stood her ground, as Brexiteers like Bernard Jenkin suggest. For businesses contemplating what happens this autumn, none of this matters. In reality the meaningful vote will be meaningful. If May loses the vote on the Brexit deal she will have no authority to announce that, as a result of the defeat, the UK will leave with no deal. On the contrary, she will probably have to resign, having suffered a defeat almost as historic as David Cameron’s in the referendum. Even if she pressed on there is no majority in the Commons for a ‘no deal’. The chances of the UK crashing out of the EU next March with no deal are slim. Conversely, if May wins the vote on the Brexit deal it too will be meaningful. The UK will be leaving the EU in March with many of the details still to be worked out. Given that she won all the parliamentary votes this week, that looks the more likely option, but there is much that will happen between now and then. Some ministers and senior Tory MPs wonder privately whether the vote on the deal will have to be delayed until December, given the limited time for the negotiation. Number 10 still plan for the vote in October or early November at the latest.
  5. The Cabinet. May’s more immediate challenge is uniting her cabinet after the June summit. It is now clear that businesses will get little clarity from the June gathering of EU leaders. There have been too many internal splits for May to publish the White Paper on the Government’s negotiation position in advance the summit. The White Paper is due to be published in July after a two-day cabinet meeting. Expect frantic negotiations between May and her Brexit ministers in advance. The White Paper will give some limited guidance to businesses, but the EU is likely to reject quite a lot of what is being proposed, such that negotiation – between the UK and the rest of the EU – then becomes pivotal.
  6. Scotland. The stunt in which the SNP MPs walked out of the Commons during PMQs was more significant than it seemed. The SNP Westminster MPs do nothing without the permission of Nicola Sturgeon who has not been a fan of stunts in the past. But Sturgeon remains determined to use Brexit to fuel support for independence. Of course she will not seek to hold a referendum unless she is sure she can win it; and there is no polling evidence suggesting there is momentum in her favour. But expect this to be a louder background hum from now on. The framing that triggered the SNP protest at PMQs is the key: ‘How dare the UK Parliament ignore the rights of Scotland in relation to powers beings transferred from Brussels?’ Sturgeon knows that if she can frame Brexit as ‘Westminster vs the interests of Scotland’, then she might change the current public mood in relation to independence. The SNP leadership is still investing a lot of time and resources in laying the ground for the second referendum.
  7. An early election. There is renewed speculation of an early election in the media partly because the current House of Commons is close to being dysfunctional. This remains very unlikely. Because of the Fixed-Term Parliaments Act, Conservative MPs must vote for an early election, as they did last year. They are not likely to take the risk amidst the Brexit chaos. In the current turmoil, businesses can rule nothing out, but should assume the most likely election date is 2022.
  8. Theresa May. Prime Ministers usually hang on much longer than feverish speculation suggests. Even so, the scale of internal criticism of her has grown significantly in recent weeks. Ministers complain that she has no strategic sense, cannot make decisions and still has no clear idea what sort of Brexit she wants. Much of the criticism is unfair. She has no choice but to be opaque or her cabinet would fall apart. If there were a new Prime Minister, he or she would be in precisely the same position, leading a divided party in a hung parliament and facing a negotiation with an EU resolved to protect its rules and values. May faces a series of mountainous ascents between now and next month. For the first time, I wonder whether she will make it, but still sense she probably will. She will not resign because of all the pressures and remains as doggedly determined as ever. She does not read the newspapers and is cocooned from some of the attacks. Senior figures in Number 10 tell me they have contingency plans for every eventuality. If she goes before the vote on the deal in the autumn, she will have to be forced out.

Excuse the qualifications, but Brexit is closer to a Netflix boxset where no one knows the ending, including the leading players. The minister is alarmingly correct: there are still a hundred potential endings.