Brexit Update 21st June 2019

By July 3, 2019 Brexit Updates

Top 3 developments

  • Jeremy Hunt and Boris Johnson have reached the final stage of the Conservative leadership contest, which will be decided by a vote of the Conservative membership.
  • The Labour Party, and Philip Hammond, have shifted towards supporting a second referendum under all circumstances.
  • The EU is ready to block Swiss access to European financial markets, as an example to the UK over Brexit.

UK Update

Out of the Fire… 

Conservative MPs held the final round of electoral ballots for the Conservative leadership yesterday. Sajid Javid was knocked out of the race at lunchtime, with 34 votes, and the afternoon ballot found Jeremy Hunt being selected as the candidate to face Boris Johnson, beating Michael Gove by only two votes. The contest will now focus on the UK, rather than Parliament, as the first of 16 hustings for party members begin in Birmingham tomorrow. Both candidates will try to secure the support of 160,000 Conservative party members in order to ensure their spot at No.10. Ballot papers will be sent out to members from July 6 and the result will be announced after voting closes on July 22.

Whilst Jeremy Hunt has admitted that he is an “underdog” in this contest, he will likely attract the support of members who are more wary of a no-deal, which Boris Johnson is less concerned by, due to the potential economic disruption that has been predicted to follow. On the other hand, Boris will appeal to the Brexiteers of the membership, vowing to leave the EU on October 31st with or without a deal. Mark Carney, the Governor of the Bank of England, has used an interview this morning to stress the impact of a no-deal, stating that tariffs on imports to the UK would be automatic in the event of a no-deal, contradicting claims made by Boris Johnson. This may give Hunt an opportunity to leverage support away from Johnson.

Conservative members are not just electing a leader of a party, they are directly electing a Prime Minister who will be instrumental to the final stages of the Brexit negotiations and their views will not be representative of the general population. If Boris Johnson is elected, it is likely that a no deal Brexit will occur, which both Parliament and the public have voted against. Additionally, if Hunt is elected there doesn’t appear to be a clear strategy ahead as he has shifted from a Remain campaigner during the 2016 referendum, to advocating leaving on a second deal but also not ruling out the chances of a no deal. It is likely that neither candidates would have the time to implement a deal by October 31st, resulting in either a no deal, no Brexit or referendum.

Changing tack to avoid attack 

This week the Labour Party changed its Brexit position and moved towards supporting a second referendum under all circumstances. The change came after Shadow Chancellor John McDonnell admitted that their previous policy was ‘indecisive’ and that further clarity was needed. However, in an attempt to be less ambiguous, the Party have pivoted towards supporting a second referendum on any deal, with no information about whether they would support or oppose a deal that took us out of the EU. Critics will no doubt claim that this is just as ambiguous as their last position.

Although the Shadow Cabinet were united in their belief that supporting a second referendum was the right decision, there was a split about whether Labour should back Remain or whether to consider supporting a Brexit deal. There was strong opposition to backing Remain, as it was considered ‘electoral suicide’ for Labour MPs in Leave voting seats to campaign for Remain. Corbyn faces the decision of whether he would allow MPs in Leave seats to campaign against Labour if a second referendum arose, much like David Cameron was forced to do in 2016. This is an incredibly difficult decision to make as it will fracture the Labour Party into two, and as we have seen with the Conservative Party, these fractures are rarely pretty.

Although Corbyn will once again be criticised for failing to be more decisive about his Brexit policy, it is probably wise to hold off on unequivocally supporting Remain until the political climate in Westminster is a bit more stable. The fact is at this moment we don’t know what a second referendum would look like – should it ever happen. Who knows whether the next Conservative PM would be able to secure a deal which satisfies Labour’s requirements and is therefore something they can support? Or whether a second referendum would be a contest between two or three of the following options: no-deal, Remain, or the deal on the table? With so many uncertainties, it is no surprise that Labour are waiting to see what unfolds in the Brexit negotiations before committing to anything. Labour are planning to launch a consultation process and hope to have a final position on this issue by Party Conference season in September, so expect this issue to dominate Labour’s policy agenda over the Summer.

Take a Chancellor on me 

The Chancellor Philip Hammond announced on Thursday that a second referendum could ‘break the impasse’ with Brexit. During his (most likely final) Mansion House speech, he used the opportunity to bring some refreshing frankness into the Brexit debate, warning the leadership contenders to be honest with the public and admit that Parliament is likely to reject both a Withdrawal Agreement and no-deal – the current stalemate that Parliament finds itself in.

While not explicitly endorsing a second referendum, the only real democratic mechanisms you can use to ‘break the impasse’ in this case are a General Election – to gain a Parliamentary majority either for no-deal or the Withdrawal Agreement – or a second referendum. However, considering Hammond is strongly opposed to Corbyn getting the keys to Number 10, it is assumed that a second referendum is his preferred option.

The speech itself offered some sobering realities about the Brexit landscape. As well as his warnings about the Parliamentary arithmetic, he challenged the candidates about what their ‘Plan B’ options were, because their Plan A is almost certain to not work out in the current Parliament. The Chancellor also highlighted that a no-deal Brexit would soak up almost all of the £26.6 billion of headroom he has created in the no-deal war chest. This is the money that the candidates have planned to use for their proposed tax cuts and spending pledges, so his underlying message is that these promises are simply undeliverable under a no-deal Brexit. It remains to be seen whether these hard truths inject themselves into the leadership contest.

EU Update

No easy Rutte out of this  

The Dutch PM Mark Rutte has attacked Boris Johnson’s claims that a transition period is possible without a Withdrawal Agreement. Boris has argued in favour of taking the ‘good bits’ from the existing Agreement and finalising the backstop disagreements during the transition period. However, the Dutch PM poured cold water over these claims, highlighting that the Withdrawal Agreement is a full agreement and it is not possible to cherry-pick parts of it while leaving other bits out.

Brexiteers have often argued to effectively pursue a hard Brexit with a transition period. But the Withdrawal Agreement is the transition period. A hard Brexit essentially means leaving the EU without a transition period, and the Withdrawal Agreement is the process the UK needs to follow to ensure an orderly exit from the EU until a free trade agreement can be signed. This is not a niche legal technicality in the small print of the Agreement, but the basis of the entire Agreement.

Between a block and a hard place 

The EU this week warned Switzerland that it was ready to block Swiss access to Europe’s financial markets if it did not agree to an EU-Swiss framework deal. The EU and Switzerland currently have around 120 bilateral treaties. This is evidently a rather messy and inefficient arrangement, so the EU are trying to convert this into an institutional framework, which would require the Swiss to automatically adopt some EU laws. Brussels have flexed its muscles this week by outlining that it will cut off the country’s stock traders from EU markets from 1st July if Switzerland did not agree to this. Its key reasoning was that it did not want to water down the single market’s rules as the Brexit negotiations are going to start warming up soon.

This is a strong move from the EU and it is hard to deny that the timing is impeccable. It ensures that there is no precedent for a third country to be granted equivalence rules without a deal with the EU. As leadership candidates have been flirting with the idea of a no-deal Brexit, and have been downright assuming that the City will be granted equivalence status by default, this will be a bit of a shock. The message here is plain and simple: without a deal there is no automatic access to EU financial markets. It will now be even harder for a candidate to claim to be pro-business and in favour of no-deal.

Upcoming Key Dates

  • 23rd June: Three year anniversary of Referendum.
  • 30th June: Brexit review if the UK is still a member of the EU.
  • 6th July: Postal votes are sent out to Conservative Party Members.
  • 9th July: Leadership debate
  • 23rd July: Leader of Conservative Party is elected.
  • 31st October: Current Brexit Deadline.

 

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