Brexit Update 5th July 2019

By July 18, 2019 Brexit Updates

Top 3 developments

  • The Conservative Party has started sending out ballot papers to around 160,000 Tory members, who will decide who will become the next Prime Minister.
  • Phillip Hammond, Chancellor of the Exchequer, has predicted that a no-deal Brexit will cost the UK around £90 billion.
  • Ursula von der Leyen has been named the next European Commission President.

Leadership Update

Vague is the new Vogue

Despite voting in the leadership contest beginning this weekend, the leadership candidates have remained vague over their Brexit tactics were they to become Prime Minister. Whilst both candidates have stated that they will attempt to secure a deal with Brussels by 31st October, details remain light on how they are actually going to achieve this.

As Parliamentary recess starts on 25th July, a mere two days after the new leader is elected, it is unlikely that real progress will be made between the UK and EU until the holiday season concludes in September, with negotiations needing to be concluded by the EU Summit in October 17th.

This gives the new leader under a month to secure an entirely separate deal with the EU. Jeremy Hunt has shortened this already limited time frame by claiming that he would decide whether there is a “realistic chance” of a deal being agreed upon by 30th September, should he become Prime Minister. This task appears to be next to impossible, especially as the EU27 have insisted that the Withdrawal Agreement will not be reopened. Yet Johnson and Hunt are consistent in arguing that they can secure such a deal or leave the EU by October 31st, without outlining exactly how this will be possible.

BackStop, Drop and Roll

The Irish backstop has been a significant roadblock in the Brexit negotiations thus far, with the EU27 continually stating that they will not remove the backstop from the Withdrawal Agreement until an alternative arrangement can be agreed on. However, both Hunt and Johnson have stated that they will not accept a deal with Brussels that includes a backstop, with Johnson arguing that it is “moral blackmail”.

Both candidates suggest that a paper compiled by a group of Brexiteer-leaning economists and trade experts will be instrumental in their renegotiation tactics with Brussels. This paper explains that a frictionless border between Northern Ireland and the Republic of Ireland is possible, if the EU treats Northern Ireland unlike any other external border it has, waiving many of the rules and checks that it imposes on other countries. Not only would EU countries have to agree to this, which is unlikely considering it was a red line for France and Germany during previous negotiations, but it would also require the approval of the WTO and it is unlikely that it would want to set such a precedent.

Considering the limited renegotiation time for the new Prime Minister, it is extremely unlikely that these scenarios would be agreed by the EU27. Such methods were attempted by the previous Prime Minister, Theresa May, and Brussels remained firm that they would not remove the backstop from the agreement until it was clear that a feasible and realistic alternative had been agreed upon by both parties, which would likely take more than a month of negotiation time.

Block it like Beckett

Should the candidates fail to secure a removal of the backstop from the Withdrawal Agreement, they will pursue with a no-deal Brexit. Such a policy would involve a significant change to current Government policies, and neither Johnson nor Hunt have been able to outline what these changes would be or how they would be implemented by October 31st.

Parliament has voted overwhelming against a no-deal numerous times, and there is a strong fear within the House that Parliament will be prorogued by the new Prime Minister in order to follow through with a no deal. Several MPs have attempted to put roadblocks in place, such as Grieve and Beckett’s amendment to ‘estimates’ which would have denied funding to Whitehall Departments if the UK left the EU without a deal. However, these have failed to pass through the House, currently giving the new Prime Minister the potential to pursue a no deal against the wishes of Parliament. Nonetheless, Parliament may attempt to block this course of action further down the line by either tabling more amendments of calling a vote of confidence on the Government. There is potential that a vote of no confidence would pass, leading to a General Election, as numerous Conservative Ministers, including Chancellor Phillip Hammond, have suggested that they would support such a vote if it meant avoiding a no deal Brexit.

UK Update

The North Remembers

The Director of the Northern Powerhouse Partnership has expressed fears that Brexit will lead to reduced investment in the North of England. England currently receives almost €1bn a year from the EU’s two biggest funds, the European Regional Development Fund (ERDF), and the European Social Fund (ESF). The three northern regions of England — the North East, the North West, and Yorkshire and Humber — receive €380m from those two funds. However, there are concerns that once this investment ends when the UK leaves the EU, this money could be allocated elsewhere.

The EU allocated this money according to deprivation levels, but it is more common practice in the UK Government to reward success, with some funds requiring competitive applications to gain funding. There are therefore viable concerns that these areas will simply not be able to win these competitive contests and retain this funding. It is perfectly reasonable to assume that if there is less revenue to spend in this sort of funding, the UK Government will make the utilitarian decision to focus investment into areas where it might expect some form of tangible return. This will be especially true if a no-deal Brexit negatively affects areas like London, who provide a disproportionate amount of GDP for the UK economy, and will therefore be prioritised for funding. But this outlook overlooks the entire need for this funding in the first place, which is designed for the areas which are least likely to be able to provide returns on the funding. Whoever inherits Number 10 will need to make some tough decisions about whether the overall economic health of the UK or geographic economic equality is more important. 

I’m afraid there is no money

As the threat of a no deal has ramped up, Phillip Hammond has increased his warnings to the Tory leadership contenders that a no-deal Brexit could cost the economy £90 billion. The current Chancellor is expected to lose his Cabinet position when the new Conservative leader comes to power. Therefore, he is spending his last few weeks in the role explaining that the series of spending pledges by the contenders in recent days are putting the Conservative Party’s reputation for fiscal responsibility at risk.

Both no deal proposals from the leaders are costly, with Hunt announcing plans for a £20 billion Brexit “war chest” and Johnson outlining plans for £32 billion worth of spending. The candidates are claiming that there is fear mongering taking place over a no deal, and that the threat or cost will not be as detrimental has some Ministers and economists are predicting. However, Hammond has explained that a no-deal would have a giant impact, with the expectation totalling about £90 billion. Whilst £26-27 billion has been put aside by the Government for “fiscal headroom”, this could be required immediately in the event of a no deal, leaving no cash available for long-term tax cuts or spending increases. Hammond’s warnings against a no deal imply that, should a vote of no confidence occur, he will vote against his own party in order to protect the country.

EU Update

Leyen all your love on me

The EU have announced that the next EU Commission President will be Ursula von der Leyen, the German Defence Minister. After over 20 hours of intense discussions between EU leaders, the leaders eventually came to an agreement that von der Leyen was a suitable compromise candidate that was palatable to all. This did not come without baggage, as French President Emmanuel Macron was one of the many leaders who aired his frustrations at this process publicly, bemoaning the indecisiveness of leaders not being able to agree upon something even after 20 hours of discussions.

The leaders had to share out the five tops in the EU: EU Commission President, EU Council President, European Parliament President, EU Foreign Affairs chief and the head of the European Central Bank. But with so many different factions and competing interests, the leaders almost found it impossible to fill these spaces without facing vociferous opposition from someone. Von der Leyen will take up her post in November 2019 alongside the new EU Council President Charles Michel, the ex-Belgian Prime Minister. She has served continuously in Angela Merkel’s Cabinet since 2005, and although she has previously criticised Brexit, she has been praised by politicians such as ex-Defence Secretary Gavin Williamson as being extremely tough, bright and capable.

Following the announcement, Number 10 offered measured enthusiasm about the appointment, with the general conclusion being: it could have been worse. The new EU Commission President is a fluent English speaker, has studied at the London School of Economics and has been described as someone that the UK can do business with. Considering it was possible for individuals like EU Chief Brexit Negotiator Michel Barnier or Irish Taioseach Leo Varadkar to become Commission President, the UK officials will be breathing a sigh of relief that von der Leyen is unlikely to take nearly as strong a line on Brexit as these individuals.

However, this by no means suggests that she will be a pushover, and she has already outlined that the negotiations will not be reopened. But Number 10 knows that she is pragmatic, and has no desire to kick off her premiership with the Brexit issue still lingering, so there is a ray of hope that von der Leyen could be the catalyst within the EU to reach an agreement that can ensure a smooth and orderly exit from the EU.

Upcoming Key Dates

  • 6th July: Postal Votes are sent out to Conservative Party Members.
  • 9th July: Leadership debate
  • 23rd July: Leader of Conservative Party is elected.
  • 30th September: Jeremy Hunt’s cut off date for a realistic deal.
  • 17th October: EU October Summit
  • 31st October: Current Brexit Deadline.

 

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