Brexit News, Member News

EY Brexit Viewpoint: Signals and Developments

By Mats Persson, EY UK & Brexit Lead & Special Advisor to the Prime Minister 2015-2016
 
Latest developments:
  • Theresa May has said that cross-party talks to find a solution to the Brexit deadlock have so far generated no result. She’s now focussing on winning over her own backbenchers and the DUP, the Northern Irish party she relies on for majority in Parliament.  
  • Another vote in UK Parliament on Theresa May’s Brexit plan will take place on 29 January – this time in the form of a non-binding motion that MPs can table amendments to.
  • Key amendments include attempts to extend Article 50 and delay Brexit by nine months if the Government has failed to get a deal through by 26 February and attempts to give MPs new powers over the legislative agenda. The Labour leadership has indicated it could back an extension of Article 50, significantly increasing the likelihood, though not specified for how long.   
  • These amendments would need to be followed by legislation to be legally binding but chances are considerable if they receive backing in the vote next week.
  • Remain MPs may choose not to table an amendment calling for a second referendum, fearing limited support as Jeremy Corbyn – the opposition leader – continues to refuse to back it.
  • Theresa May continues some talks with the EU to try to get revisions to the Irish backstop – the fall-back solution to avoid a visible border between Northern Ireland and the Republic of Ireland if no other solution is found.
  • So far the EU has insisted on clarity on what concession is sufficient to muster a majority in UK Parliament before putting forward alternative proposals, but there are some signs the EU’s common position is coming under some strain.
 
Watch Mats Persson’s interview with Sky News’ Ian King where he discusses the latest developments, the signals business need from the Prime Minister and the most common hedging responses we’re seeing businesses trigger.
 
Key messages for business planning:
  • Business should continue to mitigate against a No Deal Brexit in business-critical areas until a majority of MPs vote in favour of a legally binding alternative or a No Deal Brexit is procedurally ruled out.
  • As the Prime Minister correctly keeps saying, there are fundamentally only two ways to definitely take No Deal off the table: MPs voting by majority either in favour of a deal or to revoke Article 50 (stop Brexit).
  • Therefore, extension of Article 50 doesn’t in itself take No Deal off the table.
  • However, if amendments to delay Brexit and increase MPs’ powers go through next week, it will clearly significantly reduce the risk of a No Deal by giving MPs a large number of directional levers.
  • But business should wait for the aftermath of next week’s vote – and to see how all the politics play out – before making any decisions to alter plans.   
 
Probabilities: political outcomes that could change Brexit outcomes (not mutually exclusive)
 
Outcome
 
Likelihood
Rationale
Extending Article 50
50% (up)
Increased likelihood given that Labour leadership has indicated it may back it. It requires both all EU Member States and a majority of MPs to agree. Extending Article 50 beyond June or July is still politically very difficult on all sides.
Time to organise: 2-7 days
 
Second referendum
20% (unchanged)
Corbyn has not yet backed this option and is reluctant to do so, as it would deeply split the Labour party. Requires a majority in both houses and a long legislative process.
Time to organise: At least 3-4 months but likely longer
 
General election in next 12 months
30% (unchanged)
With no obvious way out of the deadlock, and more MPs complaining about the legitimacy of the current parliamentary process, an election remains on the table. Corbyn could well try to table a new No Confidence vote in the next few weeks, and is seeking Art 50 extension in part to get more time to push for an election.  
Time to organise: 5-6 weeks
 
The above political events will clearly have the potential to alter Brexit outcomes and the timings involved, but remember these are paths to one of the five Brexit outcomes we have tracked for the last two years, which have their own set of probabilities, set out below.
 
Brexit outcomes
Outcome
 
Likelihood
Rationale
WTO i.e., No Deal
20% (down)
Time is running out and this remains the default position until a majority of MPs agree to an alternative or gets the procedural means to veto a No Deal. As 6 out 10 Conservative members support this option, it could be that this is less damaging for May than a cross-party deal. However, moving closer to an Art 50 extension means the risk is going down.
 
FTA
15% (unchanged)
Brexiteers preferred option but not current Government or Labour policy and no majority for it in Parliament as things stand.
 
Hybrid
35% (up)
Though May’s version has been rejected, the lack of other alternatives and Labour’s vision of Brexit also involving a de facto hybrid model, but with an explicit customs union, still make this the most likely, eventual outcome.
 
Single market / Norway +
15% (unchanged)
A compromise option but probably further away from majority support than a hybrid model, due to free movement (Labour and Tories) and trade policy control (Tories). Has failed to gain the momentum some expected it to take on at this juncture, but probabilities could change depending on numbers and votes next week.
 
Stopping Brexit
15%  (unchanged)
We’re still a significant number of political and legal steps away from this option, and no majority support in Parliament. That Corbyn still won’t commit to a second referendum even at this stage lowers the probabilities, but amendments next week could change this.

Webcast:
Register now for our update webcast following the vote – Wednesday 30 January, 14:00-14:30

Contact: For any questions, please get in touch with the Brexit and Trade team:

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