Brexit blues (updated 24 February)

The 'war cabinet's' compromise on Brexit may not be accepted by the government's own backbenchers, let alone the 27.

“It is safe to say that the differences in the cabinet are real, if not as dramatic and dastardly - or indeed as straightforward - as portrayed. It is, therefore, also safe to say that getting to a clear, detailed and bold picture after months of tensions, in one day, is unlikely if not impossible.”

Laura Kuennsberg, BBC News, 22 February 2018

Senior UK ministers, the so called ‘Brexit war cabinet’, are assembling at the Prime Minister’s country residence, Chequers, today to try to thrash out a compromise on Brexit. To be clear, it is NOT about the detail of the post-Brexit relationship. As Ms Kuennsberg puts it, if agreement is reached:

“It would be sign-off on a political approach that Theresa May can then put to the EU and, importantly, the public in her next big speech at the end of next week”.

My personal sense is that fear of the consequences of a major open split leading to the government losing a vote of confidence in parliament and a consequent general election will probably mean that some sort of compromise — aka a ‘fudge’ — will be reached at Chequers. Whether or not this would be acceptable to the EU27 is far from clear. But it would at least buy Prime Minister Theresa May more time — which seems to be her principal objective, ie clinging on to power and pushing all the hard decisions downstream into the proposed post-29 March 2019 transition period.

However, it is not at all clear that this would be acceptable to the ‘true blue’ Brexit hardliners in her own parliamentary party. Speaking to informed individuals in London a couple of weeks ago, it was immediately clear to me that the hardliners fear — with good reason, in my view — that the longer the hard decisions are put off the more likely it is that the outcome will not be to their liking. An open letter to Mrs May earlier this week, which was signed by 62 of her own backbenchers, makes their position totally clear. At the heart of this are two issues, as follows:

  • The right of the UK to negotiate its own trade deals — which it could not do inside the single market or a customs union under existing EU rules; and,
  • The right of the UK to set its own regulations without reference to EU rules — which takes us back to the heart of the Northern Irish border issue which was fudged late last year.

If they do not get what they want, it is far from impossible that they would trigger a leadership contest which would almost certainly mark the end of Mrs May’s premiership and which could quite easily lead to a Corn Laws-type split in the party, whoever emerged as her successor. This would, in turn, make another early general election a non-negligible probability.

All this being said, contrary to the general consensus, it is not entirely clear that the main opposition Labour Party, led by the left-wing Jeremy Corbyn, would actually win, let alone win a majority of 326 seats in the House of Commons. Most recent opinion polls have Conservative and Labour statistically tied at around 40%, which suggests Labour gains relative to the 2017 general election — but only assuming that its vote proves to be solid if/when push comes to shove which is not entirely clear among the under-25s in particular and especially if it insists on putting up hard left candidates in a significant number of seats.

As things stand, therefore (and at the risk of being proved utterly incorrect), I am inclined to think that the most likely outcome of an early election would be a Labour plurality, effectively forcing the party into coalition with the Greens, Liberal Democrats and Scottish Nationalists among potential partners. This would almost certainly mean that even if Mr Corbyn could not be persuaded to fight the election on a platform which committed to keep the UK in a customs union, a position he seems to be edging towards, a Labour-led government would be likely to adopt such a policy.

Put in this context, it was perhaps unsurprising that most of the individuals to whom I spoke in the City during my UK visit were minded that five years of Mr Corbyn in the Prime Minister’s office would be worth the undoubted harm it would do as, unlike a hard Brexit, this would be largely reversible in due course. However, this possibly Panglossian view would not, in my opinion, prevent a large sell-off in sterling-dominated assets at the prospect of a Corbyn premiership.

For now, however, it is all about the deeply divided Conservative Party.

Of fudge, cake and puddings...

So, eight hours of talks do indeed seem to have produced the 'fudge' I anticipated yesterday, if initial informal indications are correct. We are unlikely to know for sure until before 2 March when Mrs May is due to make a speech on whatever was agreed on 22 February, assuming that she wins approval from the cabinet as a whole at a meeting which will probably be held on 27 February (ie the day after Mr Corbyn is due to lay out Labour's position in more detail).

It is likely that the fudge revolves around the principle of 'managed divergence', ie 'cherry picking' (as the EU27 would have it) the EU regulations with which the UK wishes to remain in harmony while moving away in other areas. In other words, a stance consistent with Boris Johnson's belief that the UK can have its cake and eat it despite the fact that this appears to be anathema to the 27, as President of the European Council Donald Tusk (who is due to meet Mrs May on 1 March) made clear at an informal meeting of the 27 held on 23 February.

In principle, this is not necessarily a problem. After all, we are, as Mrs May's office blithely notes, in a negotiating process. But, even though it is clear that the EU27 are not as united now as they were last year (when the 'divorce bill' was very much to the fore), the 'big beasts' in Europe, ie France and Germany, do seem determined to prioritise protecting the existing rules and regulations.

We may get a better sense of just how much flexibility there is on the EU side at the 22 March European Council meeting when Mrs May is due formally to present the UK's position — and when Mr Tusk will table draft guidelines on the future EU/UK relationship for the 27 to consider. But I suspect that another political 'fudge' is more likely, not only next month but probably for the next 12 months until the UK actually leaves; and (at the risk of mixing too many metaphors!) that only then will we begin to glean the proof of the pudding. Assuming, that is, that the whole process is not derailed by Tory hardliners in the meantime.

Alastair Newton