Much Ado About Everything No 18: Brexit — What Next?

With Theresa May’s deal seemingly doomed, I put a 50% probability on a second referendum.

[Note: In pretty much everything I write, I am indebted to friends and colleagues who help to inform my views but who normally get no mention (not least because much of the advice from which I benefit is unattributable). However, for this particular article I do want to give specific mention to my friend of many years, John Nugée of Laburnum Consulting, whose analysis published yesterday spurred me into writing about Brexit again and who helped me firm up some of the thoughts herein. This being said, please do not attribute anything I say below to John who may or may not share my stated views.]

In my Outlook 2019 published on 6 January, I had the following to say about Brexit (in a section devoted to the populist nationalist threat in Europe as a whole).

“Meanwhile, of course, there is Brexit where the ruling Conservative Party’s populist nationalist wing now appears to have a realistic chance of achieving its ‘hard’ exit goal come 29 March — probably a better one than Prime Minister Theresa May has of getting her deal through parliament in a vote which seems likely to be held on 15 January (with the debate starting this week) and which must take place no later than the 21st. Recent opinion polls suggest that, although Mrs May is arguably correct in her claim that her deal is the only realistic one which delivers on the 2016 referendum outcome while offering the UK economy some protection against the consequences of leaving the EU, fewer than one quarter of voters support it.

The third option, seemingly supported by around half the electorate, is another referendum as forecast by the FT’s Philip Stephens who believes, consistent with opinion polling, that this would result in a vote to remain in the EU . But even he feels obliged to add that:

‘This prediction is offered as much in hope as expectation!’.”

Writing this (and reading John Nugée’s aforementioned article) got me thinking about possible trajectories between now and (let’s say) the 21 January deadline for a parliamentary vote. The result is as follows.

The next known decisive move appears to be in the hands of Mrs May herself, ie calling a vote on her deal, possibly on the 15th but certainly no later than the 21st.

This being said, there will no doubt be a certain amount of manoeuvring during the parliamentary debate on her deal, including proposed amendments. One such may come as early as tomorrow in the form of a cross-party amendment aimed at preventing the Treasury from making tax changes without parliamentary consent in the event of a hard Brexit; whether the amendment succeeds or not (and press reports suggest that No 10 is “relaxed” about it which is just as well, if true, since it appears likely to pass) the vote on it should give some indication of the number of parliamentarians who oppose a hard Brexit, which could in turn shape what follows.

[9 January update: In fact, the vote on the cross-party amendment took place on 8 January and it was carried (ie the government was defeated) by 303 votes to 296, with 20 Conservative MPs defying the party whips. Meanwhile, the number of reports in the UK press of a possible Brexit delay, ie extension of the Article 50 two-year deadline, is increasing.]

[9 January update No 2: Worse followed for the government today when it was defeated on a second (procedurally controversial) amendment which will force it to produce a 'plan B' within three working days if Mrs May's deal is voted down. So, a 15 January defeat would mean that the government has until Monday 21 January to put new proposals to parliament, opening the door for early votes on any number of alternatives to the May deal. The catch, of course, is that there does not appear to be anything close to a majority for any alternative except, possibly, a second referendum. Nevertheless, this is an extremely important development as it massively reduces the government's ability to continue to procrastinate in the hope of ultimately forcing reluctant MPs opposed to a hard Brexit to vote for the May deal at a second time of asking.

I cannot resist adding that I have no sympathy at all with those who are up in arms over the break with procedural precedent which allowed this vote to happen and who campaigned for Brexit in part to restore sovereignty to the Westminster parliament.]

When we get to the vote on the deal itself we are at the proverbial fork in the road with two main routes ahead.

Trajectory 1

If the House votes in favour of Mrs May's deal, we move forward accordingly. All relatively straightforward on the face of it, at least in the short term.

Trajectory 2

However, if the House rejects her deal we are indeed in what Mrs May refers to as “unchartered territory” (as if we were not already!) and it is far from clear what happens next. But the following six scenarios are, in my view, plausible.

2A. To all meaningful intents and purposes, nothing happens as far as parliamentary process is concerned, with the consequence that the UK leaves the EU on 29 March with no deal.

This is, in my opinion, a non-negligible probability (more on which below) given the failure of parliamentarians opposed to hard Brexit (reckoned to be a sizeable majority) to agree on an alternative option.

2B. Markets sell off heavily across Europe helping Mrs May to win some further quick concessions from the EU sufficient to allow her to call a second vote on a modified deal, which carries the day; in other words, we revert to trajectory 1 above.

This is a (belated) version of one of the possible trajectories about which I wrote in my 11 December article after I had discussed ways forward with a number of experts in London a few days previously. And, according to James Blitz writing in the Financial Times today (subscriber access only), it may be Downing Street’s best case given the seemingly high probability of an initial defeat. However, Mr Blitz’s colleague, Robert Shrimsley, reports that, in the event that Mrs May is defeated first time around, Remainers are looking to prevent a second vote on her deal on procedural grounds, presumably in the hope of forcing the withdrawal of the Article 50 notification, if not permanently then for long enough to allow time for a second referendum (see 2D-F below).

2C. The House again rejects the revised deal at the second attempt; but, by now, the clock has run down to the point where further EU concessions and a third vote on it are no longer options.

2D. Following the rejection (either initially or after a second attempt) of the May deal, pro-EU (anti-hard Brexit?) MPs force a vote to revoke Article 50 and hold a second referendum.

Although it may seem paradoxical, there is reason to believe that some Brexiteers may even support this on the grounds that it would be preferable in their eyes to the May deal and in the belief that a second referendum would confirm that ‘the will of the people’ is to leave the EU. They have a point, in my view; the polls give ‘Remain’ a lead pretty consistently but are still close and there is every possibility that a Remain campaign would mess it up at least as badly as it did in 2016!

2E. This motion is carried and Article 50 is revoked or suspended pending a further referendum.

2F. The motion is defeated and the UK is effectively back at 2A and irrevocably on course for a hard Brexit barring the proverbial 'black swan'.

As if this wasn't complicated enough, there are at least two other factors worth weighing under Trajectory 2, ie:

  • Mrs May resigns after defeat in the House forcing a Tory leadership contest which would probably necessitate the suspension of Article 50. However, so far at least, Mrs May has shown no inclination to quit and I have no reason to believe she is about to have a change of heart on this count (keeping in mind too that her own party cannot again try to force her out until December 2019); and
  • The government loses a vote of confidence which would lead on to an early general election — and again, presumably, the suspension of Article 50 in the meantime. However, the opposition parties have shown no real inclination so far to force such a vote, suggesting that: either they think they would lose; or, in Labour’s case, they think they would likely lose a subsequent election (which would not be inconsistent with recent polling); or they simply don’t want to take over the reins in the short term.

In short, I am going to discount both these possibilities for now at least.

And…?

So, what conclusions do I draw from this?

  • First, it would be a big surprise if Mrs May were to get her deal through parliament at the first attempt, ie Trajectory 1 remains a low probability.
  • Second, I doubt very much that the EU is about to make any further concessions either before a vote on Mrs May’s deal or after she is defeated (assuming she is), at least not beyond the sort of mere window-dressing which, alone, is unlikely to persuade the House of Commons to change its collective mind in the event of a second vote. This does not necessarily mean that a second attempt is doomed from the outset; but it is not at all clear to me that even substantial market pressure would persuade the Labour Party (under Jeremy Corbyn) and/or a critical mass off Tory Brexiteers to vote in favour of the May deal second time around.
  • In other words, the May deal appears to me to be ‘dead on arrival’, to all intents and purposes; but, on the basis that there is seldom such a thing as a zero probability in politics, let’s give it, in total, a nominal 10% probability of prevailing.
  • If/when the May deal fails, the default option is, of course, a hard Brexit, which I have already flagged as a non-negligible probability — at least 40%, in my opinion.
  • Barring something more or less unforeseen, this leaves the revocation/suspension of Article 50 pending a second referendum with a 50% probability, a conclusion with which I am reasonably comfortable. In this context I commend a recent op-ed piece from The Guardian by Tom Kibasi which explains why this could work to Labour’s advantage at a time when the party seems to be edging in this direction in any case. Add to this credible reports that the Cabinet Office may even be preparing for such a vote (albeit one which would offer the electorate a limited choice between the May deal and a hard Brexit) and there is good reason to suppose that 50% is a not unreasonable call.

But this is all still subject to the same caveat as Philip Stephens, ie “as much in hope as expectation”. And as for forecasting the outcome of a second referendum, I shall cross that bridge if/when we get to it!

Alastair Newton

www.alavan.biz

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