Brexit Update September

Brexit Update September

REPORT • Sep 2019

With the extended Brexit deadline less than two months away, the current conservative government now a minority one, opposition parties refusing to accept an election or call for a vote of no confidence, the government refusing to abide by the now legal requirement to extend the Brexit deadline, which France has said it could possibly reject, it remains highly unclear what is happening with Britain’s exit from the European Union.

Summary

With the extended Brexit deadline less than two months away, the current conservative government now a minority one, opposition parties refusing to accept an election or call for a vote of no confidence, the government refusing to abide by the now legal requirement to extend the Brexit deadline, which France has said it could possibly reject, it remains highly unclear what is happening with Britain’s exit from the European Union. In addition to all this, Parliament has now been Prorogued, or suspended, until 14 October.

The disarray and constant uncertainty are making planning for both businesses and travellers difficult. While a bill has been passed that theoretically forces the government to seek an extension if no deal is agreed, a No-Deal Brexit remains a highly likely outcome, unless there is an 11th hour deal in the last weeks before the deadline on 31 October. Parliament is now in Prorogation and it is probable that politics in the UK may remain in a state of stasis for the coming weeks. However, in the immediate short-term, an election has not occurred, which has taken away the prospect of a new government, the possibility of a hung parliament or any drastic government change.

Brexit Update September

What is going on?

As it stands, despite the bill demanding that the government delay Brexit if no deal is negotiated achieving royal ascent, Britain is looking likely to be leaving with a No-Deal Brexit on 31 October, due to there being no indication that Prime Minister Boris Johnson has achieved any breakthroughs in negotiations with the EU. Yet, what could happen next remains extremely fluid and is subject to change daily.

Indeed, the options for the PM are limited; calls for an election have been rejected, he now leads a minority government, it appears there is little prospect of a new deal from the EU at this time, and opposition parties are currently not forthcoming with a no-confidence vote. As such, legally the PM must now go to the EU to request an extension, which could be granted but already sees French opposition. To further muddy the waters, the PM has stated he will not do such a thing – an act that could risk the government being taken to court and, though unlikely, potentially even result in jail for the PM.

Johnson appears to be boxed in and, unless the prime minister has a larger strategy to deal with the current highly challenging situation, the state of affairs does appear dire for not only his premiership but for British politics as a whole. He has very little time, no clear majority for any of the options available and a public growing frustrated and disenfranchised with the political elite.

The PM does have some options, none of them particularly “good” or straightforward. Johnson may call for a vote of no confidence in himself, which would be very odd. This would then put the opposition in a position where it could oust him, which would likely leave Labour leader Jeremy Corbyn as PM or have the opposition forced to vote in confidence for the PM they oppose. Other options include, as mentioned, simply ignoring the bill, which is likely to have serious legal consequences. Johnson could also attempt to put forward a one-time bill calling for an election; however, to get the bill passed the PM would need to add something to entice opposition parties. This would likely be something unfavourable for the PM and could vary from a vote on the date of the election to a second referendum or, to the nuclear option, his resignation.

What Next?

The current state of affairs for the next months is more or less fixed:

  • An election is for now off, parliament has been suspended and is not returning until mid-October. As such, the earliest date a vote could be held – that is assuming normal conventions are followed, something that is not guaranteed – is 21 November. This is after the current Brexit agreed date.
  • Britain is still set to leave the EU on 31 October. However, whether that will be with a deal or without one remains unclear.
  • The government has said it will not break the law but also that it will leave the EU on 31 October; possibly breaking the law if a deal is not reached by then.
  • The stepping down of the Speaker of the House, John Bercow, adds another issue for MPs to resolve and one that the government will want resolved in its favour as a speaker similar to Bercow could continue to allow parliament to battle over the details of Brexit; tying the hands of the PM.

What will happen next is anyone’s guess. The French government is strongly against an extension. However, turning down a request from opposition MPs who are trying to stop a No-Deal while the EU claims to want a deal would be hard to ignore, theoretically. Johnson could, therefore, go to the EU and ask for an extension, despite being in favour of the contrary, and gamble that the EU might reject the request.

One option for the PM would be to resign, possibly through the aforementioned vote of no confidence in himself, Jeremy Corbyn then would have the option to take over and ask for a delay and incur all the issues that would be associated with that. However, this has been dismissed by most Conservatives, firmly.

Another option that has been quickly dismissed is a second referendum. A second referendum is currently not viable; should remain win, Westminster would find itself in a hellish political position, plunging Britain into an even deeper political crisis. Indeed, even Paris appears against Britain holding a second referendum, as a reluctant British EU membership would likely reinforce the faction opposing Macron’s vision for the bloc. Every decision would be shaped by a Westminster vs Brussels debate. How would London react to the EU’s progressive federalisation? And what could Britain do if it did not like the direction that the EU was ultimately going? Threaten to leave again?

As such, Britain appears stuck, unable to leave with No-Deal. However, any draft of a deal has so far been unacceptable and the possibility of remaining an EU member is also improbable, both for the political stability of the United Kingdom and for the EU.

What does this mean for businesses?

Understandably for businesses and travellers, the uncertainty for the future and the lack of a clear strategy by the government are a negative for business, planning trips and holidays, as well as any future investments. As it stands, Britain appears to be heading towards a No-Deal Brexit. Yet, there could be a deal, or an extension; the months of uncertainty and political fighting both at a domestic and international level are now damaging the UK economy.

In the event of a No-Deal, which despite the recent bill in parliament remains the most likely outcome, there will be a number of short-term impacts on the United Kingdom. The most notable being the high likelihood of the Pound dropping even further against the Euro, coupled with a sharp dip in the markets. The British economy could potentially be pushed into a recession.

However, a No-Deal Brexit would, finally, give some certainty to businesses, investors and travellers. This may have a positive effect on investments and possibly alleviate the fears of a recession, as companies would finally be able to make decisions without the constant uncertainty crippling their planning. Despite this, it is expected that the economy will suffer, as many businesses, and consumers are forced to pay an increased amount to import goods or spend time reorienting away from the EU towards trade with other countries.

Other aspects that may be affected:

Trade

As it stands, a No-Deal Brexit would see the UK would revert to World Trade Organisation rules on trade. This means that the country would not be bound by the EU’s rules, but also face EU external tariffs. This does mean that the price of imported goods in shops could increase as a result.

Additionally, some British-made products may be rejected by the EU as new certifications may be required. This may result in even more manufacturers moving their operations to the EU in order to avoid items and components being blocked or delayed while transiting across the border.

One of the major advantages of No-Deal would be the ability of Britain to implement new trade deals with countries. These would be bilaterally negotiated and will, therefore, more closely reflect the economic needs of the UK, rather than the EU as a whole, where the deals are negotiated by the Commission for all member states. Moreover, the implementation of a deal within EU regulation is subject to a 21-month long transition period. While independent negotiation capabilities definitely present their advantages, the EU’s ability to present a 27-country strong bloc significantly increases its leverage on the negotiation table.

Immigration

The UK will be free to set whatever controls it sees fit on immigration by the EU nationals and the EU on British nationals. While in theory there could be long delays at borders if passport and customs checks are heightened, both Britain and the EU have taken measures to guard against this.

As such, it is hoped that, come what may, on the 1 November travel between London and Rome or any other European destination will be as trouble-free as on 31 October. For those currently living in Britain and for UK citizens in EU countries, settlement schemes have been already put in place to guarantee their residence.

Laws

Parliament has passed a bill transferring all EU law into British law as a continuation protocol. From 1 November onwards, however, in the event of a no-deal, the UK would be free to change any of these laws as it sees fit and will no longer have to adhere to the rulings by the European Court of Justice. Should a deal be struck, then EU laws will continue to apply in the UK, even those set after Brexit.

However, regardless of what type of Brexit the UK gets, the country will still be bound to the European Court of Human Rights, a non-EU body.

EU budget

The UK will still have to pay its commitments to the EU budgets, that sat at around £13 billion in 2018, and will lose out on EU subsidies, which amounts to around £3billion. Other EU investments in the UK are unlikely to be impacted but will be wound down quickly.

The Irish Border

The main issue that appears to have hamstrung all discussions for a deal; the Irish border. In the event of a No-Deal, the border would remain unresolved and would subsequently become an external border with the EU. There would then be pressure to enforce customs and immigration controls. A hard border is also likely to have a security impact by threatening the Good Friday Agreement and also having the potential to spark violence not seen since the agreements’ signature.

The backstop is a last resort guarantee of a frictionless border if no better solution is found in time. As it stands, the current backstop maintains close ties between the UK and the EU. Many politicians believe that it gives the EU too much power in the next stage of the negotiations; giving the EU an effective way to apply pressure on UK negotiators by running down the clock and threatening a revert to an EU-led Customs Union. Indeed, the more cynical Brexiteers have even called the Backstop a “trap” to keep the UK in a permanent Customs Union. Though some have been more supportive, saying it is an effective way to safeguard both Northern Irish business and the Good Friday Agreement.

The UK government has stated that it would aim to avoid a hard border and has promised that there would be no new tariffs on goods for a temporary period. Indeed, in recent days, Johnson has softened his stance on the border. It is possible that the PM may even look at possibly accepting the agreement, so long as Britain was not “trapped” in the agreement whilst also giving Ireland the assurances it needs. Though a spokesperson quickly squashed this.

Going Forward

As the 31 October approaches, it still remains unclear what will happen. The PM now has to hope that there can be some sort of tweaks to, or even better a complete removal of, the backstop. Thus far, the EU seem to be sticking to the deal negotiated by Theresa May and it remains unclear whether, in the coming months, that they will make any changes or concessions to the deal. The possibility of an election is also now next to impossible, with November being the earliest one could be held, ruining Johnson’s apparent plan B. As such, it now appears that negotiating with the EU is the only possible way forward until 31 October. Until then, businesses, travellers and the British public must continue to wait to find out what a post-Brexit Britain will look like.

Security Advice

Moderate Political Risk

  • Travellers and businesses should prepare for all eventualities, no deal, deal, or delay, as it is highly likely that the situation will change rapidly in the coming days and weeks and companies and travellers will need to be prepared for this.
  • The likelihood of violent unrest remains low; however, protest action will likely continue in the coming weeks by supporters from both sides. With clashes with police and other protesters being a risk, should opposition supporters find themselves in the vicinity of each other.
  • Businesses in the UK, both large and small, should be up-to-date with the UK government’s guidance on the EU Exit found on the government website: https://www.gov.uk/business-uk-leaving-eu
  • Additionally, companies in Europe and across the globe should also be aware of any changes to legislature and their own countries (as well as European) versions of the gov.uk guidance.
  • Disruption to supply chains is highly likely in the event of a no-deal Brexit; preparations should be made to ensure production or other activities are not impacted.
  • All travellers should ensure their passport is valid for at least six months from the date of arrival for all travel to and within the EU. Travellers with less than a six-month validity on their passport should consider applying for a new passport soon to avoid any delays.
  • Travellers planning to use cross-border services on or after 31 October should ensure that their insurance and ticket terms and conditions are sufficient to cover possible disruption.
  • Businesses should consider reviewing – or even accelerating – current contingency plans for the UK to leave without a deal on 31 October. This includes the potential need for visas, if operations include pan-European work or travel.
  • Businesses should factor in a likely increase in travel and operational costs and time linked to changes implemented after 31 October or after any possible transition period.
  • It is advised that travellers keep travel insurance and healthcare coverage up to date in the event of a no-deal.
  • An International Driving Permit may be required if driving in the EU after Brexit, this will depend on the country and, as such, travellers should check: https://www.gov.uk/guidance/driving-in-the-eu-after-brexit-international-driving-permits

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