Can Theresa May’s high-stakes Brexit gamble pay off?

KEY POINTS

  • On 25 November, the leaders of the 27 E.U. member states officially endorsed the draft agreement on the U.K.’s withdrawal from the bloc, at a summit in Brussels.
  • The U.K.’s departure is scheduled for 29 March 2019 and the next step of the exit process requires the government to obtain a majority vote in support of the deal in parliament.
  • A vote in the House of Commons, the lower house of a bicameral legislature, is set to take place on 11 December.
  • Prime Minister Theresa May is unlikely to succeed in obtaining the necessary votes for the agreement to pass through parliament.

CONTEXT

  • The publication of the draft Brexit withdrawal agreement on 14 November led to a chorus of criticism from parliamentarians across the political spectrum in the U.K. The agreement’s publication led to a number of cabinet resignations, including those of Brexit secretary, Dominic Raab, and Esther McVey, who served as work and pensions secretary.
  • The political declaration, a non-binding document that sets out the framework for the future E.U.-U.K. relationship, has done little to alleviate pressure on May. The declaration, which is separate from the withdrawal agreement but part of the Brexit process, confirms that the E.U. and the U.K. will ensure there are no tariffs on goods and will avoid ‘unnecessary barriers’ to bilateral trade. However, the U.K. will ‘consider aligning’ with some E.U. rules on goods – a section in the document which has led to further criticism by pro-Brexit MPs. Critics argue that the largely aspirational document provides little substance and fails to guarantee that the U.K. will continue to enjoy ‘frictionless’ trade with the E.U. after it leaves the bloc.
  • In the days following the declaration, there were many media reports alleging that members of the ruling Conservative Party opposing May’s Brexit plan were close to triggering a vote of no-confidence in their leader. Reportedly, the dissenters were only six votes short of triggering the process.
  • The Northern Irish Democratic Unionist Party (DUP), upon which the government relies to have a working majority in the House of Commons, has also expressed its opposition to the agreement, arguing it threatens the integrity of the U.K.
  • Pro-E.U. MPs claim the agreement means the UK would lose out on the current benefits it enjoys as a full member state. Many are calling for a referendum on the final agreement and the option of remaining in the E.U.
  • Pro-Brexit supporters say the withdrawal agreement jeopardises the U.K.’s ability to sign free trade agreements (FTAs) with non-E.U. countries – one of their key demands.
  • Another criticism of the agreement is the so-called ‘backstop plan’ – a kind of insurance policy that would maintain an open border between Ireland and Northern Ireland should the U.K. leave the E.U. without securing an all-encompassing deal. The DUP and other unionists argue that in treating Northern Ireland differently, the integrity of the U.K is threatened. They claim that under the current plan, the U.K. could remain in the E.U.’s customs union indefinitely.
  • According to a study published by the National Institute of Economic and Social Research (NIESR), an independent research institute, on 26 November, the withdrawal agreement brokered between May and the E.U. is expected to cost the U.K. economy around GBP100 billion per year by 2030 due to a loss in bilateral trade.
  • The cost of a ‘no-deal’ Brexit, whereby the U.K. would leave the E.U. without reaching an agreement, is estimated would cost the economy around GBP140 billion per year by 2030, according to the NIESR report.
  • E.U. exports to the U.K. would face average tariffs of around 5.7 per cent in a no-deal Brexit scenario, according to the Confederation of British Industry (CBI), a pro-business lobby group. Conversely, goods from the U.K. to the E.U. would face average tariffs of 4.3 per cent under a no-deal Brexit, according to the CBI.

ANALYSIS

  • Although fears of a no-deal Brexit scenario have become more widespread since the publication of the draft agreement and the subsequent political fallout, a no-deal Brexit scenario remains unlikely. However, a series of resignations, including former Brexit secretary Dominic Raab, and reports that some remaining members of the cabinet are calling for changes in the agreement, complicated May’s efforts to secure a deal with the E.U. at the summit on 25 November.
  • While the momentum of hardline Brexiteers within the Conservative Party seems to have slowed, sustained criticism over May’s handling of the negotiations and the current agreement will continue, intensifying ahead of the vote in parliament.
  • The U.K. government’s focus will now be on promoting the benefits of the deal, repeating claims that the agreement reached with Brussels respects the outcome of the 2016 referendum and that it remains the only one on offer. The E.U. has strengthened May’s position by insisting that there will be no re-negotiation after the summit on 25 November. However, comments such as those made by U.S. President Donald Trump on 26 November that the agreement was ‘a great deal for the E.U.’ and would limit the U.K.’s ability to trade with the U.S. are likely to be galvanise Theresa May’s pro-Brexit critics.
  • Around 40 members of the Conservative Party have indicated that they would not vote in favour of the agreement. This means that in order to secure the roughly 320 votes (depending on how many absences and abstentions there are on the day of the vote) necessary for a majority, the government will probably need to rely on a small number of Labour MPs who are privately sympathetic towards the deal or who represent constituencies that voted in favour of leaving the E.U. Early indications, however, suggest that both pro-E.U. and pro-Brexit Labour Party members are more or less united in their opposition to the agreement. Likely most if not all will follow Labour leader Jeremy Corbyn, who has said his party will oppose the deal, calling it ‘the worst of all worlds’.

FORECAST

  • Most likely scenario: The government fails to obtain a parliamentary majority in support of the Brexit agreement. At this point, seeking to mitigate the possibility of a no-deal Brexit the government decides to extend the 29 March deadline next year. Theresa May’s position as prime minister will become untenable at this point and she will almost certainly resign, triggering a leadership contest within the Conservative Party, with the winner becoming prime minister. The main contestants will likely include prominent Brexiteers, such as Dominic Raab, or Boris Johnson – who remains popular among Conservative Party grassroots members – as well as Remainers such as Amber Rudd. The election of a prominent Brexiteer would harden the U.K.’s stance towards the E.U., increasing the prospect of a no-deal Brexit significantly. Should that materialise, this would lead to the imposition of tariffs from 30 March 2019 on the flow of goods between the E.U. and U.K. A new Conservative prime minister with more moderate views on Brexit might seek further concessions on the agreement from Brussels, promising voters a referendum offering a choice between an amended deal and remaining in the E.U.

 

  • Possible but unlikely scenario: Moderate Brexit supporters in both the Labour and Conservative parties begin to openly express their support for the agreement, saying that the alternative of a no-deal Brexit would be far worse than May’s proposal. A series of alarming reports about the adverse economic impact of a no-deal Brexit, could add pressure on elements of both main political parties, potentially leading them to reluctantly accept the deal. As a result, the government manages to obtain enough votes in parliament (probably without the DUP’s 10 votes but with support from rebel Labour MPs) for the agreement. Negotiations between the E.U. and U.K. continue, focusing on their future relationship, including trade talks with the aim of reaching a comprehensive agreement by the end of 2020.

 

  • Least likely scenario: Parliament rejects the government’s proposal. A defiant Theresa May, seeking to consolidate popular support for the withdrawal agreement, proposes a referendum on accepting the deal or remaining in the E.U. Another option would be for May to call a snap-election to seek and obtain stronger mandate to pursue her agreement. However, May’s stated opposition to another referendum coupled with the risk that the Labour Party stands to gain more from an early election, means this scenario is highly unlikely.
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