Brexit update: no deal or general election? - PKF Francis Clark
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Brexit update: no deal or general election?

The summer season is officially over. Prime Minister Boris Johnson, who took office as it began, made August trips to major European cities to mark the re-launch of UK Brexit negotiations. The German chancellor, Angela Merkel, welcomed the prospect of the UK tabling new alternatives to the Northern Irish backstop. But as the summer sun has faded and a new school term begins, EU leaders have spoken out about the lack of new proposals coming from Downing Street, EU diplomats have commented on the lack of UK engagement in negotiations, and MPs have returned to Parliament from their holidays in a grim mood.

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On Monday the Prime Minister made a statement on the steps of 10 Downing Street to insist that he did not want a General Election, but would push for one if MPs seized the last few days before Parliament was suspended to vote to prevent a no-deal Brexit. The PM said that if MPs voted to block the deal they would “plainly chop the legs out from under the UK position” and vowed that there were “no circumstances” in which he would delay Brexit past 31 October.

However, yesterday a group of Conservative MPs rebelled and joined a majority of 328 MPs as the House of Commons voted to take control of Parliamentary business today. Later today they hope to pass a piece of cross-party legislation aimed at preventing the PM from enacting Brexit without a deal on 31 October. The legislation outlaws a no-deal Brexit on 31 October unless Parliament has explicitly voted for it. It also:

  • instructs the PM to ask the EU for an extension of the Brexit process until 31 January 2020 (unless MPs approve a new deal or vote for no-deal before 19 October – which they cannot do if the PM suspends Parliament as currently planned); and
  • states that if the EU proposes an extension to a different date, then the PM must accept it within 2 days unless the House of Commons votes to reject it.

This is intended to give the UK additional time to reach a withdrawal agreement with the EU, including the negotiation and meeting opportunities afforded by the European Council meeting next month. The PM would also have the option to give Parliament a vote on no-deal and seek to win it. At present however, he is a long way from having a majority of MPs in support of this.

Is it time for a General Election?

All of this makes today a big decision day for Downing Street in deciding whether a General Election is a necessary step in achieving Brexit by 31 October. The first decision will be whether they believe that the cross-party legislation (The EU (Withdrawal) (No.6) Bill 2019) will make it through both Houses of Parliament and become law before Parliament is suspended on Monday. The timescale is exceptionally tight but possible, although disruption by Government loyalists in the House of Lords is likely.

The second decision will be to anticipate whether the EU would agree to the extension request in the legislation. Many EU leaders have voiced their frustration at the way in which Brexit is dragging on and obstructing other policy negotiations between member states, however given the shared concerns of EU businesses about the ramifications of no-deal Brexit, an extension request is likely to be received positively.

The PM has insisted that the UK will leave the EU on 31 October, come what may. The third decision will therefore be whether the government intends to abide by the law, even if passed. Once again, timing is tight and court challenges to the lawfulness of Brexit by pro-Remain parties might come too late to stop swift government action.

The fourth decision for the PM is the political gamble. If he wants to follow through on his threat of a General Election on 15 October (and his associated threat to deselect all non-Brexit supporting Conservative MPs), he will now have to move a motion in the House of Commons and gain the backing of two-thirds of all MPs in order to call an election. The motion has been tabled in readiness for this, but the vote mathematics are far from certain. Labour might support the plan for a General Election, but they are nervous that, if they agree to it, the PM might then amend the election date until after 31 October, taking Britain out of the EU with no-deal in the meantime. Some Labour MPs are investigating whether an election could be called via legislation which specifies an early date well in advance of 31 October. If they do not support the PM’s plan for an election, Downing Street is also likely to seek a way to call an election via primary legislation – needing only a simple majority to agree it.

By one mechanism or another, a General Election appears highly likely. Where that will leave Brexit is anybody’s guess, with the likely outcome being a Parliament as divided as the current one. Where it will leave businesses is in uncertainty – as once again government decisions and practical planning are put on hold during an election campaign.

Will it be no-deal Brexit?

The EU’s assessment is that the risk of a no-deal Brexit has increased, and EU businesses are being offered access to emergency funds to overcome anticipated problems and costs. It remains unclear whether the UK government genuinely wishes to pursue no-deal or simply believes that the threat is an effective negotiating tactic to obtain a better last-minute deal. However even if no-deal is not a desired outcome, the risk of ‘no-deal by accident’ continues to increase as the 31 October cliff-edge approaches.

The CBI has issued a report on UK business preparations, concluding that “no one is ready for no-deal”. Their advice to all UK companies is to escalate Brexit preparations in mitigation – but they warn that even the most prepared business can expect both short and long-term negative impacts as Brexit drags on the UK economy for a decade or more. These effects are already being felt, with manufacturing activity shrinking month on month, sales growth slowing and now beginning to fall, and sterling at the lowest level since 2017. Some banks and investment funds are now predicting sterling-Euro parity or worse in the event of no-deal on 31 October. Our advice to businesses is still to prepare as best they can in this uncertain environment, and to think as widely as possible about how a no-deal scenario could affect unexpected areas of business. Any businesses that have not yet done so should review the Government guidance on no-deal for the latest notices relating to their sector. All companies need to know their risks, and their ‘pain points’, and start planning.

 

 

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