Prepare for a no-deal Brexit

The decision on Monday 10 December to delay the vote in the House of Commons on the Brexit Withdrawal Agreement and Political Declaration raised questions on the role of Parliament itself.

The Prime Minister’s visit to Europe yesterday confirmed that there is a consensus across the EU against opening up the formally agreed Withdrawal Agreement – as far as they are concerned it’s: deal, no-deal, or no-Brexit.

Today’s vote of no-confidence in her leadership of the Conservative Party is against a backdrop that, indeed, the UK must now choose between the three options.

Meanwhile, amidst the political turmoil, scrutiny of the impacts and outcomes of the choices continues.  We continue to work through scrutiny reports and technical notices - all of which are increasingly focused on a no-deal Brexit.

For some time now, we have been working on contingency planning with organisations in finance, services, retail and government.  Preparations are well under way in some sectors, but a cross-sector survey demonstrates that many organisations have yet to invest in preparing for a no-deal scenario.

Parliamentary Business, Energy and Industrial Strategy Committee

Published on Monday and intended to inform the vote on the ‘deal’ – and likely to be valid whenever it comes - the Committee issued a scrutiny report of the impact of Brexit and state of preparations across business for either a deal or no-deal scenario.

They concluded that if business, industry and commerce are to survive the transition and thrive in a post-Brexit world, more than anything else they need certainty in order to operate smoothly and plan for the future.

The views of four business sectors, previously examined, in order to update previous findings - aerospace, automotive, processed food and drink, and pharmaceuticals.  These sectors are varied in structure and vital to the UK’s future manufacturing success. 

Their concerns will reflect those of many other sectors that export to the EU – an overwhelming and consistent message that they want certainty. 

As this certainty looks further away than ever - and with only just 107 days to a cliff-edge Brexit – every organisation now needs to prioritise and invest in their planning and preparations for a no-deal scenario. 

The Financial Services (Implementation of Legislation) Bill

This bill provides a delegated power to enable the Treasury to make corresponding or similar provision to specified pieces of EU financial services legislation in the event that the UK leaves the European Union without a deal.

The Financial Services industry is of particular importance to the UK economy, contributing 6.5 percent of its total economic output.  Currently, most financial services regulation is made at EU level and is either directly applicable or transposed into domestic law by secondary legislation.

In preparation for leaving the EU, the European Union (Withdrawal) Act 2018 (EUWA) incorporates all EU law on the day of exit into UK law to provide continuity and so that existing regulation continues to have effect after Brexit.  If the UK ratifies the withdrawal agreement, it will enter an implementation period until December 2020, during which EU law will continue to apply. During this period the UK will continue to implement financial services regulation through secondary legislation. However, if the UK leaves the EU with no-deal, there will be no mechanism through which financial services regulation can be updated without the need for primary legislation.

There are several pieces of in-flight EU financial services legislation, which have either been adopted by the EU but will not be implemented by the time the UK leaves - or that are currently under negotiation and may be adopted shortly after.  The bill proposes to give the Treasury the power to make provision for these specified items in UK law, subject to any adjustments appropriate to make them suitable for a UK context.  The power is subject to the same restrictions on scope as the correcting power in the EUWA and may only be used up to two years after exit day.  The bill proposes that statutory instruments made in accordance with the power be subject to the affirmative resolution procedure, which requires a vote in both Houses.  HM Treasury will be required to produce annual reports on the use of the power.

 Technical note: No-deal timing and procedures

Parliament will have a vote if a 'no deal' scenario looks likely - but will not have formal power to direct the Government.

A 'no deal' scenario for the purposes of the legislation is defined:

  1. If Parliament has decided not to pass the Government’s motion to approve the Withdrawal Agreement and Political Declaration on the framework for future relationship between the UK and EU.

  2. If, before 21 January 2019, the Government tells Parliament that there is no prospect that agreement can be reached.

  3. If, by 21 January 2019, no agreement has been reached.

In any of these instances, the Government would have to make a statement to Parliament setting out what it intended to do next.

Parliament would then have an opportunity to vote on those plans, on a motion expressed “in neutral terms”.  The motion might look something like: “this House has considered the Government’s plans to leave the European Union without a Withdrawal Agreement”. 

There was debate about whether such a motion would be amendable as the Standing Orders of the Commons say that where, in the opinion of the Speaker, a motion is expressed “in neutral terms”, no amendments to it may be tabled (SO 24(b)).  The amendment to the business motion for the ‘meaningful vote’ debate on the deal dis-applies Standing Orders 24(b) to any motion tabled under Section 13 of the EU Withdrawal Act.  This will allow MPs to table amendments to the Government’s motion seeking to influence what happens next.

Essentially, it ensures the Commons will have a further meaningful vote in the event they vote down the deal at the first one. While any amendments to this motion will not be legally binding on the Government, and Parliament cannot formally direct the Government, they will be politically significant.

The European Council has agreed the deal - so the 21 January deadline in the EU Withdrawal Act relates to the situation where the UK has not ratified the deal.

Whatever the outcome of the internal conflict within the Conservative Party, The Government will come under political pressure to resign through a vote of no confidence in the Commons - or to move a motion for an early general election under the Fixed-term Parliaments Act 2011.

What happens next will depend not on the precise terms of the EU Withdrawal Act, but on the UK’s Brexit policy, as it then stood, and on how the EU27 responded to this.

The ECJ judgement that the UK may retract Article 50 and continue membership of the EU on exactly the same terms as today – subject to the proviso that this option is open only until the moment of Brexit – presently scheduled at 23:00 GMT on 29 March 2019.  The EU27 may consider a delay to Brexit if there is an Administration in place that is committed to continuing UK’s full membership and contribution to the EU.  This could be as a result of General Election with cancellation of Brexit on its manifesto – or a Peoples’ Vote to Remain.

 Technical note: Halting Brexit and remaining in the European Union

At the same time, a formal ECJ ruling, issued this morning, said that UK confirmed that the UK could rescind Article 50 and unilaterally - halting Brexit without altering the terms of Britain's membership – whilst amendments to the draft Treaty, now that it has been endorsed by the European Council, can only be considered with there is unanimous agreement from the remaining 27 EU nations.

Further details in our Insight Dec 4, 2018.

Given that there is little chance of negotiating changes to the deal, the Select Committees conclusions remain valid:  avoid no-deal at all costs and get some certainty so that they can operate today and plan for the future; or seek endorsement from the public now that the terms of Brexit are on the table – via a General Election or a Peoples Vote.

John ShuttleworthComment