Anarchy in the UK? A ten-point political schedule for the Brexit argument over the next few years

“A week”, Harold Wilson memorably observed, “is a long time in politics”. This has turned out to be something of an understatement. Events since the ballot closed in the referendum last Thursday have been truly bewildering. They have left behind an understandable impression of near-anarchy.
What does this mean for private equity and venture capital, and for business and society in general? Accompanying the BVCA Insight this week is an initial assessment of the impact on the industry. It is well worth reading. The main conclusions are: (1) in the short term, uncertainty is likely to have an adverse effect on multiple aspects of activity (fundraising, acquisitions, exits); (2) the medium term result depends fundamentally on what sort of access to the EU single market the UK secures ;and (3) there is a particularly bitter-sweet combination for venture capital in that it will presumably lose what has become a very substantial Limited Partner in the EIF but those involved in the EIS/VCT space will find that they are no longer automatically affected by new interpretations of the EU State Aid rules.
What follow here is a best estimate of the political process and schedule for the Brexit argument.
A new Prime Minister and Government
The timetable for this is at least clear. Nominations will open tonight and close tomorrow. There will then be a series of votes of Conservative MPs (every Tuesday and Thursday from next week) until the number of remaining contenders fall to two names. The Conservative Party membership will be asked to choose between those individuals with the victor being declared on Friday 9 September. This will allow the new Prime Minister three weeks to reshape the old Cameron administration in advance of the Conservative Party conference and the return of Parliament for its Autumn session. Boris Johnson and Theresa May are the most likely final two. Mr Johnson is the legitimate favourite.
A new Leader of the Opposition?
This is less clear but as noted on Monday it is a more important aspect to the drama than it might seem. With Jeremy Corbyn at the helm Labour is close to irrelevant in the debate over the future of the UK. If he were removed, the party could become a player in the discussion once again. As the last BVCA Insight set out, an awful lot depends on what the General Secretary deems the constitution to mean. Mr Corbyn could be declared deposed but insist that he has been cheated out of his position. Like the medieval Roman Catholic Church, Labour may have rival candidates claiming to hold the papacy.
The early election argument
If Mr Corbyn is ejected, then a new Labour leadership could seriously call for an early election as either a de facto second referendum in itself or as the means for a further referendum to be held. It is unlikely to realise that ambition unless the new Conservative leader actively aspires to such a vote but this would be an important dress rehearsal for a debate over an earlier election in 2018/2019.
A new Chancellor and a ‘refined’ economic strategy
George Osborne continues to insist that there will be a ‘Brexit Budget’ of some form (involving tax increases and spending cuts) once a new Prime Minister has been selected. This is because the OBR is likely to issue revised projections for economic growth in the remainder of this Parliament that will show that the policy objective of acquiring a fiscal surplus by 2019/2020 would be imperilled if new revenues and extra spending restraint did not occur. The next Chancellor is not, though, obliged to stick by these targets and much as the euro crisis of 2012 prompted Mr Osborne to abandon his original idea of balancing the budget in one Parliament, so the Brexit factor today would permit a new Chancellor to ‘redefine’ economic policy placing more emphasis on a short term stimulus to the economy via tax cuts and moving back the moment for a fiscal surplus by two years or longer.
The Government will trigger Article 50 of the Lisbon Treaty
Despite lots of chest-beating in Brussels at the moment about there being no pre-negotiations in advance of Article 50 being deployed, a dialogue of some form will take place, albeit unofficially. The UK is still a full-member of the EU. There are plenty of channels for floating opening ideas available. This cannot continue indefinitely, however. By 1 January 2017, Article 50 will probably be triggered.
A period of shadow-boxing and seeming stalemate will follow
The negotiations will not move at warp-speed. Indeed, they may barely move at all. This is because the timing for them is absolutely terrible. France has elections for its presidency and parliament in April/May 2017. Francois Hollande and his Socialist Party are in desperate trouble. There is the real possibility that the incumbent President will be beaten by Marine Le Pen and not make it to the final ballot. Although the mainstream centre-right contender (probably Nicolas Sarkozy or Alain Juppe) will prevail, they might well find their rhetoric dragged to the right by the Front National. No one among Parisian elites will want to undercut their own cause by offering early concessions to the UK.
Once the French elections have been dealt with, there are German federal elections expected to be held in September 2017. While Angela Merkel’s CDU would be expected to win again, what sort of coalition she heads is far less certain. Once again, no early concessions to the UK would be logical.
Only after October/November 2017 would negotiations become serious
Only after there is a new administration in Berlin to match its equivalents in Paris and London will it be politically possible to engage in genuine hard bargaining about Brexit. As almost half of the two-year plan set out in Article 50 would have expired, the question becomes whether the deal could be concluded in the remaining time, or whether an extension of a year might be considered essential.
The deal
Is likely to be a variation on the EU-Switzerland model. Under this, Switzerland accepts some of the provisions of EU law in order to participate in the single market. The complication for the UK is that it would want any such agreement to include services and to involve restrictions on the free transit of people (which Switzerland now wants as well having passed a referendum limiting EU migration in February 2014). Much of the argument will be about ‘side deals’, as to who within the EU gets what as euro-agencies that are currently in the UK are reallocated. Will Berlin be willing to allow Paris an advantage in positioning itself as the post-Brexit rival to London in financial services? Probably, yes.
The earlier election argument
There will then be a full-blown row about the terms within the Conservative Party, and the Labour Party (if it is minus Mr Corbyn) will make the case for an earlier election as either a de facto second referendum on the settlement reached or as the means for a second referendum on the agreement.
Brexit (?) and then Scexit (?)
Only at this point (mid-2019?/early 2020?) will Brexit occur and so possible Scottish independence.