18 Sep 2019

Focus on Fundamentals. What really counts as we move towards the six weeks before 31 October

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It has been another wild few days on the Brexit rollercoaster. The Liberal Democrats have hardened their opposition to it by pledging to revoke Article 50 if they secured a majority in the House of Commons. The Prime Minister endured an astonishing affront from his opposite number in Luxembourg, who had seen no problem with conducting an open air press conference literally thirty metres from a small but very vocal mob, and the Supreme Court is deciding whether a politician seeking a prorogation might conceivably have had a political motive for that request, and what, if anything, to do about it. It is only Wednesday lunchtime.

There are another six weeks and a day to pass before 31 October. By then, who knows what else might have happened? We might even have a clue as to what Jeremy Corbyn’s real private position on departing the European Union may be. Almost anything could happen.

What we should appreciate by now is that short-term news frequently proves to be of little value. Jo Swinson’s tilt to ‘revoke’ is a smart tactical move (anticipated in BVCA Insight two weeks ago) which retains and extends the distance between her stance and that of the Labour Party, but it is unlikely that the Liberal Democrats will win 325 seats or more at the next election.

The PM of Luxembourg will have enjoyed his 15 minutes of fame, but he will not be a pivotal player when the final calls are made on Brexit. Even if the Supreme Court were to order Parliament back into session (a strange decision if it came and one which would totally screw up the Labour Party conference next week), it is not clear what MPs would say or do other than continue to assert that a no-deal Brexit would rank alongside the biblical plagues in Ancient Egypt. They have already legislated to avoid that outcome. There will, alas, be plenty more froth to come as anything related to Brexit is deemed newsworthy.

So, what political factors should we really focus on in the six weeks to come? What is fundamental?

The political incentives for Boris Johnson to pull off a deal are huge and have got bigger recently

When the Prime Minister insists that he wants a deal, the instinctive response from his opponents and much of the media is to discount that statement. The charge is that this is all camouflage and that his real objective is to engineer a no-deal Brexit by fair means or by foul. This is, of course, a possibility but not an especially logical one. A no-deal Brexit would be extremely unpredictable, in the worst-case scenario may rebound on him horribly, and almost certainly defers a general election.

This alone is an incentive for concluding a deal that can win the support of Parliament if possible. The broader advantages for the Prime Minister personally and his party are absolutely immense.

Consider what would happen if he did it. He would have shown that he was that rare item in our anti-politics age, a political leader who had delivered on a specific promise. He would torpedo The Brexit Party, even if Nigel Farage was shouting from the side-lines that the bargain struck stank, and it would be the Conservative Party which would benefit from this electorally.

It would enable him to restore the whip to any dissident Member of Parliament who backed his version of a Withdrawal Agreement, a move that would heal the wounds with the moderates in his parliamentary party. He would render himself extremely appealing to pro-Leave Labour voters who have little time for their own leader.

The opposition would engage in bitter and divisive recrimination, both within the Labour Party and between Labour, the Liberal Democrats and the SNP as to whose fault it was that they had failed to unite effectively behind a second referendum between the Remain and no-deal proposals.

As a formula for positioning oneself for a snap election it would be overwhelmingly attractive. To a large degree, it would allow Mr Johnson to break free of the Brexit chains, restore his One Nation credentials at a stroke with a populist pitch of a manifesto, and charge towards the political centre. If Labour still found an alibi to avoid backing a motion for an early election, then, if all else failed, a newly reunited Conservative Party could acquire one by voting for a no confidence motion in its own administration (there is an international example of this trick, West Germany saw it in 1983). If there was any means of travelling down this political route, then it would be madness not to take it.

If a deal emerges it will be very, very late in the day indeed

In both Brussels and Westminster there is the complaint that the Government seems to be having ‘conversations’ with the EU-27 but not actual ‘negotiations’. If the UK were serious, it is intoned, there would be full blueprints of alternative schemes to the Irish backstop and a new set of pages for the text of the Political Declaration being circulated right now to Leo Varadkar and to Michel Barnier.

That moment will indeed have to come. But not now. Mr Johnson would be bonkers at this stage to set out detailed proposals on paper. Any such documentation would leak faster than the Mary Rose in 1545 and with similar consequences. It would completely undermine what is an incredibly delicate process. The Government needs to use ‘conversations’ to acquire a sense of what might work when it came to what would be a very swift dash to a text in the formal negotiations. Any accord has to be 90% or more there before the ink dries on the paperwork. This one will go right to the wire.

This is partly because that is often the norm in EU decision-making (exhibit A: the recent exercise in which the German Defence Minister emerged from absolutely nowhere to become the President of the European Commission). It is compounded by domestic politics on both sides of the Irish Sea where there are two Prime Ministers who do not command a majority in their legislature.

A deal requires signing up five very different sets of actors: the DUP, the Irish Government, the European Research Group of Conservative MPs, the soft Brexit end of the Conservative Party (many of whom are presently not technically aligned to the Government having had the whip removed), and the ‘Respect the Result’ section of Labour MPs (who mostly but not exclusively represent seats which voted strongly Leave in June 2016 and then backed The Brexit Party in the May European elections.)

Lining all these ducks up is not, to put it mildly, straightforward. It can only be done at the last hour. This may well mean that a vote on a new Withdrawal Agreement is held on Saturday 19 October. That would be followed by a mad rush to push through all of the necessary legislation before 31 October and finding the space and time for the European Parliament (as needed under Article 50) to back it too. Bluntly, the strategy will be to bounce MPs into backing him before they have time to think it over.

Any deal might well be followed by a period of irrational exuberance

If, a big ‘if’ one has to concede, a bargain was struck and driven through in the dying days of October, then the reaction in Westminster and beyond would be, for those outside of the hard core Remain followers, somewhere between relief and euphoria. This would probably extend to the supposedly sober business community. The stock market could rattle up a couple of hundred points, sterling may well appreciate sharply against the euro and growth forecasts would be upgraded.

This would be to engage in what Alan Greenspan, the then Chairman of the Federal Reserve Board, once drily labelled ‘irrational exuberance’. Any settlement between the UK and the EU-27 would merely be the first stage in proceedings. It would need to be followed by negotiations over the ‘end state’ relationship. This would presumably centre, if Mr Johnson and the Conservative Party is in the driving seat, on signing a comprehensive free trade agreement along the lines of that which Canada has with the EU, supplemented by a further series of understandings relating mostly to security.

This will not be a walk in the park. It is hard to imagine that it could be done by the 31 December 2020 deadline that ministers insist is their ambition. A delay until at least 31 December 2021, and quite conceivably 31 December 2022, is entirely plausible. In the meantime, the defeated Remain troops will rally round the notion of aiming to return the UK to the EU as fast as they can, which would involve Article 49 of the Treaty of Lisbon and another referendum campaign to endorse it.

Even in the best of conditions, Brexit will be with us for years. It is the gift that keeps on taking.

Tim Hames
Director General, BVCA


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