Lansons

Lansons Conversations

Vocalink Brexit Briefing

Overview

Over the last year the UK has entered a period of political uncertainty: initially brought on by the shock result of the EU referendum last year and then compounded by the equally unexpected result of the snap general election in June, after which the Conservative Party lost their majority, forcing Prime Minister Theresa May to agree a deal with the Northern Irish Democratic Unionist Party to ensure she could continue to govern.

Prime Minister Theresa May has been clear that her ambition is to “deliver the best Brexit deal” for the country, and her Government’s challenge now is to navigate the Brexit negotiations with a reduced Parliamentary majority.

Below we have set out a short note looking at the Government’s forthcoming legislative agenda, as well as some of the political and business considerations needed ahead of the UK’s departure from the EU.

Legislative agenda

The Queen’s Speech set out a total of eight pieces of legislation relating to Brexit, as the Queen announced that the Government’s priority is to “secure the best possible deal as the country leaves the European Union”.

The eight bills are:

  • Repeal Bill: This will repeal the European Communities Act 1972 and transpose current EU laws into UK law, to ensure legal continuity when the UK leaves the EU
  • Immigration Bill: This will allow the UK to set its own immigration policy post-Brexit
  • International Sanctions Bill: This will allow the UK to continue applying international sanctions once it leaves the EU
  • Nuclear Safeguards Bill: This will set up a nuclear safeguards regime to compensate for the fact that Brexit will take the UK out of Euratom
  • Agriculture Bill: This will set up a system to support farmers after Brexit takes them out of the common agriculture policy
  • Fisheries Bill: This will enable the UK to take control of its fishing waters after Brexit and to set fishing quotas
  • Trade Bill: This will allow the UK to operate its own trade policy after Brexit
  • Customs Bill: This will replace EU customs rules and allow the UK to impose its own tariffs after Brexit

These bills constitute almost a third of the Government’s legislative programme over the next two years, showing the importance of Brexit to their agenda.

Political implications: Cross-party support for Brexit

Theresa May faces a very difficult position as she has now lost her Parliamentary majority, despite having called the election in the first place to increase her majority to ‘strengthen her hand’ in the Brexit negotiations.

This result had the potential to derail Brexit, but the Conservatives’ alliance with the pro-Brexit DUP should now secure the votes that the Prime Minister needs to pass the legislation required for the UK to formally leave the EU.

Indeed, the official agreement between the two parties prioritises Brexit, stating that: “In line with the parties’ shared priorities for negotiating a successful exit from the European Union and protecting the country in light of recent terrorist attacks, the DUP also agrees to support the Government on legislation pertaining to the United Kingdom’s exit from the European Union; and legislation pertaining to national security.”

It is also worth noting that Labour also believe that the referendum result should be honoured, and they introduced a three line whip on voting to triggering Article 50, albeit one that some of their MPs defied. Leaving the EU therefore remains inevitable.

There could be some ‘stickiness’ though around the terms of the deal, as Labour are very keen to ensure that workers’ rights, consumers’ rights and environmental protections are safeguarded. They also want the Government to provide certainty to EU nationals and give a meaningful role to Parliament throughout negotiations.

This leaves the SNP and the Liberal Democrats as the most pro-European forces in Parliament, with the former wanting Scotland to have a special status after Brexit and the latter a second referendum on the final negotiated deal. Between them they do not have the numbers to block Brexit, but if they are able to form links with Labour and some of the more pro-European Conservative MPs the opposition might yet be able to advance some of their demands and force the Government to think again on some of the ‘harder’ elements of Brexit.

Political implications: Conservatives must compromise

As we have shown, the opposition parties either don’t have the inclination, or the votes required, to stop Brexit. In reality, the obstacles to a smooth departure from the EU could actually come from within the Conservative Party itself.

The collapse in Theresa May’s authority post-election has meant that Cabinet divisions which were previous hidden have now broken out into the open. Over the past week, the rift between those in Theresa May’s Cabinet who supported Remain, and those who campaigned for withdrawal, has widened – with the key area of difference being the length of transition period required after Brexit. Although no one is pushing remaining within the EU, the Chancellor, Philip Hammond has publicly called for a Brexit deal which puts the economy first, with an extended transitional deal of up to 4 years. On the other hand, Brexit Secretary David Davis is insisting that the UK will be out of the customs union and single market by March 2019, to be followed by a much more limited ‘implementation period’.

This is not a standalone example either. The recent Government reshuffle revealed tensions between the Remain and Leave camps in the party, with both sides having to be accommodated with equally prestigious ministerial roles across key Whitehall departments, particularly the Department for Exiting the European Union.

The Prime Minister will therefore have to strike a delicate balance to satisfy all sides of her Parliamentary party – and this could have serious implications for the shape and timing of the final deal. She has already conceded to demands to protect EU migrants’ rights by announcing a new “settled status”; further compromises will no doubt be inevitable as the Brexit talks progress.

The talks begin

The formal Brexit negotiations kicked off on 19 June, when Brexit Secretary David Davis travelled to Brussels to meet with European Chief Negotiator Michel Barnier.

Both agreed at the joint press conference afterwards that the meeting had been constructive, and initial negotiating groups were established on: citizens’ rights; the financial settlement; and other separation issues. Any discussions on the future relationship in Council has been shelved until “substantial progress” has been made on these three items.

A week later the European Council met, and Theresa May used this as an opportunity to set out her new “settled status” proposal. However, it was met lukewarmly (at best); Commission President Jean-Claude Juncker labelled the offer as “a first step but this step is not sufficient”, whilst European Council President Donald Tusk deemed it as “below our expectations”. 

Going forward, negotiations will be held every four weeks, with the date for the next meeting tentatively pencilled in for July 17. These will continue to fall a week or so before the scheduled European Council meetings, where progress made at the Brexit talks will remain high on the agenda.

Conclusions and broader implications for businesses

The outlook for the next two years looks increasingly uncertain as Brexit looks set to dominate the political and economic discourse. Theresa May has the unenviable task of delivering “the best Brexit deal” with a reduced Parliamentary majority, and will have to find a way to marry the interests of Remainers and Leavers across the whole of Parliament.

The Government will also need to balance these interests against those of the business community, who overwhelmingly supported Remain ahead of the referendum vote. Although most now accept that the UK will be leaving the EU, the extent to which the country retains some access to the single market is an important factor for the City, in particular.

The Government is clear that they want the corporate world to have more input on the Brexit process, and they also want to allay fears that the country is drifting towards a ‘hard Brexit’. To this end, Business, Energy and Industrial Strategy Greg Clark recently announced that he is establishing a new Brexit business advisory group, where he will hold weekly meetings with the directors general of the five main business organisations. This should give businesses some reassurance, but they are not likely to be satisfied until these discussions result in tangible action.