Transcript - Episode 18: A political update with 100 days to go

Emily Khan: Hello and welcome to our latest beyond Brexit podcast, I’m Emily Khan.  I’m afraid I’m out of the country on a festive adventure this time.  So, I’ve asked Anna Wallace, our Head of Political Relations and Michael Moore, Senior Political Adviser, to let you listen in on one of their daily discussions on the latest political developments on Brexit.  Let’s see what they’re chatting about today.

Anna Wallace: Hello Mike, how are you?

Michael Moore: I’m well.

Anna: Yet another extraordinary week in Brexit.  We think that they keep getting more and more extraordinary, yet the bar keeps being raised - tell me about what you think about what happened last week?

Michael: It was - extraordinary is a word that is, almost by its nature, overused. And yet these were definitely out of the ordinary moments.  What other week have we seen in recent political history where the biggest vote of the Parliament was pulled at short notice.  The Prime Minister of the day is challenged in terms of the leadership of her party and therefore of the country.  And then, having survived that, goes to a summit of all the EU leaders to get a variation on a deal and comes back, if not empty handed, close to it.  I mean, it was an amazing amount to pack into a week, and strangely, we kind of ended up on Friday night where we would have been on Monday morning.

Anna: Back where we were – exactly. And that’s one thing, when I was talking to clients last week - there was this sense that all of a sudden lots of scenarios have moved back on the table, and that creates, I think, for business even more paralysis. But actually as you said, I think, from Monday to Friday, the advice we’re giving to clients hasn’t yet changed, has it?

Michael: No, we have very consistently said to people, really from the outset, you need to take ‘no deal’ seriously.  When the politics is as messy as this, then it is particularly relevant.  No deal is a very serious, and an abrupt change to the way we trade with the rest of Europe.  We need to get a handle on that, and clients need to be focused on it.  So, that’s still very real.

The other bit of this is that frankly until some other scenario emerges with credibility, with numbers behind it in Parliament and the ability to legislate, you need to look very hard at what the Prime Minister has delivered in terms of this deal.  We’ve not seen the vote, we know it probably would lose at the moment, but the deal that she has negotiated is the political reality on the ground and that too represents change, not immediately, good news on transition, backstops, and so forth from a business perspective, but in time, a different way of trading with Europe and businesses need to be over that.  So, that they keep focus on no deal or a Canada style trade deal and then let’s see how things evolve.

Anna: That’s the challenge I guess here is that Parliament clearly isn’t happy with either of those scenarios, but it is not quite clear what there is a parliamentary majority for, and I just guess, just to think about some of the scenarios that I hear from people, a second referendum is obviously the big one that seems to be gaining some, if not anything else media attraction. But also, does May last the parliament, could we end up in a Norway type scenario, I don’t know if it’s worth kicking a few of those around in detail.

Michael: What do you think about actually the Government continuing?  We hear rumours and threats of confidence votes from the opposition, which will bring down the government and force a general election, what’s your thinking on that?

Anna: Well, of course the first part, she has passed the party leadership challenge and she is now protected for another year, but that wouldn’t stop Jeremy Corbyn and the opposition parties tabling their own confidence motion in the Government if they thought they could get the numbers, and that’s of course, as ever in politics, you have to be able to learn how to count, and that’s the big question.  There might have been a 117 Conservative MPs, who voted against May in a party leadership election, but would they vote against their own side if there was a risk of it causing a General Election.

Definitely there might be some more challenges, Parliament definitely wants to assert itself in this process, but would that necessarily precipitate a general election, especially with Fixed-term Parliament Act, not totally convinced that it is. And of course, I think the big challenge with a lot of these scenarios is how long we’ve left in the process to deliver any of them.

Michael: Yeah, here we are, it’s about three months to go until Brexit happens and it’s worth reminding everybody that, that happens by our legal friends like to say by the automatic operation of law that has triggered the exit from the treaties.  We have legislated in the United Kingdom to ensure that they no longer apply and that we live outside the EU from the 29th of March.  So, until something replaces that that is the course that we have chartered.  So we need either this deal or some replacement for it.  Interesting to think that everything depends on Parliament asserting itself and people will often say there is no majority for no deal, but actually finding a majority for replacement, I think that’s quite challenging.

Particularly one of the favourites at the moment is a second referendum.  I thought, it was instructive in the last couple of weeks that there was as much debate within the different parties about whether or not a referendum was the appropriate way forward, as there was within the media.  So, getting enough people to support a referendum, work out what the question is and then deliver a victory.  Again, I think, for businesses to be hoping that’s the outcome, with nothing too wrong with hope, but it is not really a very reliable basis for business decisions it seems to me.

Anna: That’s right, you stike on another really important point, both with the general election and with the second referendum.  It’s that there might be people, who agree that there should be a referendum, but there are obviously those who don’t agree with the referendum.  But then when you start to say, ‘okay, well what should the question be,’ or when you start getting into specifics, that’s where those factions break down even smaller and smaller, and it is very difficult to see how any one of them can become big enough to assert itself in this process.  So, if you think about a general election, I think both parties would find it difficult, the Labour and the Conservatives to go back to their HQs and write a manifesto about what they would do on Brexit before 29th of March.  So, not impossible, but not only very difficult to deliver within the timeframe, but also difficult politically to get enough people to agree with any one position.

Michael: There was a fascinating piece by one of the country’s leading opinion pollsters, and the long term commentator, Peter Kellner, which suggested there were seven different versions of a referendum question, some of them two stages, over two or three weeks.  I thought that just underlines the challenges of all this.  Of course, you’ve highlighted the fact that there is not a lot of time.  There is speculation that we could of course ask for extra time under the Article 50 arrangements, which are giving us this two year negotiation, which runs out on the 29th of March.  Yes, we could ask and the rules are pretty well known, but we have to ask from the UK, and the EU have to agree unanimously.

There was the court case recently that established that we could actually also withdraw Article 50.  I am still waiting to see who the leader of a political party is, or,Prime Minister that would actually trigger these events, I don’t think we’ve got to the points, but certainly if a general election was coming or we got credibility around a second referendum, you would need Article 50 to be extended, there just isn’t the time is there.

Anna: That’s exactly right, and some people have suggested that, a myth that seems to be doing the round, is that the court judgment around revoking Article 50 was part of the negotiations itself.  Do you just want to debunk that, because it was someone from your neck of the woods that initiated this, rather than someone around the EU – UK negotiating table.

Michael: There was a cross party and cross parliamentary group of individuals, who took this case to the European Court of Justice, just to establish whether it was right and fair from the way it was written that you could actually withdraw unilaterally, because you can extend, that’s clear and there is a process, but it wasn’t so obvious what to do about withdrawing it.

That was never put forward by the United Kingdom government. In fact, they were very quick to stand on it and say we’ve no desire to withdraw from the process, but we don’t need to get into the politics of that.  It still would require a massive political judgment call, and a moment that was quite unlike any we’ve seen yet, to say, ‘we are turning our backs on Brexit,’ and without a mandate, either in terms of a General Election to reverse Brexit or a referendum to reverse Brexit, I think it’s highly unlikely to be used.

Anna: They all become a bit circular, don’t they? But one of the important things that you said there, which again I think is relevant to a number of them, is the difference between what parliamentarians and political campaigners might want, versus what the Government wants, and what they might chose to do, and ultimately they do hold the levers of control in determining whether or not we would extend, revoke, or have another election, etc.

Michael: And talk of parliament getting the opportunity to consider all these different new options or refreshed options has obviously gained ground in recent weeks, and it is good to have the debate, but there’s a big difference between Parliament stopping the executive, the Government doing something, and actually taking over and running with the ball.

Actually to your point earlier on, about the confidence motion, the truth of it is that the spats between different parties about when to trigger a confidence motion in the Government reminded us it is not just divisions within parties that count, but the divisions between different parties are pretty significant as well; and their individual interest, their own concerns about who would form the next government, those play into this every bit as much as Brexit does itself.  Now, one thing we’ve not talked upon, but has gained a bit of traction recently is the issue of Norway and ‘Norway plus’ - great jargon for political folk like you and me, what does that mean?

Anna: That’s right.  So, what Norway might mean, or at least what people are suggesting, we should do with Norway, is that at the end of the Article 50 process, we should park ourselves in the EEA EFTA type arrangement, so we would be trading on similar rules to Norway.  So, quite closely aligned with the single markets, minimum friction issues, and this seems to have been gaining ground with people around Michael Gove, around the DEFRA Secretary, Nick Boles, being a particular advocate for this. However, the challenge is that Norway as the existing big member of the EEA doesn’t like it. In fact, talking to some people around the Norwegian politics, they would be more than happy to see the UK potentially in a longer-term arrangement, but they certainly don’t see themselves as a temporary car park.

Similarly, for the EU, there are challenges in that, they don’t see it as a long-term solution because actually they don’t like the way that the current arrangements with Norway will work, and wouldn’t want to put the UK in that position too.  Also, we will completely transform the way that EEA currently works, because we are clearly a far bigger economy than any of the other nations in there.

So, it bubbled up I think a couple of weeks ago, as seemingly a popular option, I think even now in the last few days, those who are the main proponents have been defending it much harder than they were having to before.

Michael: Of course, Norway plus isn’t just about a single market, it is also about adding in the customs union, which Norway is not part of.

Anna: That’s right.

Michael: I think, one of the biggest problems with it politically might just be that it also requires freedom of movement of people, and for those reasons we’ve heard the Prime Minister and others very vigorously talk about it in negative terms.  So, phew, a lot going on, a lot resuscitated, debated as we’ve come to the end of the parliamentary session, the uncertainty deepens rather than anything else. Doesn’t really change the client advice does it though?

Anna: That’s right, and as you said at the beginning, the two big change scenarios are that we exit with some type of deal like that one that the Prime Minister currently has agreed between her and the EU member states.  So, from a business point of view, as you said, not bad - gives us transitions, gives us all a bit longer to think about things and optimise those plans. Or no deal, which is again, as you rightly said, happens by default in a mere matter of days.  That’s absolutely where clients should be paying their attention.  All of the scenarios that we’ve talked about are worth watching, but as we’ve said, the executive would need to really have a hand in implementing those and at the moment the current political leadership doesn’t seem to want to give any real consideration to second referendums, etc.

I suspect that if we do end up in an Article 50 extension territory or a second referendum territory, it’s going to come very, very late in this process.  I guess the question for businesses between now and then is, can you look your people, your shareholders, your investors in the eye, and say that you are doing everything that you can to avoid what is at the moment the default scenario, which is we exit without a deal.

Michael: That’s nice and simple, with three months to go, give or take a few days here or there, it’s time to act, and it’s time to have your plans ready for no Brexit or one based on the current deal, and keep watching the politics.

Emily: Well, I think we should join those discussions more often.  If you like this format or have any other questions or feedback, please feel free to tweet your thoughts using the hashtag #BeyondBrexit.  We will be back in the new year for more discussions and insights.

In the meantime, don’t forget you can find everything from us on www.pwc.co.uk/brexit, and wishing you all a very Happy New Year.

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