Monday 23 December. The UK’s new Conservative government now has a clear parliamentary majority of 80 seats to enable it to pass into law the Brexit Withdrawal Agreement by the deadline of the 31 January 2020.
So it would seem the result has brought some clarity. Or has it?
On the 12 December 2019 the Conservative party won Britain’s General Election with a large majority and thus with it the power to fulfill their pledge to secure parliamentary approval of the Brexit Withdrawal Agreement by Christmas and leave the EU by 31 January 2020.
Despite the positive initial reactions of capital and currency markets, as well as they party’s election slogan “Get Brexit Done”, this isn’t the end of the matter. That is because the Withdrawal Agreement contains only the legalities around the divorce of Britain from the EU. It does not cover the future relationship.
So in fact, this is probably only the end of the beginning of the Brexit process. Prime Minister Boris Johnson now has until December 2020 to agree a favorable forward-looking trade deal with the EU.
Although he only has until 30 June 2020 to ask for a further extension of Britain’s regulatory transition period with the EU, Mr Johnson insists he will not ask for any extension and indeed the Brexit Bill which passed its second reading on Friday 20 December includes a clause prohibiting any extension of the 31 December 2020 deadline.
If a deal is not reached, Britain would then revert to World Trade Organisation tariffs and rules (i.e. a ‘No Deal’ or Hard Brexit), so we may be looking at another cliff edge deadline. Trade deals historically have taken years to deliver, but there are only some 6 months until the 30 June deadline. Perhaps because negotiations are not starting from scratch and we are starting from a position of alignment with the EU. It could be purely a case of altering trade arrangements that are already in place.
After the election, while the business environment remains uncertain, the political environment has been transformed.
To a significant extent the economic and business backdrop to all of this remains as it was before the general election. Uncertainty and the fear of the consequences of a “hard” or no-deal Brexit remain relevant. Yes, we are getting Brexit, but what sort of Brexit? According to official figures released by the Office for National Statistics earlier in November, Britain’s economy grew at the slowest annual rate in almost a decade. Year-on-year growth in the three months to end-September slowed to 1% from 1.3% in the second quarter. But the economy avoided a recession by growing 0.3% in the third quarter.
After Theresa May’s disastrously misjudged election of 2017, the administrations of Mrs May and Mr Johnson were unable to assert policy direction over various factions representing incompatible views.
That has changed. A comfortable parliamentary majority should enable the traditionally moderate Mr Johnson to plot a judicious and reasonable Brexit course which ought to be in the interests of all parties. This probably underlies the positive initial reactions of the markets. However, as of the time of writing in December 2019, there remains no clear route map as to how this will be achieved.
Martin Gibbs is Dafferns Managing Partner. He likes talking about BREXIT and any views in this post are his own.
