Global Daily – Making sense of the Brexit turmoil

by: Bill Diviney

UK Politics: October no-deal Brexit risk averted; November election looms – Of all the dramatic developments in UK politics recently, the most crucial has been the passage of legislation forcing the government to request an extension to the Brexit deadline (from the current 31 October to 31 January). While there have been suggestions PM Johnson could circumvent the law, we do not expect him to risk being hauled before the courts, with him either complying with the law or resigning and leaving a caretaker government to implement it instead. Either way, a no deal Brexit at the end of October now looks significantly less likely than just a week or so ago (assuming the EU agrees to an extension, which we expect it to).

An election is expected to follow, probably in late November. The government has tried repeatedly to call one, but the opposition has blocked this and said that it will continue to do so until a Brexit delay has been secured. As such, we expect an election to be triggered late in October, with the vote to take place in late November or early December.

‘No deal’ or ‘Remain’ the likely ultimate outcomes of a November election – Such an election will prove highly unpredictable; much more than usual in UK politics. Typically, elections are two horse races in the UK, between the Conservative Party and the Labour Party. Now, the vote share is split relatively evenly between four parties, with the pro-Remain Liberal Democrats and the pro-No deal Brexit Party polling almost as highly as the two main parties. Given the UK’s first-past-the-post electoral system, and the potential for alliances among pro- and anti-Brexit parties, it is extremely difficult to judge at this stage what the outcome would be. Broadly, we see two ultimate outcomes to the election – 1) A disorderly Brexit, pursued by an explicitly ‘no deal’ Conservative government (possibly supported by the Brexit Party); 2) The UK remaining in the EU: A Labour-led coalition negotiates a variation of the Withdrawal Agreement, offers this vs Remain in a referendum, with Remain winning. Another inconclusive hung parliament would likely also lead to Remain. In this scenario, anti-no deal MPs would continue to have the upper hand, leading to a caretaker government that calls another referendum. Polling suggests this would also lead to a ‘Remain’ outcome, whether it is pitted against Deal or No deal Brexit options.

A deal is possible, but unlikely – The least likely outcome to us now is an orderly Brexit. PM Johnson is currently pursuing a variation of the Withdrawal Agreement that turns the much-derided ‘backstop’ into an arrangement that only keeps Northern Ireland (rather than the whole UK) in a form of customs union with the EU. This was the EU’s original proposal, and so it would be hard for the EU to disagree to such an arrangement. However, even if it were to agree, it will be extremely difficult – if not impossible – for PM Johnson to get such a deal through the current parliament, given his government’s minority position. While there are some Labour MPs who would in principle support such a deal, we suspect the temptation to wound a Conservative Prime Minister who has staked his premiership on taking the UK out of the EU by 31 October will be too much to resist. The other path to a deal would be a Labour-negotiated variation of the Withdrawal Agreement that includes a commitment to a customs union with the EU. However, Labour has committed to holding a referendum pitting ‘Remain’ against a ‘credible Leave option’. Polling on such a hypothetical Remain vs Deal referendum suggests Remain would win by a wide margin. (Bill Diviney)