Another difficult year in politics?
After a year of unpredicted events, 2017 looks like it will be equally surprising, with problems facing Europe that are just as challenging as those brought about by the UK’s Brexit vote. The populist and nationalist forces that drove the Brexit decision threaten further turmoil in difficult elections in the Netherlands, France, Germany, and possibly Italy. For UK and European businesses undertaking medium term planning, it is likely to be year of continually revising risk assessment.
On the face of it, Britain starts the year in a politically stronger and more certain state than many of its European partners. A new Prime Minister is unchallenged in her own party and towers over her opponents. Many pro-EU centrist Tory politicians are in no mood to undermine her by causing problems on either Article 50 or the details of disengagement from the EU.
Ideally they want her to get on with the negotiations as quickly and smoothly as possible. This cautious resignation reflects both a recognition of political reality and also a concern that recidivist Europeanism will go down badly with constituency associations, which must select candidates on the new parliamentary boundaries from 2018.
That is not to say Theresa May doesn’t face problems at Westminster. As veteran Eurosceptic-watchers can attest, it doesn’t take many disgruntled Conservative MPs to cause difficulties in the Commons, particularly given the small Tory majority. The problem will not be the Article 50 letter – even if the Supreme Court rules this month that Parliament has to approve it in advance. Few MPs or peers of any party will stand in the way of the voters’ decision in the referendum. It will likely be approved quickly, though ministers may need to make concessions on the process of consultation with Parliament during the negotiations.
The Great Repeal Bill
Much greater difficulties are likely with the so-called Great Repeal Bill, promised by the Prime Minister at the Conservative conference in October last year. The PM sees the bill as a critical part of the negotiations with the rest of Europe as it will incorporate 40 years of EU legislation into UK law. This would mean that, unlike Canada, the UK could more easily forge a trade deal with Europe because it would already be 100 per cent compliant with EU and single market law. But passing the Bill will likely be a complicated and challenging problem for the Government whips. Hardline Remainers will use it to conduct a guerilla war aimed at causing maximum parliamentary disruption. For some on the Leave side, the notion of incorporating EU law unamended will also be difficult to swallow.
The Bill will cover most aspects of domestic policy, MPs and peers can propose amendments on a wide range of subjects. But the complexity is likely to mean a sizeable amount of power has to be delegated to ministers through secondary legislation, which is subject to far less parliamentary scrutiny and therefore unpopular with backbenchers. In normal circumstances, the Government would do a deal with Labour to get the legislation through, but it is highly unlikely that either the current Leader of the Opposition or Chief Whip will have the authority or confidence of their own MPs and peers to be able deliver such an agreement.
The problems in Westminster will inevitably be time-consuming at the same time as the Government begins the Article 50 negotiations in Brussels. So far, May’s extreme caution and methodical approach to consensus building seems to be serving her well. The Cabinet supports the objectives of securing control of UK borders and not being subject to the European Court of Justice. Beyond that, the triumvirate of May, the Chancellor Philip Hammond and Brexit Secretary David Davis seems to be prepared to be flexible, recognising the need for a transitional period of up to five years during which the UK may remain part of the European Economic Area, contributing to EU funds at a lower level and being subject to the EEA court rather than the ECJ (though this could be a distinction without a difference).
Such a pragmatic and flexible approach could provide the foundations of a relatively speedy agreement with the EU and may well be in the economic interests of the member states. The problem for the UK is that politics is likely to trump economic self interest. The Commission feels it needs to be tough, ensuring that the UK suffers pain for its disengagement in order to maintain the unity of the 27 members and the sanctity of the four freedoms. The Commission lead, Michel Barnier, has a reputation as a tough negotiator and progress could be slow.
The resignation of the UK’s Ambassador to the EU Sir Ivan Rogers will also make things more difficult for the Government. Although Sir Ivan was seen by some on the Leave side as overly pessimistic and cautious, his experience and connections will be missed as the Government as they enter complicated negotiations.
DExEU officials privately worry that there is at least a 30 per cent chance of the talks collapsing in acrimony and the UK being forced to fall back on WTO rules. Their Foreign Office colleagues put the odds even higher. This is partly because the initial negotiations will take place in the shadow of difficult elections for centrist parties in key EU states, where leaders under pressure could take tough positions on Brexit in their campaigns, making it more difficult to achieve subsequent agreement. Conversely, if nationalist far right parties win power in any of these four countries, it would likely be the EU facing major problems.
An unlikely election
A UK general election currently looks unlikely. Despite the attractions of increasing their majority, May wants if possible to serve as PM into the next parliament so a 2020 election suits her timetable. Besides, although Labour would almost certainly vote for an early dissolution, the terms of the Fixed Term Parliament Act means that the Prime Minister has to have a very good reason to dissolve Parliament early.
Scotland promises to be problematic. SNP First Minister Nicola Sturgeon is so far playing a difficult hand well. She can’t win a referendum on Scottish independence any time soon but she can use the UK Government’s Brexit difficulties to her own advantage, particularly on single market access. Her block of 54 strongly pro-EU MPs cannot on their own cause problems for the Government. But with cross party alliances likely, the SNP’s voice is likely to be significant in the discussions.
Planning for Brexit
In these trying political circumstances, business planning is not easy. Likely risks currently outweigh opportunities for companies and sectors, and economists warn us not to be taken in by the relatively modest early impact of Brexit on the UK economy.
Many companies and sectors are engaging directly with ministers and officials, and trade associations have established dedicated Brexit teams. So far, ministers and officials have been very open to dialogue with business even if, at this early stage, not much can come from these discussions beyond setting out industry positions in broad terms. 2017 will be the year to get into the detail.
As such, it could prove a testing 12 months for relations between the Conservative Government and the private sector, with immigration possibly an important early source of disagreement. So far, the PM’s caution has served her well. But as the negotiations begin in earnest and she is forced to crystallise the UK’s negotiating positions, tensions in Parliament and with business could grow. 2016 produced more than its fair share of unexpected difficulties. At the very least in 2017, we expect it to be difficult – so we can start preparing earlier.