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10 Days Until Brexit: Can UK Lawmakers Still Find A Way Forward?

by: ING Economic and Financial Analysis
ING Economic and Financial Analysis
Corporate contributor, Macro, currencies, Commodities

Will Wednesday's indicative votes be any different?

How about combining the options?

PM May’s deal coming back from dead?

Could PM May negotiate a softer Brexit?

10 days to go.

British lawmakers have again failed to generate a majority for any alternative Brexit proposal. They will get a third opportunity to do this on Wednesday, where we still think MPs might decide to back a softer stance - or perhaps even a combination of Brexit options. But with time running out and the EU's rhetoric hardening, fears of 'no deal' are rising

By James Smith, ING Developed Markets Economist

Will Wednesday's indicative votes be any different?

In another dramatic night in the British parliament, lawmakers voted against all four alternative Brexit plans, in what have been labelled 'indicative votes'.

MPs will now get a further opportunity to consider and vote on these proposals on Wednesday. But after two rounds of inconclusion, will the third be any different?

A lot depends on how the vote is structured. There have been suggestions that Wednesday’s votes could be constructed as a series of run-off votes, or in such a way that MPs get to rank the different options rather than simply ticking “yes” or “no” to each. That could help prevent the process ending with no firm conclusions again.

Whichever way it pans out, it still seems like one of the softer Brexit proposals has the best chances of winning. The customs union option lost by only three votes, and with a relatively high number of lawmakers still opting to abstain (including the Scottish National Party and some Lib Dems), this could feasibly be turned around.

The second referendum option again received the most support - 280 lawmakers said “yes”, compared to 292 who were against. However, with a relatively low number of MPs abstaining compared to other options, there seems to be less scope to significantly boost that support further.

Despite gaining the approval of the opposition Labour Party, the Common Market 2.0 proposal - which combines a customs union with single market access - again fell short.

How about combining the options?

After two 'failed' rounds, there are are no guarantees that anything will change by Wednesday - let alone generate a "stable majority" in favour of any given option. Don't forget that MPs will need to approve any renegotiated deal in a meaningful vote, as well as pass a raft of subsequent legislation, and the government will need a stable core of lawmakers to carry that forward.

To break the deadlock, there have been hints that two of the most popular options could be stitched together. For example, if the deal were to be renegotiated to include a customs union, and then put back to the people in a second referendum, some are hoping that this could generate a decent majority.

This kind of proposal might succeed in gaining the votes of 11 Independent Group and 10 extra Lib Dem lawmakers, who have a strong preference for a ‘People’s Vote’ and could be prepared to compromise to get it. However, this approach also risks losing others. 37 Conservative MPs voted in favour of a customs union, but many of these may drop out if a second referendum were thrown into the mix.

Equally there are some Labour MPs who probably could be prepared to back a softer form of Brexit, but who are concerned about the impact a second referendum could have on their party’s support in the leave-supporting areas they represent. Throwing all of that together, there are no guarantees stitching together options would grow the numbers and generate a clear majority.

PM May’s deal coming back from dead?

The fact that no option could gain a majority on Monday will have come as a boost to the prime minister, who is likely to try to retable her deal at some point this week. However, with the Democratic Unionist Party and many Labour MPs unlikely to get behind it, will Theresa May have better luck in the fourth vote on her deal?

Well, if Parliament does manage to unite behind an option on Wednesday in the indicative votes, then there have been suggestions that PM May could put her deal against the winning proposal. This would be the clearest signal yet to the Brexiteers within the Conservative Party that a vote against May’s deal is a vote for a clear softer alternative. The PM might also threaten to stage a vote on holding European Parliamentary elections shortly after any defeat, with the aim of focussing minds in her party. Even then, we suspect she still faces an uphill struggle to get the numbers she needs to get the deal over the line.

Could PM May negotiate a softer Brexit?

If Parliament does force PM May to head back to Brussels to renegotiate a softer Brexit - or even to arrange a second referendum - the big question is whether she would do it. Members of parliament would quickly try to enshrine parliament’s decision in law so that the prime minister has little choice but to follow its wishes.

However, there is a possibility that the prime minister decides that a general election would be preferable, compared to pushing ahead with parliament's chosen option. Equally, if she does accept parliament’s wishes, then the eurosceptic lawmakers within her party could decide “enough is enough” and vote against the government if there were another no-confidence vote.

That said, as we noted in more detail last week, it's not clear that an election would benefit any of the major political parties - nor would it guarantee a significant shift in the way Parliament is made up.

10 days to go

With only a few days to go until 12 April, there is no doubt that fears of a ‘no deal’ Brexit are rising. Realistically the government will need to put forward a solution before the 10 April emergency European Council, or perhaps even a day-or-so earlier to allow time for any last minute negotiations.

That means that lawmakers will have to make their mind up this week, as well as make a commitment to holding European elections if May’s deal is rejected again, to have the best chance of being granted a long extension by the EU. Meanwhile, the EU line is hardening when it comes to ‘no deal’ - there is reportedly a growing perception that this would be less costly than granting what might be called a 'blind delay' - an extension with little justification from the UK side.

We still think this will be avoided - not least because we suspect parliament will continue to do all it can to avert ‘no deal’. However, amid the indecision among lawmakers, the risks are clearly rising.

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