The Brexit Newsletter: 31 May edition

31 May, 2019

With new leaders set to be chosen in the UK and the EU, what are the headlines dominating the news?

  • Efforts to break the Brexit impasse likely to have to wait until early Autumn
  • EU remind potential new PM that Withdrawal Agreement will not be reopened
Young business people gathered around a laptop in a sparsely lit office.

Business insights

PwC Ireland believes that it is prudent for companies to continue to plan for a hard (no-deal) exit. It continues to be a risk despite the European Council granting the UK an extension to Article 50 until 31 October.

While it is good news that the UK did not leave the EU without a deal on 12 April, there is still no certainty as to the final shape and timing of Brexit. No deal remains a risk until withdrawal from the EU is formally agreed.

While we hope that a positive outcome can be agreed before 31 October, the political uncertainties at Westminster mean that the possibility of no deal cannot be completely removed.

What are the implications for business?

While there is breathing space with no deal being avoided for the moment, we are entering a further prolonged period of uncertainty as to how and when the UK leaves the EU. The key thing is to use the time wisely. Businesses need to stay agile as Brexit stops being a moment in time and becomes the backdrop for strategy and investment decisions.

For some businesses, the wheels are already in motion. This extension will mean they need to decide whether to pause their Brexit preparations and keep their options open, roll back preparations, or re-evaluate their options on a more strategic basis. Many businesses now need to manage rolling, costly uncertainty as best they can, with no clarity as to when it might end. A challenge for businesses now is what to do and not to be complacent.

Many financial services firms had already pressed the button on moving part of their business to Dublin. They will likely continue to do so, but with a bit more time now given for them to complete transfers and get authorisations in place.

Another key risk factor for many Irish businesses is the value of Sterling. The Central Bank has warned that Sterling could fall close to parity with the Euro in the event of a no-deal crash out. This would cause significant competitive pressures and businesses will need to watch this space.

The UK leaving under the Withdrawal Agreement would be ideal for Irish businesses as the UK would enter the transition period. Our trading arrangements would remain as they are now until at least the end of 2020.

Companies should leverage this extension to advance their preparations. Even if you are well prepared, reassess your plans in the light of the extra time.

While Irish businesses would hope the Withdrawal Agreement to be agreed or for a softer 'Customs Union or Single Market' style Brexit, nothing is certain. The granting of more time is good news. However, the long-term future UK-EU relationship remains unclear. It will be very important for Ireland to keep in close contact with our UK and European colleagues as developments unfold.

London developments

Fourth-time lucky

Theresa May’s announcement that she will resign as PM on 7 June has ensured that efforts to break the Brexit impasse will have to wait until early Autumn. The UK political landscape is set to be dominated by events to select a new Conservative leader and PM over the course of the summer. While a number of potential candidates (Boris Johnson, Michael Gove, Jeremy Hunt, Dominic Raab, Sajid Javid, Andrea Leadsom, Esther McVey) have already indicated their intention to contest the leadership, the process does not formally begin until 10 June.

Selection of a new Conservative Leader will be achieved via a three-stage process. Potential candidates who have secured the backing of at least two other Conservative MPs must be formally nominated to contest the leadership during the week of 10 June. Following this, Conservative MPs are expected to undertake a series of leadership votes until a shortlist (traditionally two) of leadership candidates has been selected. This is expected to be concluded by the end of June. Members of the Conservative party (~120,000-130,000) will then choose the new leader via a postal ballot on the shortlisted candidates. The postal vote should be completed by mid-July to enable the Conservatives to have a new leader and PM in place before Parliament breaks for its summer recess in late July. With Parliament not scheduled to return from its summer break until early September, this appears to be the next most likely point at which the UK political system will collectively re-engage with Brexit. The challenge for business is that such re-engagement will occur with less than two months to go until the current Article 50 extension expires on 31 October.

Over the coming weeks business can expect to see a number of candidates trying to improve their leadership credentials amongst the strong Eurosceptic conservative membership by embracing the possibility of the UK leaving the EU without a deal. Boris Johnson indicated that the UK "will leave the EU on 31 October, deal or no deal" with Dominic Raab highlighting his belief that the UK would leave the EU "on WTO terms in October" if the UK fails to secure an improved deal by then.

Despite such no-deal bravado, even a strong Leave PM would want to hold their own talks with the EU which would most likely go up until the 31 October deadline thereby reducing the possibility of a no-deal exit before the 31st.

Labour indicated that if the new PM starts trying to force a no-deal exit they will immediately call a vote of no confidence in the Government. A defeat for the Government would result in a general election which Conservatives would be keen to avoid given their recent electoral performance. Raising the no-deal ante, Philip Hammond indicated that he would be prepared to vote against the Government if the new PM seeks to take the UK out of the EU without a deal.

Ultimately whatever direction new PM tries to take Brexit, Parliament will seek to make sure that it has a say. John Bercow, Leader of the House, warned leadership candidates that no deal is impossible without Parliament’s approval. At the same time, Bercow also reminded MPs that if a deal is not agreed between the EU and UK by 31 October, and if an additional extension was not secured, then leaving without a deal becomes the automatic legal default. While Parliament has consistently indicated its intention to avoid a crash out, they have to date also consistently failed to agree and deliver a strategy that averts such an outcome. If a 31 October cliff edge is to be avoided, it is likely that Parliament will finally have to take decisive action.

Latest from Brussels

Mirroring the changing of the guard at the head of UK Government, the EU will see the selection of a new European Commission President and Commission over the course of late summer and early Autumn. While the EU’s Brexit policy will continue to be driven by the direction from the EU leaders within the EU Council, there will be significant interest to see what impact the new Commission has on the make-up of the EU’s Brexit negotiating team, especially given the speculation that Michel Barnier could be an outside contender to replace Jean Claude Juncker.

Despite the EU undergoing its own leadership change the EU’s Brexit policy continues to remain unaltered. While the EU will be willing to engage with a new UK PM, they continue to remind the UK that a change in Prime Minister will not be matched by a change in EU position: the Withdrawal Agreement is closed and will not be reopened but the EU remains open to discussions on expanding the ambition of the future relationship declaration. Business must wait to see how a new PM reacts against an EU position that has up until now remained absolutely steadfast.

Contact us

David McGee

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 8785

John O'Loughlin

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6093

Andrew O'Callaghan

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6247

Owen McFeely

Director, PwC Ireland (Republic of)

Tel: 353 1 792 8162

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