Boris Johnson and Brexit

United Kingdom has a new prime minister. As Boris Johnson takes over from Theresa May he now faces the task of taking Britain out of the European Union. But with Parliament just as divided on Brexit as before, a fresh election remains likely. In view of that, it is quite conceivable that the exit date will be postponed yet again.

The fact that Conservative Party members chose Boris Johnson as their new party leader and therefore prime minister didn’t come as much of a surprise. Accordingly, market reaction to the news was neutral. The Brexit hardliner received about two thirds of the votes cast. In his acceptance speech, he confirmed that he intended to take the United Kingdom out of the EU by the extended deadline of 31 October 2019 – without the backstop and, if necessary, without a withdrawal agreement. But he does face the same challenges as his predecessor, Theresa May: a Conservative-led coalition government with an extremely slim parliamentary majority, huge divisions within his own party and a fractious Parliament. Not to mention the EU, which so far has categorically rejected the idea of fresh negotiations. But time is running out. So what is likely to happen next?

Two roads that lead to a snap election

The Union Investment baseline scenario still assumes an early election. There are two likely routes to this destination. The first would be initiated by Boris Johnson himself, if he called an election to obtain a more stable mandate for his task. However, it has become less likely that the Prime Minister is going to do this immediately after taking office. Just before Parliament rose for its summer recess, he instead surrounded himself with more Brexit hardliners as he appointed his new cabinet.

The more probable option is therefore the second route to a potential early election, i.e. the failure of his attempt to renegotiate. Boris Johnson is likely to start off by trying to urge Brussels to agree to a new withdrawal agreement – without the contentious backstop, which provides assurance for Ireland. The backstop would keep Britain in the customs union until future trading relations with the EU have been finalised, thereby keeping the border between Northern Ireland and the Republic of Ireland open. This would also protect the 1998 peace treaty. However, in the UK there are fears, particularly among Brexit hardliners, that this is a way of forcing the country to remain in the customs union. The backstop was the reason why the EU withdrawal agreement negotiated by Theresa May was repeatedly rejected by Parliament. It is highly likely that Boris Johnson will demand that Brussels remove this mechanism from the agreement.

The EU, led by its chief negotiator Michel Barnier, has continued to insist that the negotiated deal will not be amended. Boris Johnson is calculating that the EU may now be willing to negotiate because he, unlike his predecessor, is making a credible threat of a no-deal Brexit if his demands are not met. But so far Brussels has not indicated any willingness to make concessions.

In our scenario, should the new prime minister return from the continent without success then the stage will be set for a no-deal Brexit. That might cause him to call an early election in order to secure a solid mandate for an unregulated exit from the EU. If he does not take that option, he faces a vote of no confidence from the opposition, which wants to avoid a chaotic Brexit. Many Conservative MPs would also like to prevent this at all costs. Parliament in its current form may be hopelessly divided, but there is still a majority against an unregulated exit. A confidence motion against the government would only require a simple majority to succeed. If no alternative government can be formed within two weeks, an election then has to be called. The Tories and their partners, the Northern Irish Democratic Unionist Party (DUP), have such a slim parliamentary majority that it would only take two moderate Conservative MPs not to turn up to vote in order for a confidence motion to be successful.

Two roads that lead to a snap election: Brexit postponement likely

Boris Johnson and Brexit
Source: Union Investment, As at: 29.07.2019

The two-party system is history

That poses the question of the possible outcome of a potential snap election. Based on the European elections, things are not looking too good for the two main parties. The newly-formed Brexit Party, led by Nigel Farage, was by far the strongest force, polling well over 30 per cent, followed by the pro-European Liberal Democrats at around 20 per cent. Together with the Greens (on around twelve per cent) that would make the pro-EU forces almost equal with the Brexiteers, but they are divided. A partnership between them seems highly improbable. A look at the results of the Conservatives (around nine per cent) and Labour (around 14 per cent) shows the decline of the major parties, who between them have ruled the United Kingdom for decades.

The two-party system is history. But although the outcome of an election might be a majority for the moderate forces, due to the longstanding dominance of the Tories and Labour, a coalition is by no means a foregone conclusion in Britain. In light of the irreconcilable differences between the Liberals and the Greens, the chances for a pro-European coalition are not good. On the other side, however, it is looking as though Boris Johnson and Nigel Farage are not averse to a possible cooperation. Conclusion: It is wholly uncertain where fresh elections would take the UK politically.

Snap election delays exit

It remains equally uncertain whether this would be more likely to lead to a managed or a chaotic Brexit. But one thing is sure, the exit date of 31 October would not be achievable. Boris Johnson would have to ask Brussels for an extension. And that is currently the greatest source of uncertainty for the exit process. An extension would have to be agreed unanimously by the EU 27. That means it only takes the vote of one country opposed to delaying Brexit any further to prevent the postponement of the deadline. Even then it would not be clear if it was going to be a managed or an unregulated exit. Unless Parliament manages to find a majority for the existing withdrawal agreement among its more moderate elements to avoid a chaotic Brexit after all, there will be an unregulated exit with the anticipated negative consequences for all concerned.

 

Unless otherwise noted, all Information and illustrations are as at 29 July 2019