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Talking Trade blog

Whither now brexit?

Published 28 June 2017

On 18 April 2017, British Prime Minister Theresa May announced that she would dissolve Parliament, calling for a snap election on 8 June 2017.

This was no spur-of-the-moment decision but a shrewd and calculated gamble.  At that time, the backdrop for calling an election could not have been more favorable.  Early polls indicated that the Conservative Party had a 21-point lead over its closest rival, the Labour Party, which would have effectively given them their greatest lead while in government since 1983. 

This was an opportune moment for the Conservatives to shore up their slim majority and unseat Labour as a threat.  Importantly, it would have given May a more direct mandate from the UK public.

A convincing victory would also have bolstered May’s tenuous authority within the party and and forcefully take hold of its reins which was divided into: 1) Europhiles who would seek to frustrate her plans to negotiate a “hard Brexit”; and 2) hardliners who would turn against her if she wavered from her commitment to a “hard Brexit.”

Victory would have in one fell stroke installed her as the unquestionable representative of the public and ruling party, which would have strengthened her negotiating hand in talks with the European Union over the UK’s exit from the regional grouping.

But her gambit backfired spectacularly. May lost her slim majority in the House of Commons just at the point where she had to start the massive task of legislating for Brexit, including introducing the sprawling “Great Repeal Bill” that will transfer EU laws into the UK’s statute book.

Her electoral humiliation has raised hopes among some that she will be forced to abandon her plan for a “hard” Brexit in favour of a “soft” Brexit.

What exactly is a hard or soft Brexit anyway?

Admittedly, the expression “hard”/”soft” Brexit are both imprecise terms.  But nonetheless they are useful as conceptual shorthands.  The key substantive differences between the two approaches are:

Most definitions of a soft Brexit envision the UK retaining single market membership and access to the EU customs union. It is important to note here that a “single market” here is more than a just simple descriptor of trade relations. For the EU, a “single market” entails the freedom of movement of not just goods, services and capital, but also most crucially - people.

The last factor is a red-line for hardliners who want to “pull-up the drawbridge” around Britain. The unrestricted movement of people was a key factor in many people’s vote to leave the EU.  To concede this point now would completely devalue Brexit as a project. 

It is for this reason that supporters of hard Brexit have called for the UK to pull out of the single market in order to regain control over Britain’s borders and reduce immigration.

Where do the parties line up on Brexit?       

Liberal Democrats – One the far end of the continuum, we have the Liberal Democrats who have been unashamedly anti-Brexit. Their manifesto for the recent election put opposition to Brexit at the heart of the party’s offering, pledging to preserve free movement, remain in the single market and hold a second referendum on the final EU exit deal with the option of remaining a member.

After making overturning Brexit the central thrust of their campaign, the Liberal Democrats increased their number of MPs from nine to 12.

Scottish National Party – Nicola Sturgeon strongly backed Remain in the Brexit referendum a year ago and has robustly positioned her party in opposition to Prime Minister Theresa May’s hard Brexit prospectus.

The SNP only won 35 of the 59 Scottish constituencies - a fall of 21 seats from the 56 they won in 2015. But they remain the third largest party after the Conservatives and Labour.

Labour Party -  It appears that Labour, despite its uncertain pitch, has become the de facto party of the Remain camp.  Jeremy Corbyn’s resurrection, with 262 seats won, was largely driven by the support of newly registered young voters, many of whom voted to stay in the EU and turned up in droves, scuppering May's hopes of a walkover win.

Unfortunately, the surge in Corbyn’s fortunes has not been accompanied by any clarity in his party’s position over Brexit.

But based on its advocacy for minimal curbs on free movement, a close relationship to the single market, a determination to stay in the customs union and an accommodation with the ECJ, it would not be remiss to place Labour as being squarely in the soft-Brexit camp.

Democratic Unionist Party – The DUP has seen itself itself thrust into the role of kingmaker as the Conservatives seek to add its 10 seats to their 318 to form a coalition government.

But DUP leader Arlene Foster has said that: “No one wants to see a ‘hard’ Brexit, what we want to see is a workable plan to leave the European Union.”

Clearly, the DUP are being very careful not to commit publicly to anything specific, and for good reason.

Firstly, they do not want to be formally shackled to a Prime Minister who in their opinion, is more or less done for at this point. Secondly, there is some lingering bitterness in Northern Ireland over the decision to leave the EU. Sinn Fein, their main rival and the largest nationalist party, had campaigned openly in favor of the UK remaining a part of the EU and had cast the decision to leave as yet more evidence of England overriding the interests of Northern Ireland. 

The elections on March 2 saw a Sinn Fein surge as they came within one seat of a majority, the closest result between nationalist and unionist parties in generations. It would not be prudent for the DUP to attach themselves to a cause that is unpopular at home and risk further ceding the ground to their rivals.

Conservatives – The Tories have become the official party for a hard Brexit. However, as mentioned earlier, the Conservatives are themselves a divided party with certain Tory Europhiles being publicly opposed to a hard Brexit.

A second factor weighing on May is that her party now includes 12 new MPs from Scotland, a country that voted by 62 percent to remain in the EU in the 2016 referendum, and where the SNP has been lobbying for Britain to stay in the single market.

Importantly, May also now faces pressure not just from politicians, but also from the business world. Up till the point of her implosion, business leaders had reconciled to the fact that a hard Brexit was a done and dusted deal. But now, the books are seemingly open again.

Parliamentary Mathematics

There is now nearly a majority in the Commons who campaigned either for a second referendum on Brexit, or who appear to be advocating for a soft departure. It would not be difficult to imagine a cross-party progressive alliance that unites parties from the SNP, Liberal Democrats and Labour with Europhile Tories. In terms of their share of vote, this broadly soft-Brexit collective could claim to have close to 50%, to the Tories’ 43%.

Without a Commons majority, parliamentary mathematics suggests that Brexit can only be agreed and delivered if the Conservative minority government forges a cross-party approach to Brexit. This would likely mean that May will have to compromise on her hard Brexit plan in order to create a new national consensus.

BUT here, we must caution against overestimating the role of Britain on the Brexit process. An equal if not greater share of the decision will depend on the EU.

The degree of hardness or softness is NOT a unilateral choice to be made by the UK.

The role of the EU

 The question that has rarely been asked in this equation, if ever, is what is the EU’s stance on Brexit?  Even when and where the question has been posed, the assumption has been one of a static and unchanging EU position.

But the EU as of June 2017 is a significantly different animal from the EU of June 2016, when the UK voted to leave the Union.

Back when the UK voted to leave the EU in June last year, political observers saw in it the beginnings of a domino effect which would lead to the unravelling of the post-war European integration project.

But elections in Austria, the Netherlands and then France have failed to produce the results that eurosceptic parties were hoping for and, in the case of France, have in fact led to the opposite: the election of a fervently pro-EU leader.

The balance has shifted somewhat.  We have today a weak and wobbly UK versus a re-energized and strident EU.

What does this mean in terms of the EU’s position on Brexit?  The EU is also open to two different outcomes, but not the same ones as the UK.  For the EU, the UK can either return to the EU, or they leave outright, i.e. hard Brexit. Soft-Brexit is not a palatable or acceptable compromise for them. After all, if members could get all the benefits of membership and bear none of the costs, every member would prefer this arrangement.

Scenario 1: French President Emmanuel Macron, at a recent joint press conference with May in Paris has said that: “The door is obviously still open,” and that “as long as the decision to organize this exit is not completed, it’s possible to come back on it (the EU).”

Of course for this to happen, the UK will likely need the unanimous approval of the other 27 EU countries to rescind May’s letter triggering Article 50. Otherwise, any potentially rebellious EU government could torment Brussels by formally submitting a demand to withdraw from the bloc, only to reverse course. They may also have to pay a “re-entry” fee of sorts.

The UK’s return will not be a dignified one. No fatted calves will be slaughtered to celebrate their return.

Scenario 2: If EU voters see a floundering UK outside of the bloc, it will be all the better for pro-EU governments like Macron and all the worse for dangerously popular factions such as the far-right National Front party led by Le Pen. Plus, the EU will have a unique opportunity to grab the jobs in finance and manufacturing that are currently in the UK, but need to be in the eurozone for a number of tax and tariff measures.

Either way, the EU wins. It is a rigged game, but it’s the only game in town for the UK.

To those who have labored through this piece, it might be more than a little frustrating to realize that there is no clean compromise to this problem.  But if anything typifies just how difficult Brexit negotiations will be, this is it.  If Brexit was a daunting task before, it now seems nigh impossible, particularly within the timeframe of less than two years. 

And this is based on the charitable expectation that May survives her new term.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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