At lunchtime today (13 November), I was in 10 Downing Street with our CEO Sacha Romanovitch for a regular catch up with one of the Prime Minister’s advisers, sharing insights on what we are seeing in the wider economy including business plans for Brexit. At that point, talk was of the possibility of reaching a deal with the EU in the next week. Hours later news emerged from Number 10 that a deal has been reached.
So what has been agreed; what happens next; and what does it mean for business?
Top line: This is not a done Deal. This is a very welcome sign of some progress; but there are plenty of bumps in the road before we actually have a Deal that business can plan with certainty around. A final binding deal may not be agreed until Christmas or even New Year. And a No Deal Brexit still remains quite a possibility.
What is in a Deal?
It is worth bearing in mind that the “deal” (if we get one) only covers four things:
- rights of EU citizens already in UK to continue to live and work here (and ditto UK citizens in EU)
- how much the UK will pay the EU for outstanding liabilities etc. (the alimony - around £40bn)
- a 21 month transition period during which the U.K. and EU maintain existing trade and other arrangements and allowing time to negotiate our future trade relationship
- a cast iron way of ensuring no border controls between Ireland and Northern Ireland (referred to as “the backstop” - what happens if the trade deal the EU and UK negotiate after March 2019 doesn’t provide for a completely open border).
It looks like the EU and UK negotiators may have reached agreement on keeping the whole of the U.K. in the EU customs union and some form of U.K. regulatory alignment with the EU if need be - this avoids a physical border with Ireland and also avoids a new border between Great Britain and Northern Ireland down the Irish Sea. If such a deal is agreed it provides business with a transition period and the possibility of a longer period remaining in the customs union. If this is agreed, it will be welcomed by many businesses.
Note that this ‘deal’ will not include detail on the future trade relationship between the UK and EU (the basis for a trade agreement); there will be some political statements and ‘heads of terms on this but the detail of our future relationship with the EU will not be agree until after 29 March 2019; in effect the ‘transition period’ will be a period of further negotiation on our future trading relationship. We will therefore enter what has been described as ‘blind Brexit’ if the deal goes ahead: leaving the EU on 29 March without a detailed, legally binding agreement on issues like future access to markets after the transition period ends.
What needs to happen for this proposal to become a done deal?
So far we have a ‘technical agreement’ between the UK and EU negotiators. What now needs to happen is:
- the cabinet agree to support it
- EU governments assesses the draft
- EU ambassadors approve it in principle
- EU heads of state agree it at an EU Council (possibly a special meeting at end November)
- The UK Parliament votes in favour of it
- The European Parliament votes in favour
What could go wrong?
Any of the above agreements may not be forthcoming. In particular, the biggest stumbling block is the UK parliament. There may not be a majority of MPs in favour: the DUP, Lib Dems, SNP, Labour frontbench, Conservative ERG group of MPs, and some Conservative ‘remainer’ MPs are all indicating they may oppose it. A parliamentary majority in favour of the deal looks very difficult.
Whether we have a deal or not will come down to parliamentary arithmetic and possibly a handful of MPs. This is too close to call. If you want to try to avoid a No Deal scenario, you might want to let your MP know and encourage them to vote accordingly.
So what should business do?
My old mantra remains: “hope for the best; plan for the worst”.
By the time we know whether we have a deal or no deal, we may only have 2 or 3 months left to prepare. Over the last few months, we have seen serious No Deal contingency planning by many businesses in all sectors. For now, organisations should keep calm and carry on implementing their No Deal plans.
This is not a done Deal. This is a very welcome sign of some progress; but there are plenty of bumps in the road before we actually have a Deal that business can plan with certainty around. A final binding deal may not be agreed until Christmas or even New Year. And a No Deal Brexit still remains quite a possibility.