This is my first Brexit blog of 2018 and we are already in February! There has not been a lot of substance to talk about. After the progress in UK-EU negotiations  before Christmas, publicly the talks seem to have gone quiet. Nonetheless, there has been plenty of hot air in Parliament and on the Sunday political TV shows. I have been walking the corridors of Whitehall and Westminster, sharing insights on the key issues faced by Grant Thornton clients and discussing Brexit. Here’s a summary of what I am hearing.

Rumblings in Parliament

Yesterday MPs voted to leave the Palace of Westminster for 6 years in order to carry out essential repairs (I captured this photo of Big Ben already wrapped in scaffolding when I was in Parliament earlier this week discussing Brexit). MPs have acted more decisively on office maintenance than they have so far on Brexit. But we are increasingly hearing volcanic rumblings and seeing some clouds of ash that signal that at some point a major eruption will occur in both parties.

‘Remoaners’ and ‘Brexiteers’ are unhelpful labels – not least as nearly everyone seems to be moaning and nearly everyone seems to have accepted we will leave the EU. So the new dividing lines are around ‘hard’ or ‘soft’ Brexit; ‘deal or no deal’; ‘convergence’ or ‘divergence’ from EU frameworks.

A fair wind behind soft Brexit?

As a Conservative MP reminded me this week, there is around a 70% majority in favour of ‘soft’ Brexit in the House of Commons. This has yet to convert into a clear ‘soft Brexit’ position by the government as the Conservatives are fairly evenly split on this (although probably err on the side of soft Brexit). Because we have a minority Government, Theresa May has to try to keep all her MPs on side as well as the Ulster MPs in the DUP. Hence we see rather mixed signals and no definite position on the key question – what will our future relationship with the EU be?

A divided Conservative party 

‘Hard Brexit’ Conservatives do seem concerned that ultimately the Government will agree a relatively soft Brexit – which is why they are increasingly vociferous in the media. Their biggest fear will be that the government’s position will not become apparent until too late in the day – maybe in the autumn. They are therefore weighing up whether to challenge Theresa May’s leadership sooner; if they do they really need to act before the summer break. Meanwhile, soft Brexit Conservative MPs are telling me that they feel the debate is swinging their way.

A divided Labour party

The Labour party has its own difficulties. There is a far greater disconnect between the leadership and rest of the party than in the Conservative party. Labour Party MPs are overwhelmingly in favour of soft Brexit, as are a majority of their card carrying members. Jeremy Corbyn continues to sit on the fence. One outspoken Labour backbencher told me that there was now an overwhelming chorus of MPs, trade unions and constituency groups calling on the Labour leadership to declare support for remaining in the single market (the Norway model) and / or the customs union. They are hopeful of a change of Labour policy along these lines in the coming months.

Continued uncertainty

So there is a feeling of momentum in UK politics shifting towards a softer Brexit. In practice this has not translated into any certainty for businesses and other organisations. Indeed this political flux, with the clock ticking on EU-UK Brexit negotiations, for now does little more than create additional uncertainty for business. To secure a deal we still need agreement in the cabinet, the Conservative party, and parliament and between the EU leaders and the European Parliament. For that reason I have not changed my assessment that the probability of a deal or no deal Brexit is 50/50.

A deal by the summer on transitional arrangements?

In practice, what is happening in the negotiations with Brussels? The focus at the moment is on turning the principles agreed in December into a legal text. Alongside this there are discussions to agree a transition period. Last week Brexit Minister David Davis set out the UK position in a speech and letter to business. On Monday the EU published its negotiating guidelines. There is not much difference between the two, which augurs well for a rapid agreement. As expected, a transition period should be a period of around two years from March 2019 (possibly until December 2020) during which nothing much will change: we will remain in the single market and customs union; we just won't have a vote in the EU. The two main points of contention are:

  • the EU wants the UK to abide by all new laws passed by Brussels during the transition period, even though Britain will have no say in those directives. This is largely symbolic – in practice long implementation periods mean there will be very little, if any, in the way of new laws during this period.
  • As Theresa May said today, the UK does not want to agree to an automatic right to remain for EU citizens who arrive in the UK to work during the transition period.

I have spoken to various senior civil servants in Government about the Brexit negotiations. They all remain confident that the UK will reach an agreement on transition with the EU in the spring or by the summer at the latest. They also confirmed what we have believed for some time – that the UK will not agree a comprehensive trade deal with the EU this year. The Brexit deal with the EU will include some ‘heads of terms’ on the future relationship between the UK and EU, including on trade and market access, but not a detailed agreement; the detail will need to be negotiated after March 2019.

2018: slow negotiations in Brussels; a tectonic shift in Parliament?

What are the prospects for the remaining eleven months of 2018? We can expect continued, slow but steady, negotiations behind the scenes. And we can expect some political explosions at some point – maybe in the summer or autumn – when Conservatives and Labour both finally get off the fence on what type of future relationship they believe the UK should have with the EU. How those explosions pan out may ultimately determine whether and what deal the UK agrees with the EU. We could see a change of leadership; another general election; or maybe MPs in parliament acting above political party and uniting on a cross-party basis.

In the meantime, businesses and other organisations should continue to ensure they are ready: measure your Brexit exposure; have a plan for the worst case scenario; and get yourself as ‘match fit’ and agile as possible and ready to act quickly once we have some decisive political movement.