CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

Brexit deal: what happens if parliament rejects it?

Prime minister Theresa May has withstood extreme pressure and agreed a Brexit deal with the 27 EU member states, but the biggest hurdle remains getting it through the UK parliament. With the odds stacked against her we have a look at what happens if MPs reject May’s Brexit deal.

Theresa May
Source: Bloomberg

‘This has been a long and complex negotiation. It has required give and take on both sides and this is the nature of a negotiation. But this deal honours the result of the referendum, while providing a close economic and security relationship with our nearest neighbours, and in so doing offers a brighter future for the British people outside of the EU. And I can say to the house with absolute certainty: there is not a better deal available,’ – UK prime minister, Theresa May, 26 November 2018.

After over 500 tumultuous days of exhausting negotiations, British members of parliament (MPs) are preparing to cast a landmark vote that will decide the future of Brexit. May has, against all odds, struck a deal with leaders of the other members of the European Union (EU) that paves the way not only for the UK’s departure but also toward a future trade deal. The prime minister claims it is the ‘right deal’ as it delivers on the referendum result by finishing free movement of people, ending the jurisdiction of the European Court of Justice, taking back control of money paid into EU coffers that creates a ‘free trade area with no tariffs’ to protect jobs, and maintains the integrity of the UK by meeting its commitments to Northern Ireland.

But May is far from convincing everyone to get behind her vision and Brexit remains the most divisive topic in modern British politics. Ahead of the crucial vote we have a look at the deal that has been agreed, whether it will gain enough support, and have a look at what could happen if MPs reject the deal just months before Brexit.

Read more about May vowing on Brexit to ‘see this through’

Withdrawal agreement: what does the Brexit deal cover?

The two things that have been agreed by the UK government and the other 27 EU member states are the withdrawal agreement and a political declaration over future relations.

The withdrawal agreement will form the basis of a legally binding treaty, should it be passed through parliaments on both sides and primarily covers three main issues: citizens’ rights, avoiding a border on the island of Ireland, and the £39 billion divorce bill the UK will pay the EU when it departs.

Read more about the Brexit deal passing the EU stage, but what now?

A vital part of the withdrawal agreement that the House of Commons will vote on is the ‘backstop’, which seeks to keep the UK in a temporary customs union to avoid a border between Northern Ireland and the Republic if they fail to strike a future trade deal that addresses the problem.

The political declaration is not legally binding but effectively lays the foundations for talks over a future trade agreement between the UK and the EU which the pair would aim to introduce at the end of a transition period. The UK government has been releasing papers outlining its vision for how trade between the EU and 26 of the country’s biggest industries post-Brexit will pan out, but nothing firm. Trade and security are the UK’s two biggest concerns.

Brexit deal timeline: dates you need to know

The House of Commons will vote on the withdrawal treaty on 11 December. Time is not on the side of MPs, who will have just five days before the vote to debate the deal that is on the table and whether they should support or reject it.

Legally, the deal must pass through the UK parliament before the European parliament can vote on whether to consent to the withdrawal deal. If the Commons approve May’s deal in its current form then the EU ratification is almost certain. However, if disgruntled MPs manage to insert amendments to the Commons vote – such as calling for a second referendum – then the EU’s stance could change dramatically.

The ability to amend the motion that MPs will ultimately vote on is important. This would allow MPs that disagree with the deal on the table to propose what would happen depending on the outcome of the vote; such as holding the so-called ‘People’s Vote’ if the deal is voted down. In October, Labour Shadow Brexit Secretary, Keir Starmer, responding to warnings from the Brexit Secretary at the time, Dominic Raab, that anything but a clear approval of the deal would be detrimental to the country, said ‘Labour doesn’t accept that the choice facing Parliament will be between whatever deal Theresa May cobbles together or no deal.’

Read more about Brexit Secretary Dominic Raab resigning over Irish backstop

Brexit timeline if UK parliament approves deal

Until 11 Dec MPs debate MPs will spend five days debating the Brexit deal before the vote.
11 Dec Commons vote The House of Commons vote on whether to back the prime minister’s Brexit deal.
13-14 Dec EU summit Regular EU summit with eyes on the vote.
Early 2019 Brexit deal signed into UK law If approved, the Brexit deal will be signed into UK law.
Before 29 March EU ratification The European Parliament must approve the deal before the Brexit deadline.
29 March 2019 Brexit The UK formally leaves the EU.
Until the end of 2020 Transition and talks UK-EU operate under transition period, start talks on future trade.
At the end of transition New deal or backstop UK-EU relations based on either new trade deal or fall on World Trade Organisation (WTO) rules and the Irish border backstop. UK can sign new international trade deals with other countries.

The EU summit follows just days after the crucial Commons vote and, although it is the bloc’s regular December meeting, all eyes will be on the result. If the deal is approved then May will be able to meet her EU counterparts with confidence, but if the deal is voted down then it reopens the question as to whether the bloc would be willing to renegotiate terms.

If the (or a) deal wins approvals from both UK and EU politicians then the relationship will be governed by the transition period after Brexit on 29 March 2019, whereby trading will remain the same as it is now until the end of 2020. It is important to stress that the transition is contingent on the withdrawal agreement and political declaration being approved: no deal means no transition.

The UK government has stressed it would be able to start negotiating new trade deals with other international partners like the US (although US President Donald Trump has a different understanding) during the transition period but only able to legally sign them into force once the transition period ends, including any future trade deal with the EU.

If there is no future trade deal signed between the UK and the EU before the end of the transition then the so-called ‘backstop’ would come into force, whereby the whole of the UK would have to remain in a ‘temporary’ customs union in order to avoid a hard border on the island of Ireland or annexing Northern Ireland from the rest of the UK with a border in the Irish Sea.

Learn more about the Brexit timetable

What are the odds of UK parliament approving the Brexit deal?

The number one thing to remember is that no deal is the default position and the only certain outcome at present. A hard Brexit is technically the most likely result as it’s the only precise option on the table that, unlike any other ideas put forward, doesn’t need a majority. In fact, the divisiveness across the British political spectrum on what the ideal Brexit is (including no Brexit at all) only fuels the likeliness of the UK crashing out of the EU with no transition period, no trade deal and little to fall back on. The only way no deal can be avoided is if May successfully unites possibly one of the most divided houses or if a majority can rally behind another option, most likely calls for a second referendum.

There is good reason to believe that no deal could be a reality, albeit an avoidable one. The Conservative government does not currently hold a majority because the Democratic Unionist Party (DUP), having agreed to prop up May’s party after the last general election, said they are opposed to her deal, alleging it treats Northern Ireland differently to the rest of the UK. There is opposition to the deal on both sides of the House, with some believing it keeps the UK too close to the EU after Brexit while others think it isn’t close enough. As a significant number of Conservatives disagree with the deal, including high profile members like former foreign secretary, Boris Johnson, and former Brexit secretary, David Davis, it is looking like May increasingly needs the support of Labour rebels. While gaining support from some opposition MPs is possible, despite leader Jeremy Corbyn firmly stating that, ‘for the good of the nation, the house has very little choice but to reject this deal’, they would likely pressure her to amend the deal in return for their support. Plus, May is thought to be able to win over 15 Labour reels at best, nowhere near enough to offset the support lost in her own party. Amending the deal to win support is not ideal for May as she is likely to lose as many people as she wins with any changes she makes.

Learn more about the pound plummeting as May sees key cabinet ministers jump ship

There are 650 MPs that will vote on the Brexit deal and May will need 320 supporters (this excludes Sinn Fein) to get her deal through the House of Commons. According to The Guardian, there are currently more MPs that intend to vote against the deal than for it. The paper’s research suggests that 411 MPs will vote against the deal, compared to just 228 that will vote in favour. Interestingly, the research suggests there is virtually no support for the deal in its current form outside of the Conservatives while the group against May’s vision for Brexit is made up of Labour, the Lib Dems, the Scottish National Party (SNP), the DUP and 92 Conservatives. Although Labour has previously claimed the only majority in the house is to avoid a no deal as well as her proposal, it has failed to put forward an alternative for everyone to rally around. Remember, that is the only way to stop a no deal Brexit.

What could happen if parliament rejects May’s Brexit deal?

If the House of Commons rejects May’s deal then it opens the door to several possibilities, all of which take the UK down very different routes. Below is a selection of outcomes that could occur if the withdrawal agreement is not passed by parliament and a short explanation of what it could mean for the future of Brexit.

Read more about the ‘significant upside’ for UK housebuilders if Brexit woes improve

A vote of no confidence in Theresa May

Although the first attempt to secure the 48 Conservative MPs needed to call for a vote of no confidence against May led by Brexiteer backbencher, Jacob Rees Mogg, was unsuccessful it is highly likely that the prime minister will be on her way out if her deal falls flat. In addition to the disapproval in her own party, Labour has pledged to call a vote on May’s future should her deal be rejected. This would test those Conservatives questioning the leadership of May, as they would in effect have to vote against their own government or make a U-turn to try to prevent handing power to the opposition. May has insisted she will not resign if MPs reject her deal.

A UK general election and Labour government

That possibility is important because, while the Conservative government would be under no obligation call a general election if May was ousted, it would be increasingly difficult to avoid a public vote and justify a second unelected prime minister leading the country for several more years. If the Brexit deal is voted down then the odds of a general election climb higher and, based on the typical terms of governments and the seemingly impossible job of Brexit, so does the likelihood of a Labour government.

Renegotiations with the EU

Despite time running out and firm statements from the EU that it is not willing to renegotiate the terms of the withdrawal agreement, there is a chance more talks could be held. For example, if May’s deal is voted down but she survives any attempts to oust her then she could try to renegotiate with the EU and propose another deal to the Commons.

This is possible as, under this scenario, May could confidently say there is support for her leadership but not for the deal in its current form (if May survives any vote of no confidence then she can lead unchallenged for at least 12 months). The EU’s flexibility on the current deal may loosen should they understand May was to remain in charge for the foreseeable future and that any chance of a change of leadership or a general election had disappeared. This could see a second proposal tabled to the House of Commons.

Read more about what a no deal would mean for UK banks

Any second vote would obviously be on a deal that differs to the one currently on the table, opening the door to the swathe of possible amendments some MPs are looking to make. These include keeping the UK in the customs union permanently (as supported by Labour but not by Brexiteers) or retaining membership of the European Economic Area (EEA) to adopt the so-called ‘Norway’ model.

Read more about what Brexit will mean for UK financial services

‘Hard Brexit’

If the Commons votes against May’s deal then the path they are likely to head down is clearly signposted ‘hard Brexit’, whereby the UK makes a clean break from the EU in March 2019 and trade relations fall back onto WTO rules. Tighter borders, trade tariffs and a lack of warning would all provide a sudden shock to businesses on both sides of the Channel and, at a minimum, cause severe short-term disruption.

Volatility and devaluation of the pound

The devaluation of the pound is almost a certainty if the UK ends up crashing out of the EU, much like it did following the vote to leave. The pound has fluctuated against both the euro and the dollar as negotiations have dragged on and although there is a risk of a severe drop on the day of exit it is likely that the fall would be more spread out as the market will become increasingly aware of the no deal scenario before it actually happens.

‘People’s vote’

If MPs that disagree with May’s deal fail to get an amendment on holding a second referendum the first time round then they will certainly try again should a second deal be put to the Commons, and this time with more chance of success as the need for the government to win support heightens. Although those in charge have bluntly rejected the possibility of any second vote being held, the debate on the hypothetical options that would be put forward rages on. Some believe this could fall to a choice between May’s deal and no deal, while others hope a third option of staying in the EU could be offered. However, it is important to stress that a second referendum would have to be held before the Brexit deadline next March – a second referendum would be useless if the UK has already left the EU.

The biggest problem with the heated argument over how democratic it is to hold a second referendum on Brexit is that both sides are right, hence the impasse. On one hand, there is an argument that there is nothing more democratic than asking the public and keeping a U-turn as an option. On the other, what is more anti-democratic than holding referendums when the result doesn’t go your way?

Future trade between UK and EU

If there is no agreement on the UK’s withdrawal, then trade will initially be governed by WTO rules and remain that way unless the pair strike a trade agreement. While a hard Brexit doesn’t prevent the UK and the EU from negotiating a trade deal, it is more unlikely if they can’t even agree on their divorce.

The end of frictionless trade between UK and EU businesses

No deal would mean an end to the frictionless trade that currently keeps business between the UK and the EU flowing. The UK would also lose access to trade deals with non-EU countries that have been signed through the EU. Trade barriers would have to immediately be enforced and businesses on either side would have to continue trading on WTO terms or, worse, stop trading. In general, this would see imported goods become more expensive for UK consumers and make British exports pricier to EU customers (although this could be offset by any fall in the pound).

This sudden change would cause havoc for UK and EU businesses that trade with one another or have integrated supply chains. From a stock perspective, more domestic-focused stocks will prove more resilient against a hard Brexit versus the larger, more internationally-exposed blue-chip firms found in the FTSE 100.

Future trade between the UK and the rest of the world

While any Brexit deal would prevent new trade deals signed by the UK with other international countries from coming into force until the end of the transition period, the timeline would be very different under a no deal scenario. A clean break from the EU would mean the UK would not be bound by the bloc’s rules and could start negotiating trade deals with whom it wants, when it wants, and bring them into force when it pleases.

Read more about what has happened to the value of the pound since Brexit

The divorce bill

The divorce bill is the £39 billion that the UK has agreed to pay the EU to fulfil its existing commitments to the bloc’s budget. However, it is widely accepted that the UK is unlikely to make such a payment should it get nothing in return. Many are unhappy with the size of the sum even if they get a deal. However, plenty argue this needs to be paid to keep hope of future trade with the EU alive and to uphold the trust in the UK and its ability to pay its way. Refusing to settle these types of obligations will do the UK no favours at a time when it will be trying to strike new relationships and install trust with new partners across the world.

Scottish independence referendum

With the SNP defiant that the country voted to remain in the EU any hard Brexit or no deal scenario is likely to strengthen calls from SNP leader Nicola Sturgeon for ‘Indyref 2’, as she can better justify the differences between Scotland and the rest of the UK and play on the failure of the UK government to act in the interest of Scottish people.

Brexit: more uncertain than ever

‘No one knows what would happen if this deal doesn’t pass. It would open the door to more division and more uncertainty, and all the risks that would entail,’ – May.

One thing that many can agree on is this. Although May’s proposal is far from perfect it is, as she rightly puts it, a compromise and a path toward exiting the EU with as little disruption as possible. The prime minister is right to warn that predicting what is around the corner should the deal be rejected is impossible and of the threat of going straight back to square one. However, this will do little to convince those who believe the UK is drifting into a so-called ‘blindfold Brexit’, and fail to deter those actively encouraging a hard Brexit. The single biggest threat of a no deal is how to manage the border in Ireland, as there is no clear solution as to how to maintain the status quo, making it one of the biggest arguments in favour of May’s deal.

The possibilities beyond the vote are endless and although you’d expect things to become clearer as Brexit drags on, it appears it is only causing more uncertainty as the deadline draws nearer.


Find out what Brexit could mean for the markets and
how a hard or a soft exit from the EU could affect traders.

Learn more

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find an article

Find articles by writer