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
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.
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.