A Brexit of uncertainty

With the UK and the European Union beginning the negotiations for Britain’s departure from the European Union, Nick Warner, Partner at Moore Stephens, believes the result of the recent UK election has changed the complexion of Brexit.

In the run-up to the recent Parliamentary elections, much of the talk was around whether the UK would seek a ‘hard’ or ‘soft’ Brexit, with ‘hard’ seemingly very much in the ascendancy.

However, the result of the election and the coalition between Theresa May’s Conservative Government and the Democratic Unionist Party has created a Brexit of uncertainty, with divisions in approach already evident amongst the Government front bench.

It was thought by many that Theresa May was going to the polls in an effort to seek a clear mandate that would allow her Government to pursue Brexit negotiations with a majority that enabled the Conservatives to drive the process. It would also provide a decent period after the two-year negotiation deadline to shift the political debate away from the agreement and onto the UK’s future outside of the European Union.

Never a vocal ‘Brexiteer’ (or ‘Remainer’ for that matter), there were those that thought that Theresa May’s aim was to weaken the influence of those more extreme Brexit MPs (and any unreconciled ‘Remainers’) to enable the Government to plot a more measured Brexit.

In the many conversations I have had in the London insurance market following the election, there has frequently been a great deal of relief at the result and, indeed, the hung Parliament. It is interesting that, on the whole, the City has not seen any noticeable negative reaction to the result.

Many believe this was the best result for the City and for businesses in general. The market could not really take the chance of the potential impact of a big majority that would have given the mandate to David Davis and Liam Fox to drive through a hard Brexit, walking away from any deal if not considered good enough.

The question now is where have we ended up?

Most believe that the result means that the negotiations will no longer be a ‘negotiation of equals’ - if they ever were in the first place. The European Commission has concerns that the political instability the election result has created will mean that there could be a change in government, and with it a change in the UK’s stance in the coming two years.

There are those in Brussels who believe that the UK has little choice but to look to a greater degree of compromise given the composition of the current Parliament.

Indeed, some in the City and Westminster believe the Government should seek a consensus in terms of the negotiating team.

Could Labour’s Sir Keir Starmer and the Liberal Democrat’s Vince Cable be invited to join the Brexit negotiations, and at what price?

It would clearly show unity between the three major parties and, in some ways, strengthen our negotiating hand. But it may cause issues with the likes of the SNP, who would also seek a seat at the table.

Theresa May still faces pressure from the hard Brexiteers in her party should the negotiations see a watered down Brexit, and they may well consider refusing to toe the line and prop up the Government if they believe the deal is too soft, and the once in a lifetime Referendum result watered down.

For the London market, and many businesses in general, there is a growing degree of confidence that the UK will seek to ensure that any deal does not see the UK simply step off the cliff edge and instead looks to a period of transition.

The concern prior to the election was whether Theresa May was serious in her stated belief that no deal would be preferable to what the government perceived as a bad deal or whether it was a temporary ploy to win UKIP votes. Perhaps the City and businesses didn’t want to take that chance? The thinking now is that consensus is more likely, with some type of transitional arrangement similar to the EU’s relationship with Norway. Once in the Norway-mode, will there be any incentive to move further away?

The only thing that is clear at present is that uncertainty over the direction of Brexit has been increased, and for the City and businesses that may well spell good news as the chances of a hard Brexit recede, and the soft Brexiteers, such as Philip Hammond, start to find their voice which, up to 8 June, had been silenced.