BNY Mellon: Brexit: Post Vote Analysis

30 januari 2019

What happened on Tuesday?

Tuesday saw a full day's debate on the motion on the UK government's next steps under Section 13 of the EU (Withdrawal) Act take place in the House of Commons. followed by votes on a series of amendments to the motion as well as the final motion.

What amendments failed to pass?

Amendment A: The Labour Party amendment

• This required ministers to find time for MPs to vote on alternatives to the Prime Minister’s deal, including on Labour’s policy for the UK to be in a permanent customs union with the EU, as well as the option of a second referendum
• The vote: 296 for, 327 against
• Impact on GBP: None.

Amendment O: The SNP amendment

• This also called on the government to rule out a no deal Brexit
• The vote: 39 for, 327 against
• Impact on GBP: None

Amendment G: The Grieve amendment

• This would have allowed time for six debates, to take place on 12 February, 26 February, 5 March, 12 March, 19 March and 26 March on motions saying that the Commons “has considered the United Kingdom’s departure from, and future relationship with, the European Union”. These motions would have been amendable, giving MPs the chance to table amendments proposing a range of outcomes (e.g. a second referendum).
• The vote: 301 for, 321 against
• Impact on GBP: Negative. This was exactly the point that GBP began to come under pressure on Tuesday evening. However, it’s arguable that this was because a view began to emerge around this point that the Cooper amendment would likely fail as well.

Amendment B: The Cooper amendment

• This would have guaranteed parliamentary time for a private members’ bill that would extend Article 50 up until the end of 2019 if the PM failed to secure a deal by February 26. This would have been a legally binding amendment.
• The vote: 298 for, 321 against
• Impact on GBP: Negative. This was the point that the main slide in GBP emerged. This was consistent with GBP’s price action two weeks earlier when it had rallied sharply following a hint from the PM on the possibility of an extension to Article 50 in her statement after her defeat in the meaningful vote in the House of Commons. It was noticeable that the slide took GBP to within a few points of its post referendum average prices against the USD and EUR.

Amendment J: The Reeves amendment

• This required the PM to seek an extension of Article 50 if there is no deal agreed
• The vote: 290 for, 322 against
• Impact on GBP: None

What amendments passed?

Amendment I: The Spelman amendment

• This amendment “rejects the United Kingdom leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship.” This is a legally non-binding amendment.
• The vote: 318 for (including 17 Conservative MPs), 310 against (including 3 Labour MPs)
• Impact on GBP: None

Amendment N: The Brady amendment

• This amendment says: “At end, add “and requires the Northern Ireland backstop to be replaced with alternative arrangements to avoid a hard border; supports leaving the European Union with a deal and would therefore support the withdrawal agreement subject to this change.”.” This is a legally non-binding amendment.
• The vote: 317 for (including 7 Labour MPs), 301 against (including 8 Conservative MPs)
• Impact on GBP: Very briefly positive. GBP began a modest fresh slide as the PM gave her statement.

What has changed since January 15?

On January 15 The House of Commons rejected the deal negotiated by the government with Brussels for the withdrawal of the UK from the EU by 432 to 202. This was the most decisive rejection of a piece of legislation by the UK Parliament ever. In contrast this Tuesday evening saw the UK PM gain a mandate from Parliament (317 to 301) to reopen negotiations with the EU and to seek “not a further exchange of letters but a significant and legally binding change to the withdrawal agreement”. The PM has acknowledged that reopening the withdrawal agreement will have limited appetite among European partners but has stated that with a mandate: "I can secure such a change".

What is the appetite within the EU for reopening negotiations?

Ireland's deputy prime minister Simon Coveney said at the weekend: "The European Parliament will not ratify a Withdrawal Agreement that doesn't have a backstop in it. It's as simple as that. The backstop is already a compromise. It is a series of compromises. It was designed around British red lines."

A report emerged over the weekend (citing a leaked diplomatic note) that European Commission President Jean-Claude Junker had told UK PM Theresa May in a private phone call that shifting her red lines in favour of a permanent customs union was the price she would need to pay for the EU revising the Irish backstop.

The UK PM is reported to have held a further telephone conversation with Mr Juncker on Tuesday. While described as “fairly cordial”, he is said to have again ruled out any reopening of the treaty.

Initial responses from the EU in the aftermath of the vote in the UK Parliament proved unified and swift. Nevertheless, there are reports that the EU side is working on options to rescue the deal without overturning the substance of the withdrawal agreement (including, for example, a road map to establish “alternative arrangements” to the backstop). However, there is little sign that significant changes are being contemplated.

The EU’s appetite for extending Article 50 beyond the end of June appears low.

February 13

Mrs May has said that if she cannot reach a deal with the EU by February 13 then she will allow MPs another vote on the Brexit process.

A no deal Brexit remains the default option on March 29 unless Article 50 is extended, Article 50 is revoked or a deal is agreed with the EU.

Former Conservative chairman Grant Shapps noted in mid-January: “In the end, if everything else is stalled, you have to change the parliamentary maths”.