A new Prime Minister – what does it mean for Brexit?

By Richard Eccles

07-2019

As the new Prime Minister, Boris Johnson, takes the helm, he and his new cabinet will be greeted by certain stark realities regarding Brexit. The commitment has been voiced to ensure Brexit on the 31st October 2019 (the expiry date of the extended Article 50 notice) and there is little time for any renegotiation of the Withdrawal Agreement and negotiation of a relationship agreement. Meanwhile, the House of Commons Exiting the EU Committee issued a report on 19th July 2019 explaining the consequences of a "No deal" Brexit for UK business. This serves as a warning for what is both the default position and perhaps now the likely outcome.

The new Prime Minister's aim is to renegotiate the Withdrawal Agreement and to agree a trade agreement. However, the EU negotiating team has made clear at all stages that the Withdrawal Agreement is not open for renegotiation and that in any event the agreement must include the provisions on the financial settlement, the Northern Ireland backstop (concerning the Northern Ireland/Ireland border) and the rights of EU citizens in the UK. It is therefore doubtful that the Prime Minister can meet both objectives of a satisfactory renegotiation and a 31st October exit. Whilst there have been political indications from the EU side that a further extension of the Article 50 notice period may be possible, it has been made clear that the Prime Minister does not seek one.

The determination to ensure an exit on 31st October has even resulted in controversial suggestions of proroguing Parliament so as to prevent Parliament taking steps to prevent a no deal exit, and counter-proposals of judicial review action against any such steps. However, for the time being, prorogation of Parliament appears to have been prevented by means of legislative measures adopted by the two Houses of Parliament on 17th and 18th July in the form of amendments to the Northern Ireland (Executive Formation) Bill 2017 – 2019. The House of Lords amendments, adopted on 17th July, and approved by the House of Commons on 18th July, require Parliament to consider certain progress reports at specified intervals between September and, at the latest, December 2019. These measures require Parliament to be sitting and so in effect prevent prorogation.

The House of Commons Exiting the EU Committee's report on the consequences of a "No deal" Brexit meanwhile provide warnings to the Government. The report concludes, based on evidence received, that the economies of the UK and the EU27 are closely integrated, in particular through highly integrated supply chains in the automotive sector, other manufacturing sectors and the agri-food sector. The EU continues to be the UK's largest and closest market and UK exports to the EU take place on the basis of closely integrated frameworks of regulatory provisions meaning that a no deal exit would be very disruptive. The report highlights the risk of customs and sanitary checks at the border creating delays in agri-foods supply chains when the UK is no longer in the EU Customs Union.

The report explains that the manufacturing processes for pharmaceuticals, chemicals and automotive components often involve components crossing EU borders multiple times. The introduction of tariffs, at least on imports from the UK to the EU27 will be challenging to supply chains (the Government has indicated that import tariffs in the UK will be zero for many products). Pharmaceutical products will require authorisations in the UK as well as in the EU27 and chemicals will need to be registered in both jurisdictions also, increasing the burdens on business, especially SMEs, and possibly making the UK a less attractive location for business.

Services account for 80% of UK GDP and alignment with the EU Single Market is particularly important for the UK's services sector. A no deal Brexit will mean the loss of the ability to provide services across the EU based on home state authorisation. There would also be no mutual recognition of professional qualifications between the UK and EU27 in a no deal exit scenario, which would in turn have an impact on the ability of UK service providers to provide services in or to the EU. One way of alleviating the difficulty will be, at least in some service sectors, to establish a presence in an EU27 member state as a basis for exercising "passporting" across the EU. However, as the report points out, allowing a no deal Brexit to take place would create circumstances that incentivise UK businesses to relocate operations outside of the UK.

The report concludes that whilst a no deal exit could result in further negotiation between the EU and the UK, this is "a gamble" and that a no deal exit could "lead to severe disruption of the economy, pose a fundamental risk to the competitiveness of key sectors of the UK economy, and put many jobs and livelihoods at risk".

This article is part of our Brexit series