The Brady and Spelman Brexit amendments mean continued uncertainty for businesses

• United Kingdom

• Brexit
• Financial services and markets regulation

01-02-2019

What happened on 29 January 2019?

On 29 January 2019 the House of Commons voted on a series of amendments to a Government motion on its future negotiating stance in respect of the UK’s exit from the EU. The Commons previously rejected the Withdrawal Agreement (“WA”) on 15 January.

Two amendments were approved by the House of Commons.

The first, moved by Graham Brady, gave the Prime Minister a mandate to renegotiate the terms of the WA so as to replace the Northern Ireland backstop within the WA with alternative arrangements:

If the negotiation to replace the backstop is successful, this would mean either:

• its removal from the WA altogether; or
• a unilateral right for the UK to withdraw on notice, for instance one year; or
• a time limit on the duration of the backstop, for instance two years.

Currently the EU is refusing to reopen negotiations in relation to the WA. Donald Tusk said that there will be no revisions to the WA in the form that was agreed in November 2018, although the EU would be willing to revise the framework for the future trading relationship.

What the EU may offer is a different form of legally binding ancillary agreement outside the WA, however, its content would be very unlikely to be inconsistent with the WA and therefore this would not resolve the problem of the backstop in line with the Commons vote.

The second amendment that passed was a non-binding amendment that rejects the UK leaving the EU without a deal but without any suggestion as to what should happen instead. While it is consistent with the first amendment, it has not changed anything of any significance. Its force lies in the political signal that the vote sends to the Government.

What happens next?

The Prime Minister will seek to renegotiate the WA. Whatever the outcome of that renegotiation, she must make a statement and table an amendable motion for debate in the House of Commons on 14 February.

The default position remains that the UK will leave without a deal on 29 March 2019 in accordance with the EU (Withdrawal) Act 2018 unless the UK and EU can agree otherwise. This is the case even though there is no majority in the House of Commons for this to occur.

Are the UK and the EU ready for no deal?

Both the UK and the EU have taken steps to prepare for a no deal situation by putting in place contingency proposals.

The EU has issued preparedness notices setting out the legal consequences and a Contingency Action Plan. This involves measures to limit the most significant problems arising from a no deal Brexit but only for a time limited period. The Plan covers citizens’ rights, basic measures on financial services (for example to ensure clearing can still occur), certain measures on aircraft landing rights and air safety certificates but doesn’t address medicines, data flows and non-financial services.

Individual member states are adopting their own proposals. Some are proposing interim measures on recognition of certain UK entities. Ireland, Germany, Poland and Italy all have Brexit related legislation going through their legislatures and the Netherlands already has legislation in place. This means that if a transaction involves a specific member state or states, that state’s Brexit legislation must also be considered.

A number of UK parliamentary bills to give effect to Brexit are still in the course of their passage through the UK Parliament, for example, the Trade Bill.

The European Union (Withdrawal) Act 2018 will transpose EU law into UK law on exit day to ensure there are no gaps in the statute book, and this will be accompanied by hundreds of regulations making sure this transposed law operates effectively. As at 29 January the Hansard Society has calculated that 350 of these regulations have been laid before Parliament out of a total of approximately 600 required. The 350 regulations need to undergo a parliamentary scrutiny process but only 108 have completed their passage before Parliament.

The UK Government has also issued technical notices. There is a substantial amount of work to do setting up the necessary legal authorities and status for new “go it alone” regulators and the practicalities of getting these new regimes up and running, such as the hiring and training up of staff.

For example, on 17 January the Department for International Trade announced the UK’s new independent trade remedies system, the Trade Remedies Authority, with their new chief executive in place to ensure this new regulator is ready for 29 March. However, the legislation needed to give this new system its necessary legal powers remains at committee stage in the House of Lords.

It seems unlikely that either the UK or EU will be ready for an orderly no deal exit from the EU by 29 March.

Is the UK ready for an exit on 29 March with an amended WA?

If the Prime Minister succeeds in securing amendments to the Northern Ireland backstop and the deal is approved by the Commons on 14 February, the UK Parliament will need to pass implementing legislation. Usually getting primary legislation of this complexity and potential for controversy through its parliamentary stages would take several months.

Business planning

These parliamentary developments change very little of substance. Businesses should continue contingency planning and start to implement those plans. The head of the CBI said “I don’t think there will be a single business this morning who is stopping or halting their no deal planning as a result of what happened yesterday”.

More time

There are two possible ways the UK could get more time to prepare for Brexit.

The first is for the UK to request an extension of the Article 50 period beyond 29 March 2019. This would require unanimous consent of the EU27 member states. In all likelihood the EU would only offer a time limited extension for a specific purpose. The length of that extension poses difficulties. There are elections in May for the European Parliament and if the UK is still a member state at that point, we would be electing UK MEPs whose term of office could be extremely short.

The second is for the UK to revoke its Article 50 notice. The European Court of Justice has confirmed this is possible without the need to obtain EU consent, provided the UK meets its own constitutional requirements and the revocation is unequivocal. Revocation would mean an open ended time for the UK to renegotiate, but this could cause as many problems as it seeks to solve, including the inevitable political outcry that would occur on revocation of the notice. The EU’s attitude is likely to be extremely negative: their stance previously was that they would not open negotiations with the UK before the UK had served its Article 50 notice and so if the UK revokes, it is highly likely the UK and EU would be back to that position.