Brexit

Government Stalls Amidst Political Crisis

By Lexington Communications

England’s defeat at the hands of Iceland last night was entirely apt and in keeping with state of chaos that is engulfing the nation. In the political world the impact of the Brexit vote continues to be felt:

– Both the Government and the Opposition are effectively leaderless, paralysing Westminster and Whitehall and putting normal politics on hold.

– That is making preparation for the EU negotiations more difficult, a process that is looking increasingly hard as the divergent priorities of different elements of the Leave campaign begin to collide.

– In addition, attitudes towards the UK among EU member states are beginning to harden.

EU hardball

The question of when the UK triggers the Article 50 withdrawal process has become the central issue in post-referendum discussions. David Cameron and George Osborne have both said that no action should be taken until a clear path forward has been plotted; a position that mirrors the view of Boris Johnson. Michael Gove has suggested trade talks should begin in advance of any move to start the Article 50 process.

However, those intentions are running up against the views of European leaders. President Juncker has already called for swift action from the UK. French and Italian officials yesterday urged ‘punitive action’ if the UK did not commence withdrawal proceedings immediately and German Social Democratic leaders also warned against delay.

The reason the big countries and founding members have moved quickly is to pre-empt moves by newer entrants such as the Czech Republic and Hungary, who want to use the UK issue to press their own concerns. The former called for Juncker to be sacked and the latter for Hungary not to have to join the euro. The longer the hiatus continues without Article 50 having been invoked, the more scope there is for other countries to make their own demands.

It is clear though that the earliest the UK will invoke Article 50 is September, when the new PM takes over, but more likely post a general election which could take place in early October. Importantly, the German Chancellor Angela Merkel has urged colleagues to give Britain time to work through the current political crisis before Article 50 is started. That has given the UK Government a bit of breathing space.

But the German, French and Italian premiers have also been resolute in saying that no trade talks can precede the formal withdrawal negotiation.

UK Government paralysis

Merkel is right to underline the political crisis currently facing the UK. Civil servants report an atmosphere akin to the purdah period that takes hold before general elections. While legislative work that is currently in train should proceed, the vast majority of announcements are likely to be put off until a new leader is in place. Certainly, officials do not expect to see the publication of any official papers.

Without any certainty about the future direction of policy they are unable to set out clear pathways or plans of action. The most that they can do is work up options papers which stress-test different proposals. Nonetheless the Prime Minister yesterday announced the creation of a specialist “Brexit unit” that will be led by Oliver Letwin, to undertake the preparations around Britain’s withdrawal from the EU.

However, the proposed unit was only agreed by Cabinet yesterday and is at the moment little more than a concept, with officials not yet in place. However, it will be populated in the coming days and is to include top civil servants from the Treasury, Foreign Office and the Cabinet Office. During parliamentary debate yesterday a number of MPs highlighted the absence of Home Office involvement, suggesting this reflected a downgrading of the focus on controlling immigration.

Trade or immigration?

The clash between questions of trade and immigration is likely to become a running theme in the coming months. Boris Johnson’s claim in yesterday’s Telegraph, that Britain could gain access to the single market and at the same time secure new controls over immigration, has been dismissed at home and abroad as unrealistic. The EU is not likely to grant the UK better terms of entry to the single market than it gives to fully paid up members of the club.

In reality the price of free trade is acceptance of free movement of people and the payment of financial contributions, as is the case in the Norway model. Statements from Cameron, Osborne and Johnson offer clear indication that free trade is the key priority for the UK Government.

Furthermore, Sajid Javid is today holding a meeting with UK business groups to discuss the fallout from the referendum. The Business Secretary says he wants business views on what the UK’s relationship with the European Union should look like in the future.

But the focus on trade holds political dangers as a failure to adequately deal with the question of immigration – the central theme of the Leave campaign and, in Nigel Farage’s words, the number one concern of Leave voters – is likely to become a political flashpoint for the rest of the parliament and may become a feature of the Tory leadership campaign.

Tory leadership election

The new Prime Minister should be in place by the 2nd September at the latest after the 1922 Committee Executive decided to shorten the leadership campaign yesterday. As negotiations with the EU cannot begin until a new PM is elected, this shortened campaign makes sense. It also benefits the two main candidates, Boris Johnson and Theresa May, as lesser known figures will find it more difficult to generate the momentum needed over a shorter timeframe.

Whilst much of the commentariat has identified Boris as the early favourite as a result of his prominent role in the Leave campaign, the situation is more complex. A Remainer like Theresa May could still pick up Leave MPs given her muted support for the In campaign and her suggestion during the campaign that reform of freedom of movement is required. Moreover the Boris campaign could become a lightning rod for dissatisfaction at the lack of a post Brexit plan from Vote Leave which is having an impact on market confidence. It is perhaps significant that a Times poll has today put May in the lead (31% backing her above 24% for Johnson).

Labour civil war

Labour is meanwhile hurtling into civil war with no clear idea of who will win. Today will see a vote of no confidence in the Labour leader among members of the PLP, which he is destined to lose. The interesting thing will be the margin of his defeat. That will provide some indication as to whether he could secure the 38 nominations that he would need to secure a place in any leadership ballot, if he is unable to persuade the NEC (and possibly the courts) that he should be automatically be in the contest.

The outcome of the no confidence vote, which will be announced at 5pm today, may also encourage some trade unions to loosen their support. Despite statements backing Corbyn in recent days, there is a divergence of opinion among union leaders. While Unite is still backing Corbyn, other big unions believe the game is up but need to manage their own internal activists.

The media is meanwhile reporting that if Corbyn loses the confidence motion but fails to step down, both Tom Watson and Rosie Winterton (Deputy Leader and Chief Whip) may resign. That would be another major blow and a signal that Corbyn is unable to lead the Labour Party in Parliament.

Without Corbyn’s resignation, a leadership contest now looks inevitable, with reports that moves are afoot among the majority of Labour MPs to unify behind a single candidate, possibly Angela Eagle. Whatever the outcome, the Labour Party risks some form of split. In the meantime it is unable to act as an effective Opposition.