May 29, 2019
Untangling the confusion about a no-deal Brexit
In this note we explain in detail why we think the risk of a no-deal Brexit is much larger than most commentators and financial-market actors believe. Over the last couple of days we noted a series of misleading comments from journalists and politicians, who are either ignorant about the legal procedures - Article 50 and the Fixed-Term Parliaments Act - or obfuscating. The key issue will be how these procedures will interact with the politics.
We can never emphasise enough that the reason why the UK did not leave the EU without a deal on March 31 was Theresa May's reluctance. It was not the House of Commons. The role of the prime minister will remain critical because of the way Article 50 has framed the withdrawal process. A no-deal Brexit cannot be stopped by parliament except through ratification of a withdrawal treaty or outright Brexit revocation. The UK parliament has rejected both, which is why no-deal remains the default position, not only theoretically, but actually.
What about a vote of confidence? Under the FTPA, the leader of the opposition can call a vote of no confidence. If successful, that would trigger either a general election or the election of another prime minister. The latter is perhaps the Remainers' best hope. MPs could, for example, vote in favour of Dominic Grieve as prime minister with a limited mandate to ask the European Council for an extension, and to legislate for a second referendum or else trigger the FTPA provisions for an election. That would require an astonishing degree of self-sacrifice by Jeremy Corbyn.
If that doesn't happen - and we don't think it will - the no-confidence procedure is likely to be self-defeating. Any Tory MPs who vote against their own party leader will be deselected. The eleven MPs from Change UK would also lose their seats. Their best hope would be to merge with the LibDems, but it is not clear that this will happen, or that it will happen in time.
And then consider the FTPA timetable. The new Tory leader will be in place by mid/late July. The UK parliament will be in recess from 20 July until 5 September. When MPs come back from the holidays, it could be already too late.
If, say, they vote on a confidence motion on September 10 and the motion passes, there would be a period of 14 days until parliament is dissolved and new elections are called. In that period the prime minister remains in office, but parliament is dissolved. The Tory party conference will take place from Sep 29-Oct 2 and would coincide with the beginning of the general election campaign. The newly elected prime minister would come under massive pressure by the conference to deliver Brexit on time. And if he or she believed that a no-deal Brexit would be less suicidal than asking for an extension, there is nothing parliament could do because it would already have been dissolved.
So, when considering the question of a no-deal Brexit, we have to look at how the procedural timings and the politics are likely to interact. The key variable in all of this is who the next prime minister will be, and how determined they will be to accept no-deal. If they hesitate like Theresa May, Brexit will be dragged out. If they want a no-deal Brexit, they can have it.
We would also urge caution against false security from opinion polls. We noted a poll yesterday in which Labour, Conservatives, Brexit Party and LibDems are all around 20% - a mind-boggling combination in a first-past-the-post electoral system. What will be decisive in the upcoming general election is not the absolute number of Brexit vs Remain voters, but the marginal distribution across seats and the willingness of the various camps to co-operate. Only a fool would extrapolate from the European election results, and conclude that the Tories must at all costs avoid an election this year.
We agree with the pollster John Curtice that delivering on Brexit is the singular key variable for Tory success of failure. If they deliver Brexit, we would not rule out that their support will surge. The certain road to perdition for the Tories is to agree another long Brexit extension, and for the Brexit Party to develop an effective national network of candidates in time for the regularly-scheduled elections in 2022.