Article 50: One year on

It is now exactly a year since Theresa May stood before UK parliament and announced that she was triggering the Article 50 mechanism that would sweep the UK out of the EU within two years. Halfway through the mandated two year time period, the UK has made more progress with regard to negotiating a deal than I believed possible at the time. Nonetheless many mistakes have been made along the way, and there is still much work to do before UK is able to arrive at a deal which will minimise the damage caused by what I still consider to be an act of economic self-harm. Perhaps more significantly, the country remains as split as ever on Brexit. The ultras still want it at any price whilst there is still a significant core of Remainers who want to prevent it altogether.

Looking back over the past 12 months, there is certainly a lot less gung-ho from the prime minister. The idea that “no deal is better than a bad deal” has been quietly dropped and some of the more strident rhetoric which was designed to keep the pro-Brexit faction of her party onside has been toned down. Of course, this is in large part the result of the ill-judged election call which cost the Conservatives their parliamentary majority last June, and which has weakened the prime minister’s position. More significantly, parliament has exercised a greater of control over the domestic legislation process than was initially envisaged. The government’s original plan was that it would be the prime driver of Brexit legislation but the Withdrawal Bill has been the subject of numerous amendments during its parliamentary passage and may not be the all-encompassing piece of legislation that was envisaged a year ago.

The toning down of domestic rhetoric is also a consequence of the Realpolitik of dealing with the EU27 across the negotiating table. For example, during her speech to parliament in March 2017, the PM promised to “bring an end to the jurisdiction of the European Court of Justice in Britain.” Earlier this month, she was forced to recognise that “even after we have left the jurisdiction of the ECJ, EU law and the decisions of the ECJ will continue to affect us.” That is a very different message to the one she tried to sell a year ago but it is a recognition that the form of close partnership that the UK wants with the EU27 will necessarily involve compromises that will not please everyone in her party. However, it raises the prospect of ongoing domestic political upheaval as it becomes clear that Brexit simply cannot take place on the no-compromise terms envisaged by many Leavers.

It was evident a year ago that the two year timeframe was never going to be long enough to ensure that the final agreement between the UK and EU27 could be ratified. And so it has proven, with the announcement last week that the two sides will implement a transition deal starting in a year’s time which runs to end-2020. The good news is that this will remove the prospect of a cliff-edge Brexit in March 2019 although does not preclude the possibility that the cliff-edge has merely been postponed to December 2020. Nonetheless, this is good news for financial institutions in particular, who until yesterday were unsure whether the arrangements that allow cross-border transactions in financial services would come to an end in March 2019. However, the Bank of England has now opined that it “considers it reasonable for firms currently carrying on regulated activities in the UK by means of passporting rights … to plan that they will be able to continue undertaking these activities during the implementation period in much the same way as now.” In other words, we now have more time to prepare, and hopefully more information on the future of financial services will be forthcoming in the interim.

As regards the three key issues that formed the basis of phase one of the Brexit negotiations, the UK and EU27 are broadly agreed on guaranteeing citizens’ rights and the final exit bill. However, whilst both sides agree in principle on the issue of maintaining an open border between the Irish Republic and Northern Ireland, the UK has not yet come with a solution which will satisfy the requirements of both sides. It is thus notable that whilst the UK and EU27 agree on 75% of the issues outlined in last week’s joint agreement document, the Irish border issue, and the thorny question of how much jurisdiction the ECJ will be allowed to have, remain to be resolved.

Compared to what was expected on the economy twelve months ago, GDP growth has been broadly in line but unemployment has fallen faster and CPI inflation has picked up more than anticipated. The threat of Brexit has clearly not derailed the economy but it has arguably underperformed relative to what might have occurred in its absence. Indeed, the UK remains at the bottom of the G7 growth league and is the only major economy which registered slower growth in 2017 than in 2016. I thus remain to be convinced that Brexit will prove a net benefit for the UK economy, for reasons that I have outlined numerous times before.

But my biggest issue with Brexit remains the way in which the Leave campaign made their case ahead of the referendum (and allegations of funding impropriety which have surfaced in recent days does nothing to assuage these concerns) and the way in which the result was interpreted as a winner-take-all  event. Leave supporters continue to believe that the “will of the people” justifies Brexit at any price and precludes the option of revisiting the decision. But parliamentary democracy in the UK is founded on the principle that no parliament can take a decision that binds its successors. Yet that is precisely what Brexit implies. It is the imposition of a policy that younger generations – and perhaps those not yet born – will have to contend with. It is in many respects a profoundly undemocratic decision.

Of course, the Leave side can reasonably contend that it is undemocratic to be shackled to an institution of which they do not wish to remain part. Thus, one year after triggering Article 50 and almost two years after the referendum, the legal and constitutional implications of the decision are no nearer being resolved. Expect us to be having much the same debate about the (de)merits of Brexit in March 2019 as we did in March 2017 (or even March 2016).