After the Article 50 Ruling — Two Political Scenarios


The High Court’s ruling in favour of the Claimant’s case for a Parliamentary vote prior to notification per Article 50 (2) had a seismic impact.

Like all great and surprising events, it punctured the political equilibrium and fractured developing views regarding the Government’s approach to Brexit.

It is a certainty there will be other events (the recent US election is an example) that require the various Brexit factions and stakeholders to rethink their positions and strategies.

Anyone expecting a smooth, linear progression to an imaginary point of exit from the EU will be sorely disappointed.

Meanwhile, the great constant of the referendum vote itself is unaltered.

But how should we think about the near term progression of Brexit following the court ruling?

I have outlined below two political scenarios and their related considerations for Government, the Opposition, the financial markets and business.

I have made two principal assumptions.

1.  The Government’s appeal to the Supreme Court is not successful.

The fact of the initial judgment and the clarity and unambiguity of its decision suggest that the Government will not find it straight-forward to over-turn the High Court’s decision.

2.  The question of the revocability of Article 50 will not be referred to the ECJ.

There are good legal arguments for referral but, purely as a simplifying assumption, I have ruled this out. In this regard, a referral, would, of course, create great political volatility. I also assume that the Government will not change its case to assume that Article 50 is revocable.

Scenario 1 — Calling a General Election in H1 2017

•   I note that Teresa May has expressly ruled out holding a General Election before 2020. However, in a situation where the Prime Minister feels that she cannot credibly deliver a Brexit consistent with the Government’s interpretation of the Brexit referendum, her position is eminently changeable (subject to the mechanics of the Fixed Term Parliament Act (“FTPA”)).

A.  Key Events

•   Two situations can be envisaged. In the first, Government determines in advance of attempting to pass an Article 50 Bill through Parliament that this will either not be possible or would be so materially amended of delayed that it would not be considered consistent with the Government’s objectives.

•   Alternatively, Government attempts to pass a Bill through Parliament but is unsuccessful for the reasons mentioned above. In this circumstance, it is worth noting that the political legitimacy of the Government’s position may be enhanced through having tried to pass a Bill.

•   In both situations, Parliamentary opposition to the Act would be the result of either (i) a majority of Parliamentarians objecting to Article 50 notification itself, or (ii) a majority of Parliamentarians wishing to amend / delay the Bill to the extent that it is no longer consistent with the Government’s objectives.

•   I would consider (i) to be highly unlikely. Notwithstanding the majority of Parliamentarians who voted to Remain, the referendum result was “clear” and, for many English and Welsh MPs, voting against notification would be easily construed (rightly or not) as acting against the “will” of the majority of their constituents. I also note that Labour has specifically ruled out “blocking Article 40 notification.


•   In my view, (ii) is much more likely. Recent events suggest that a substantial proportion of Parliamentarians, more likely in the Lords and perhaps in the Commons, will want at least to debate the Bill (and some will want to amend it) to attempt to alter the Government’s apparent inclination towards a “hard” Brexit. At the least, this could materially delay Article 50 notification.

B. Considerations

I.      Calling a General Election is not Straightforward

•   The FTPA proscribes only two paths to an intra-term election (i) a vote of 2/3 of the House of Commons, or (ii) a vote of no-confidence with no new government able to be formed in the following 2 weeks.

•   (i) is a difficult choice for the Labour Party (at least). Given the Conservative Party’s current level of public support, it would be a courageous decision to support a vote for a General Election.

•   (ii) is not straightforward for the Conservatives. While a suitably contextualised vote of no confidence might be straightforward to achieve, the issue is what could happen during the succeeding two weeks. There would be a risk of an opposition led coalition, supported by Conservative MPs from Remain constituencies, forming a government with a “softer” Brexit platform.

•   To fight a general election, the Conservative Party would need to define in greater detail its approach to Brexit — especially if we assume that Labour campaigns for a “softer” Brexit. This is fraught with intra-party political complication (see below).

•   In addition, the contentiousness of a Brexit focused election should not be underestimated and the decision to embroil the country in a General Election would not be taken lightly. Brexit is a subject of such strong views that the possibility of public turmoil would need to be considered.

II. The Labour Party would need to Develop its “Soft Brexit” Platform

•   A General Election would require the Labour Party to develop a much more substantive position on Brexit. At present the Labour Party has no appetite for campaigning against Brexit. As a result, Labour would need to develop a clear and detailed platform, presumably for a “softer” Brexit, that is sufficiently differentiated from the Government’s position.

•   Given Labour’s current polling, the development, over time, of a centrist, pro “softer” Brexit political party is an alternative. However, this is unlikely in the near term given both logistical challenges and the difficulty of clearly differentiating versus the established parties. As a partial alternative, there is certainly a case for Lib / Lab non-compete agreements for selected seats.

III. Exposure of Intra Party Divisions

•   There are “soft” and “hard” Brexiteers in the Labour and the Conservative parties, as well as a number of MPs who do not support leaving the EU. As a result, it will be difficult for either party to develop a more substantive Brexit platform that does not result in divisive, internal debate.

•   In the event of a General Election fought on the basis of a “hard” vs “soft” Brexit, we can expect further Conservative (and potentially Labour) resignations.

IV. Financial Markets and Business Volatility

•   A General Election that focuses on “hard” versus “soft” Brexit alternatives would be badly received by the financial markets. We can expect further volatility in the value of the £, U.K. focused equities (although not the FTSE100 given its foreign revenue exposure) and Gilt yields.

•   On the basis of financial markets performance during and shortly after the Conservative Party Conference, we should also expect that a decisive “hard” Brexit outcome would likely result in further falls in value (all other things being equal), notwithstanding the increase in directional certainty.

•   For the reasons mentioned above, a General Election would be an uncomfortable event for business. In addition, while business is generally reluctant to express clear political preferences,  an election focused on “soft” versus “hard” Brexit outcomes would likely provoke a greater level of engagement by business in political debate.

Scenario 2 — Article 50 Notification Bill Passed by Parliament

A. Key Events

•   Either (i) Government passes a short “one line” Bill though Parliament and “dares” MPs and Lords not to block, amend or delay it. The Bill is successfully passed through both Houses with support from a large proportion of the Labour Party. In this case, Article 50 notification prior to the end of March is achieved.

•   Or (ii) Government produces a more detailed Bill, which is more thoroughly debated and potentially amended and then passed with support from much of the Labour Party. In this case, Article 50 is most likely delayed due to the time required to prepare and debate.

•   The Government will almost certainly pursue (i) — the most expedited Parliamentary process possible. The Government has its self-inflicted end of March deadline to meet, as well as the “no running commentary” approach to navigate around.

•   However, this approach presents two issues.

1.     While the decision to vote against an Article 50 Notification Bill would be a very significant step for most Conservative and Labour MPs, they can of course debate and seek to amend irrespective of the length of the Bill. Liberal Democrat and SNP MPs will certainly seek to block / amend the Bill (I note that in (i) actual amendments would likely not be achievable in practice).

2.     Although the passage of a simple Bill without material obstruction might be possible in the House of Commons, it may well be unachievable in the House of Lords, who can at the least delay the process.

•   Consequently, while the Government would almost certainly pursue option (i), we can expect there to be at least sufficient opposition to ensure that the process will involve more debate and be more time consuming than the Government would like.

B. Considerations

I.  More Substantive Brexit Debate Likely

•   A key Labour’s weakness is its inability to define in any detail its Brexit approach. For example, to what extent would Labour be prepared to compromise migration control, if not absolute numbers, for greater market access? In this regard, Labour’s current policy positions can seem not much more substantial than “Brexit means Brexit”.

•   Notwithstanding the redoubtable Keir Starmer, the SNP and Liberal Democrats are at present a much more likely source of substantive opposition. The SNP has a self-defining imperative and the Lib Dems have, at least, set out a clear opposing position.

•   The onus is on the Government to produce its more detailed Brexit plans first. However, even disregarding the largely specious “no running commentary” argument, it may in practice be politically difficult for the Government to explain more fully its Brexit position.

•   It is likely that potential aspects of the negotiation — for example post Brexit payments to the EU or an extra-sovereign arrangement to settle future trade disputes — will be sufficiently unpalatable to the “harder” Brexiteers in the Conservative Party to preclude a more detailed discussion

•   We can think of the Prime Minister’s “no running commentary” as a negotiating tactic whose principal utility is to protect against opposition from the harder Brexiteers in the Conservative Party. As a result, we can expect further intra-party divisions.

II. A Dilemma for the Labour Party

•   The Labour Party’s approach to an Article 50 Bill would not be straight-forward. A key theme from Labour’s various statements since the Article 50 ruling is not being seen to “frustrate the will of the people”.

•   Keir Starmer said the following during the Today Programme on November 7th.

“We will not frustrate the process by simply voting down Article 50, but we are absolutely clear that before we get to that stage the government must put its plan before Parliament.”

•   John McDonnell said the following on November 15th.

“This means we must not try to re-fight the referendum or push for a second vote and if Article 50 needs to be triggered in parliament Labour will not seek to block or delay it.”

•   On this basis of these somewhat confused messages, we can assume that the “official” Labour position is to vote for Article 50 notification without amendment. We can also assume that Labour expects there to be a detailed debate of the Government’s plans in advance a vote.

•   A key consideration for Labour is what it would do should the Government not be prepared to discuss its Brexit plans in sufficient detail. Equally, there are likely to be a significant number of Labour MPs and peers that are not entirely supportive of John McDonnell’s position.

•   It would be politically inadvisable for Labour to effectively concede the Article 50 notification process (as John McDonnell seemed to indicate). A majority of Labour supporters voted to remain and recent polling (e.g. the recent ICM poll for Avaaz)) suggests that most people in the UK are supportive of greater Brexit disclosure.

•   As a result, Labour will face a difficult balance between pushing for satisfactory debate and not being viewed as obstructive, while at the same time significant number of its Parliamentary members may attempt to amend and/or effectively delay the Bill.

III. Financial Markets and Business Impact

•   The financial markets’ reaction to the Article 50 ruling was positive — £ rose in value, Gilt yields fell and the FTSE declined (due to its foreign currency exposure). As a result (and all other things being equal), an initial conclusion is that the greater the level of parliamentary engagement, the more positive this will be for UK specific asset values.

•   However, we can argue that much of the improvement related to the ruling was a short term “relief rally” correcting for some of the impact from the Conservative Party Conference. In addition, other subsequent events, the US election in particular, have proved to be more dominant market considerations.

•   Consequently, further material increases in asset values would require tangible evidence of a more economy friendly approach to Brexit — an increased focus on the need for a transitional Brexit arrangement would be a good example. As a result, in the absence of further material directional evidence (and other events of course), it’s reasonable to expect the markets to remain volatile but range-bound from a Brexit perspective.

•   For business, this scenario implies a longer period of uncertainty (especially if Article 50 notification is delayed) thereby suggesting further delays to investment decisions and arguably precipitating early business movement decisions from impacted businesses (e.g. parts of UK based financial services).

•   However, in this scenario there is also a good case for impacted businesses to delay their decision making. A Brexit Parliamentary engagement scenario widens the distribution of possible outcomes. As a result, in this scenario, business may wish to pause and wait for more evidence.

Author: Simeon Stylites

Sitting on his pillar, looking quizzically.

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