Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday 27 July 2018

Brexit Endgame: second stage (which is unlikely to end with no deal)

We have entered the stage where everyone seems to be worrying about a No Deal Brexit. It was inevitable that the EU would use this as a threat - that is the whole point of the A50 process. Rather less obvious is that the UK would do so as well: we have master tactician David Davis - this is going to hurt us more than you so you should be very afraid - to thank for that. But to be fair, appearing irrationally stupid enough to contemplate No Deal is about the only weapon the government has in its negotiations with the EU. So both sides talk up its chances, which naturally leads everyone to panic. If you want an antidote, this post is for you, although please bear in mind that what follows is about probabilities not certainties, and you can never rule out the possibility of this government doing something really stupid.

Stage one, recounted here, was the break with the Brexiter hardliners to re-engage with the EU after six months backtracking from the December agreement. I call the second stage as what Theresa May has to do to get over the March 2019 hurdle that sees the UK exit from the EU. [1] Unfortunately, given parliament’s failure to provide any guide to the executive, our only clue about what this entails is to think about what is in Theresa May’s interests. (For May, unlike the Brexiters, there is no Brexit ideology we need to worry about, so its interests rather than ideas that matter.)

May’s primary interest is to get a deal. She does not want to go down in history (and down is where she would go if there was no deal) as the Prime Minister who led us to a disastrous No Deal Brexit. Her secondary interest is in perpetual Brexit, by which I mean negotiations that continue to keep Brexit in the news so that a majority of Conservative MPs dare not allow an election for leader and so she stays as PM. These interests tell us what May will try to do.

Perpetual Brexit requires leaving most of the negotiation of what the final relationship will be with the EU until the transition period. That might seem odd, given that this final relationship is what the Chequers document is all about, but see below. I think the EU will probably be broadly OK with that (although I do not think they should be [2]), as long as May agrees to the Irish backstop. As I argued here, May will do all she can to convince the EU that it is politically impossible for her to agree to this backstop. But the likely outcome is that she will fail, and her interests therefore require that she does accept the backstop to get a deal.

The reason why accepting a backstop is politically difficult for her is that any deal that includes it is likely to be opposed by both the DUP and Brexiters. If Labour vote against the final deal then she does not have the votes in parliament for the deal. A potential way around DUP opposition is to convince them that the UK during transition will negotiate a deal that makes the backstop redundant. (For some speculation on all this, see Peter Foster here.)That is a key reason for the Chequers document. But the DUP are as unlikely to accept her word as the EU, so they would require some form of words in any EU agreement that could be held as a commitment.

In passing, if you have a sense of deja vu about all this, you are not imagining anything. This is what happened at the final stages of the December agreement.

The problem with this approach is that anything that would make the DUP happy is likely to worry Brexiters. The more that May says the UK will stay close to Europe so the backstop will never happen, the more the ERG will talk about becoming a vassal state to the EU. It looks, at the moment, like an impossible position. But many things can happen between now and parliament’s vote on any deal with the EU, so I think it will be foolish to discount the possibility that she might just succeed. If she does, we have what I’ve called perpetual Brexit, which in reality means transition=BINO for some time if not forever. (The final deal will probably be BINO with face saving: perhaps I should call this BINOFACE.)

What threats could May invoke to get any deal through parliament. In the negotiations leading up to the deal both the UK and EU will use the threat of No Deal. However once the deal is made threatening No Deal if parliament fails to vote for it is counterproductive if she is trying to convince Brexiters, because No Deal is exactly what these idiots want. A threat of no Brexit however might inspire her Remain rebels. The same would be true of a threat of a second referendum. Perhaps the best threat for her is a general election, because neither the Brexiter nor Remain rebels would want to be responsible for a Corbyn government. The problem with any threats however is that this is not a repeated game, so there is no incentive for her to go through with her threat if it also conflicts with her interests, and people know that.

If she fails to win a vote on the final deal, I still cannot see leaving without any deal as a likely option. It just isn’t in anyone’s interests to let that happen, apart from the Brexiters. But it would be hard for the EU to agree to an extension of A50 on the hope that something turns up. This is where a referendum might become a reality (combined with an extension), as a way out of an impasse. If that happens, it will be the ultimate irony that Brexiter intransigence gives the Remainers what they want. However there is a caveat, and that is that May will propose a referendum with a two way choice between her deal and No Deal. There would be a final fight in parliament to get Remain on the ballot paper in some way.

I doubt, however, that May would want to fight a referendum where Remain is a possibility, because it is quite likely that Remain would win, particularly if Labour leads the campaign for Remain. That would make her position very difficult. As a result, she may prefer the option of a general election. A lot will depend on the polls at the time. But the bottom line is that either an election or a referendum (accompanied by an A50 extension) are more likely than crashing out with No Deal if parliament rejects the final deal. But don’t expect either side to tell you that.

The possibility of parliament voting down any deal and even the possibility of no deal, with the government stockpiling medicines etc, should focus open minds on how ridiculous our position has become. Brexit may get voted down because no one is happy with the form of Brexit we will get. Yet neither the government or parliament is able to say this is ridiculous and we should stop in now. Ostensibly this is because they feel they have to implement the ‘will of the people’. But this is so short sighted, because even the people who voted Leave will be unhappy with the Brexit they get when they see what it is. They voted, it should always be noted, for the “easiest trade deal in history” (Fox) where “we hold all the cards” (Gove). We now know better, but it seems our representative democracy is paralyzed by a vote for a fantasy.    

[1] I’m not going to stick my neck out even further than I am in this post by saying how many stages there will be, beyond saying that it is at least three. The point about calling it an endgame is that the result is clear with best play from the winning side.

[2] Some Remainers do not like me saying so, but the willingness of the EU to keep the terms on which we leave vague when it is voted on in parliament is a bit of an insult to democracy. None of their business, you may say, but they are as much part of theis negotiation as the UK. The majority of UK voters, and probably MPs, would not vote for a BINO type deal where we pay, obey but have no say, and the EU side must know that is where we are heading if a border in the Irish Sea is ruled out.


  1. Alexander Harvey27 July 2018 at 11:04

    The threat centres not on the hurt done to the UK; why should they care?

    Nor to the 27 as a whole, but to Eire, whom, if necessary, the UK government might just throw under the bus.

    The gamble them is that the 27 might just blink first, to save one of their own.

    1. I doubt if the EU countries have that much compassion for Ireland, and they should not.

    2. Rather they are using the "hard border" problem to try and bounce the UK into a trade agreement, to minimise disruption to the EU27 in general and Ireland in particular and to try and demonstrate to their own Eurosceptic voters that you don't mess with the EU.

      The EU27 have to avoid customs deflection where people will try and sneak goods into the EU via the UK. They will not undermine the CU in this way. It would be Ireland thrown under the bus by the EU, then. This is not so weird when you remember the UK had 9% unemployment during the recession, but Ireland had 15% because it's in the euro. The EU didn't help Ireland or Greece then.

      Ireland uses GB as a land bridge for its lorries to the continent. Brexit would interfere with their access to the (EU27) Internal Market, therefore. As well as making trade with GB less smooth. NI comes a distant third, and the peace process fears are not credible (dissident republicans would be risking civilians and hurting North-South trade if they attacked border posts).

      What's happening here is the EU27, Ireland itself, and Remainers in GB have a common interest in making the UK stay in the CU and SM by convincing themselves and others that a hard border "cannot" be allowed to happen. A land border or sea border are actually fine as far as the peace process goes.

  2. I would just like to point out that after spending 18 years working in Africa, the words "The will of the People" remind me of what dictators and other corrupt leaders say when implementing bad decisions and policies.

  3. If we are going for interests not ideas, then it will be a general election not a second referendum offered up by May.

    “The most recent poll on this issue was by YouGov, with the fieldwork taking place on 10-11 July. Asked whether there should be a referendum “once the Brexit negotiations are complete and the terms of Britain’s exit from the EU have been agreed”, people overall rejected the idea by 41-37 per cent, with the rest saying “don’t know”. This might not appear to be a terrible policy by the standards of political polling, but it largely mirrors the state of the electorate in the referendum – split down the middle, leaning towards Leave. However, we need to look at some of the cross breaks within the poll to understand the impact on the Conservative Party. In this poll, Conservative voters rejected a second referendum by 71-15 per cent and Leave voters by 63-18 per cent. This is significant because it demonstrates the strength of feeling that exists amongst those that voted Leave and that now vote Conservative.”
    (Conservative Home, July 17, 2018, A second referendum? The poll data suggests Greening’s idea would be a total disaster for the Conservatives, James Frayne).

    1. That was informative, thanks for posting.

  4. Yes, your thoughts are similar to mine. Her only trick is the jam tomorrow agreement and so far she has not run out of willing counterparties.

  5. "However there is a caveat, and that is that May will propose a referendum with a two way choice between her deal and No Deal. There would be a final fight in parliament to get Remain on the ballot paper in some way."
    I suspect May would find it impossible to get a referendum bill through parliament without a remain option. If she did I can imagine a high profile campaign to get voters to write "remain" on the ballot paper. Those would count as spoilt papers but in large enough numbers the integrity of the referendum would be undermined. So not a wise move for May.

  6. I am an avid reader of your blogs – the single best source for good analysis of the madness of Brexit. However, I’m not sure I agree with your conclusion today. Sadly, I don't think we will end up with another referendum; I believe that either the EU or Jeremy Corbyn may end up saving Mrs May and Brexit. To see why - see my blog here

  7. The discussion on May's Heath Robinson dual customs system has concentrated on whether the EU could accept it (short answer: no) and whether the software could conceivably be up and running smoothly in the next decade (ditto).

    It is also worth asking what the point of it might be. Since the Uruguay round, world tariffs on manufactures have fallen below 5% on average IIRC. For US-EU trade, they are IIRC below 2%. That is more a user fee than a protective barrier. Juncker has just placated Trump by offering to cut them to zero. At all events, the possible additional tariff cuts on manufactures arising from independent UK action are insignificant and not worth the hassle.

    Where tariff barriers remain high and important is in agriculture. The UK is in a peculiar position here, as a large food importer and negligible exporter. Apart from whisky, other countries's food tariffs are trivial to the UK. There would be large gains to UK consumers from unilateral import tariff cuts on say NZ mutton and butter. No "deals" are required. The chances of these being acceptable o the EU, a farming support club long before it was a single market, are also negligible.

  8. I always thought the conundrum of a narrow referendum vote would in the end come down to hair splitting around the term "the SETTLED will of the people". It was I believe much used in the early 70's with Miner's Strikes, Who Governs Britain? and the 2 General elections in 74. Can I respectfully suggest you reintroduce the term into the evolving discussions as an aid perhaps to re-framing the current impasse?

  9. Hi Simon, thanks for another wonderful primer. I'm wondering why you're convinced May would be unhappy with a referendum that included a remain option. Since she is a (lukewarm) remainer herself, don't you see it as possible that she might at some point throw her hands up, tell us she's tried her best, but there's just no way she can both enact the will of the people and do her duty as national protector?

  10. I can't see remain appearing on a second ballot paper. A Norway style option would have more chance but still close to zero since it completely undermines everything the government has attempted. I think Labour should go all in for Norway with application of immigration brake option, thus putting maximum pressure on the government. This could be sold to both sides as a temporary measure with the most straightforward option to rejoin in a number of years or diverge further should the political will be there. This is what I struggle to understand; the urgency to sever all ties (though from a Brexiteer perspective they probably see it as the only chance). In 1975 the UK did not vote to stay in a comprehensive single market across a continent, the EU as is now developed over those 40 years, with the various treaties. Logic would dictate a gradual unwinding from such a position.

  11. Following Brexit from the U.S. I thought it was pretty obvious how dumb it was and saw this in the Spectator...they actually believe this?

    "In fact, Brexiteer strategising is based not on one, but two sets of mutually contradictory assumptions. The first is that crashing out of the EU on WTO terms is really not so bad for the UK, yet it will be awful for the EU, the horrors and mayhem that will ensue in Calais and other Channel ports will induce the EU to fold and accept Brexiteer terms on the EU’s future relations with the UK.

    The second set is that EU will behave as an economically rational actor to give the Brexiteers a win:win Canada-plus deal. Yet the main reason they want to leave the EU is that it is an emerging imperialistic state – as it has behaved throughout the Brexit negotiations, chalking up win over win against the UK."

    As if Dover would be fine...

  12. "it is quite likely that Remain would win, particularly if Labour leads the campaign for Remain"

    I thought your post was quite plausible up until then Simon!

    I think as long as the deal allows control of immigration, then those Leavers who are afraid of a hard Brexit will vote for it in enough numbers to win.

  13. This is a fascinating game. Both parties to the game (the EU and Britain) have powerful incentives to threaten a hard Brexit in order to try and get a better deal, but for both parties the hard exit would in fact be highly sub-optimal.

    Is this not a classic one-shot PD? So we should expect the Nash equilibrium of a hard Brexit.


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