BREXIT – WHAT NOW, WHAT NEXT?
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A BRAVE NEW WORLD News that the UK had voted to leave the European Union set off a domino effect across Westminster, the devolved nations, Europe and the rest of the world. The political, social and economic implications of the decision will be far-reaching and long lasting. The UK’s withdrawal from the European Union will not happen
and renewed hope of their own referenda. Sweden, Hungary, the
immediately, with the two-year timetable for Brexit only starting
Netherlands, France and Italy, amongst other EU members, are all
when Article 50 of the Lisbon Treaty is formally invoked. This is
now facing calls from a variety of groups within their countries to
unlikely to happen until the Conservatives appoint a new leader. Even
look closely at their own membership.
then, the decision to formally begin that process might not be taken straight away. In the meantime, David Cameron, Boris Johnson, Mark
Commission President Jean Claude Juncker, President Tusk, President
Carney and others have all stressed the need for a calm, rational and
Schulz and Prime Minister Rutte (Dutch PM representing the Dutch
measured approach to decision making. Any talk of an emergency
Council Presidency) said:
budget, for example, has been notably absent (though early
“We now expect the United Kingdom government to give effect to this
speculation has begun about the possibility of a general election in
decision of the British people as soon as possible, however painful that
November once the Conservatives have a new leader).
process may be.”
Crucially, between now and exit, the UK government will not stop
The business community has called for immediate action to stabilise
developing and implementing policy. We should not expect a hiatus
markets with concerns over liquidity and currency risks top of the
or a political vacuum to develop in Westminster, Holyrood, Cardiff or
agenda. On the process for leaving the single market, companies are
Stormont. Understanding the shifting dynamics will be vital in
looking for a slow and considered approach to ensure all possibilities
ensuring business’s voices can be heard in the new political
are accounted for and the eventual deal retains Britain’s competitive
environment.
position.
Westminster Advisers’ has prepared this briefing document to help
CBI Director-General, Carolyn Fairburn, said:
guide your thinking in the first hours and days of the post-
“The urgent priority now is to reassure the markets. We need strong
referendum world.
and calm leadership from the government, working with the Bank of England, to shore up confidence and stability in the economy.
STAKEHOLDER REACTION The leaders of the EU institutions are very clear that they want
“The choices we make over the coming months will affect generations
negotiations on the UK’s exit to start ‘as soon as possible’. This runs
to come. This is not a time for rushed decisions.”
contrary to the hopes of most of the UK political class. Language is already turning to ‘27 Member States’, making it clear that the focus
'IMPLICATIONS FOR LABOUR
is on a stable future for the EU without the UK. Nationalist groups
The failure to convince traditional Labour voters in post-industrial
across the continent have expressed jubilation at the UK’s decision
regions to vote remain has been blamed on Corbyn’s lacklustre
Nick Charalambides, Account Executive: “Having previously worked in Brussels, I know what a systemic shock this will have been to the EU. Calls are already coming from the European Parliament to invoke Article 50 immediately. Donald Tusk and Jean-Claude Juncker have echoed these sentiments. The EU has little incentive to wait until October, when a new UK Prime Minister is in place, to start formal negotiations.”
Lizzie Wills, Associate Director: “The Athens stock exchange fell 15 per cent immediately this morning after opening, while bank shares fell 30 per cent – the maximum permitted before trading is suspended. The remaining 27 Member States will want to stem any contagion which may pave the way for Grexit. A punitive stance could conceivably be taken towards Britain to discourage any replica membership referenda. The European Council summit next week will give a clearer indication of where Member States and the Union as a whole stands.”
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campaign. His position is now in serious doubt. Two MPs have
The results for each of the UK’s devolved administrations are as follows:
publicly called for a vote of no confidence, there are reports that at
• England: Leave 53.4%, Remain 46.6%
least 55 MPs will follow next week, and an unnamed shadow cabinet
• Wales: Leave 52.5%, Remain 47.5%
minister told press “It’s now a choice between the survival of the
• Northern Ireland: Leave 44.2%, Remain 55.8%
Labour Party or Jeremy Corbyn’s leadership”.
• Scotland: Leave 38.0%, Remain 62.0%
His support amongst the membership is also likely to be at least
Scotland
partially damaged. Recently joined “Corbynites” are unlikely to
Scotland voted decisively to remain in the EU by a margin of 62% to
abandon their support entirely. Some distrusted the capitalist EU and
38% on a turnout of 67%. First Minister Nicola Sturgeon has
many are now more concerned with Blairite attacks. However, for
announced that Scotland being taken out of the EU would be
those on the soft left – members of the party who switched from
“democratically unacceptable" and that a “second referendum is on
Miliband to Corbyn – Britain’s exit from the EU will be a major
the table” given the ‘significant material change’ in in the settlement
concern.
between Scotland and the rest of the UK.
The biggest problem for the Labour party, though perhaps not the
Ms Sturgeon has also made clear the preparation of legislation will
most dramatic, is the split this referendum has demonstrated
begin now to allow MSPs to vote on the issue within the two year
between the leadership and Labour’s traditional base. If Labour is not
negotiation period once Article 50 is invoked. The SNP would likely
able to reconnect with its base, or build a new coalition of support,
have the votes at Holyrood to pass a Bill – relying on the support of
this referendum may be seen as the beginning of the party’s long
the Scottish Green Party, which supports independence.
term decline. Despite this, only the UK government can legislate for a second The main beneficiary of this long-term decline in Labour’s traditional
referendum by convention following such a vote.
heartlands is likely to be UKIP. The SNP did not have the option of a second referendum in their
POTENTIAL CONSTITUTIONAL IMPLICATIONS
manifesto which many would argue means they don’t have the
Alongside fears that Brexit would tear Europe apart, commentators
mandate.
correctly predicted that a vote to leave the EU would have lasting ramifications for the unity of the United Kingdom itself.
The SNP will be at the negotiating table with the UK government
Today’s result has revealed a deep divergence between opinion in
once this begins in earnest.
England and Wales versus Scotland and Northern Ireland, and London versus the rest of England. We are already starting to see the
Gibraltar
impact of this, with Scottish First Minister Nicola Sturgeon quick to
There is no region with more interest in Britain remaininga part of
call for a second Scottish Independence referendum, while Sinn Fein
the EU than Gibraltar so this result will have dramatic implications
calls for a ‘border poll’ on a united Ireland.
for the Rock. Gibraltar's Chief Minister campaigned in support of
Dean Duke, Account Manager: “Looking at the domestic agenda, childcare policies have been a core part of the Conservatives’ offer to voters under David Cameron’s leadership. Childcare has been used to broaden the Conservatives’ appeal to young families and women voters, and formed a key plank of the party’s “plan for every stage of your life” at the last election. The government, however, has been struggling to deliver its key pledges in this area. The necessary legislation has been passed, but nurseries have warned that the 30 free hours of childcare for 3 and 4 year olds is severely underfunded and that they’re not all in a position to extend beyond the 15 hours already available to parents. Tax-free Childcare, which will provide a 20% top-up to parents’ childcare contributions, has been delayed and government forecasts estimate that only half of eligible families will sign up for the scheme. Both of those schemes are in addition to the childcare element of Universal Credit and the existing childcare vouchers scheme. The childcare policy landscape is overlapping and complicated. Expect leadership contenders and future ministers to take a look at how over £6 billion of spending on childcare can be put to best use through a clearer offer.”
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Remain and in the end 95.9 per cent of the population opted to stay
Like Scotland, the Remain vote within Northern Ireland has raised
in the union. Commuters from Spain make up about half of the
questions about the future composition of the UK. Deputy First
territory’s workforce so any delay in border crossings severely harms
Minister, Sinn Féin’s Martin McGuinness, has called for a referendum
the economy. Gibraltar’s existence as a British Territory is also under
on Irish unity, which could risk inflaming sectarian tensions.
threat. Following the leave vote Spanish Foreign Minister José
Ireland’s Taoiseach has already rejected that call, stressing that there
Manuel has called for co-sovereignty of the island, saying “the
is no evidence that the majority of the population in Northern
Spanish flag on the Rock is much closer than before”. For Gibraltar’s
Ireland want a referendum and that there are more pressing
denizens this vote may determine not only the region’s relationship
concerns to address. Theresa Villiers, Secretary of State for Northern
with the EU, but its very existence.
Ireland, has already ruled out the possibility of a referendum.
Northern Ireland
WHAT THE FINANCIAL MARKETS ARE DOING
Britain and Ireland operate a Common Travel Area (CTA) that
With sharp falls in early trading, the pound saw its biggest losses in
precedes their membership of the EU. The travel zone, which also
30 years and the FTSE 100 dropped over 500 points. Around 10am
includes the Isle of Man and Channel Islands, enables the free flow of
we saw a slight recovery despite the resignation announcement
people, goods and services.
from the PM. Banks were hit particularly hard, some falling by 25%. This poses big questions for the government’s disposal of their
The future of the CTA is now in question. Leave campaigners,
substantial remaining holdings in Lloyds and RBS – this could have
including the Secretary of State for Northern Ireland Theresa Villiers,
serious impacts on the fiscal position. Government bond yields
had denied that a ‘hard’ border would be imposed between Ireland
(including the UK) plunged and gold shot up as investors looked for
and Northern Ireland. That will now form part of the exit
somewhere to weather the storm of prolonged uncertainty.
negotiations, and it is far from clear that the EU is willing to have an open border with a non-member state.
Initial concerns about wider contagion were somewhat ameliorated by the opening bell on Wall Street, with only a small downward shift
For its part, the Irish Government has stressed the importance of
in the Dow Jones.
minimising disruption, and will advocate for a ‘soft border’ solution within the EU tent.
Jessica March, Account Manager: “I specialise in health and social care policy and the economic impact from Brexit could be huge in terms of available funding for the already fragile NHS. The relatively generous settlement outlined in the spending review 2015 was dependent on continued economic growth so providers in the sector may have to revise their financial forecasts. The NHS arms-length bodies offer much-needed stability as they will remain in place and continue to drive policy at a national level.”
Marc Woolfson, Director of Investor Services: “Whilst this result is clearly something of a political and economic earthquake, there is need for calm and considered analysis of the implications for the UK investment climate. In the short term not a great deal will change, once the markets have recovered from their initial shock. But looking longer term the impact of changes in policy on business’s labour market supply, access to capital from foreign direct investment, and exposure to cross border supply chains, will be key considerations for any investment thesis.”
Simon Darby, Account Director: “The fallout from the EU referendum will create extensive uncertainty for UK infrastructure. Large housing-developers have already taken a hit on their share-prices. The decision to leave will likely impact the willingness of investors to finance infrastructure projects, at least in the short-term.”
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NEXT STEPS
• Leader of the Opposition Jeremy Corbyn will face pressure over his
As a totally unprecedented scenario, it is currently not fully clear
position, and potentially a Vote of no confidence, at the
what all of the next steps are. Similarly this is unlikely to be a process
Parliamentary Labour Party (PLP) meeting on Monday evening.
over which the UK government has total control. The reactions of European institutions, opposition political parties, and overseas and devolved governments will partially determine what happens next.
• Nicola Sturgeon will deliver a statement to the Scottish Parliament on Tuesday on the next steps that she intends to pursue.
However, we currently expect the following to take place over the next week:
• There is likely to be an emergency session of the European Parliament on Tuesday, at which there is likely to be pressure from
• Speculation regarding potential ‘runners and riders’ for the
across Europe for Article 50 to be enacted immediately.
Conservative Party leadership will escalate throughout the weekend and sentiment in the party about key contenders will
Beyond these immediate timescales, the following will happen:
emerge.
• The Conservative party leadership contest continues throughout the summer with the result announced at the Conservative Party
• Over the weekend business will continue to be pressed for their
Conference in October.
reaction and the implications for their investment and staffing • There is the potential for a Labour Party leadership contest to take
plans.
place over the summer. • A timetable for the Conservative party leadership contest will be set out likely early next week, with a meeting of the Cabinet taking place on Monday.
• We will establish whether there is momentum for a general election to be called following the election of a new Tory party leader. The Fixed Term Parliaments Act makes it somewhat
• The UK Parliament next sits on Monday and there is likely to be a
complicated to simply call a new election, but not by any means
statement or Urgent Question at which the Prime Minister may
impossible, should a new Conservative leader either want or feel
set out further details on the renegotiation process.
forced to have one.
BREXIT TIMETABLE: 2016 - 2018 Today - 24th June • Votes are in. Leave has won the referendum by 52% to 48%. • David Cameron announced he will resign as Prime Minister after a “period of stability”. • Labour MPs Margaret Hodge and Ann Coffey tabled a ‘no confidence’ motion in Jeremy Corbyn, ahead of Monday’s scheduled meeting of the Parliamentary Labour Party. • The EU’s top leaders have said they expect the UK to act on its momentous vote to leave the union “as soon as possible, however painful that process may be” and that there will be “no renegotiation”. • The presidents of the European council, commission and parliament – Donald Tusk, Jean-Claude Juncker and Martin Schulz respectively – and Mark Rutte, the prime minister of the Netherlands which holds the EU’s rotating presidency, said any delay to Britain’s exit would “unnecessarily prolong uncertainty”. Saturday 25th June • The foreign ministers of the founding six member states – France, Germany, the Netherlands, Luxembourg, Italy and Belgium – will meet to discuss the implications of the British vote. Monday 27th June • Meeting of the Parliamentary Labour Party where it is decided whether Jeremy Corbyn will be “no-confidence”.
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28th - 29th June • European Council summit – EU leaders are due to gather for a summit in Brussels. Cameron will be under intense pressure to activate Article 50 and commence exit negotiations. Cameron has said he wants to wait until the new Prime Minister comes into post by October 2016. 8th – 9th July • Warsaw NATO Summit 2016 21st July • Summer Parliamentary recess begins Summer 2016 • Campaigning begins for a new leader of the Conservative Party (the new Prime Minister) for election by the Conservative Party Conference at the beginning of October 2016. September 2016 • Parliament return after recess 2nd October 2016 • Conservative Party Conference – new Conservative Party leader (and Prime Minister) to be in place. 20th – 21st October 2016 • European Council summit After October 2016 (TBC) • David Cameron’s aim is that after the new Prime Minister is in post, negations will begin between the UK and the EU. • Two teams will be created with the new Prime Minister deciding on who will represent the UK. The EU side is likely to be headed by one of the current Commissioners. November 2016 • Potential UK general election After October 2016 (TBC) • Following negotiations, the UK will need to trigger Article 50. This could take months or years. Triggering Article 50 formally notifies the intension to withdraw and starts a two-year clock running. After that, the Treaties that govern membership no longer apply to Britain. The terms of exit will be negotiated between Britain’s 27 counterparts, and each will have a veto over the conditions. 15th – 16th December 2016 • European Council summit July-December 2017 • United Kingdom presidency of the Council of the EU will only apply if the UK has not triggered Article 50 of the Lisbon Treaty. Once Article 50 is invoked, the UK loses its EU voting rights. October-November 2018 (approx.) • The UK formally leaves the European Union.
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Initial speculation about who might put themselves forward
him whilst in the Treasury. Despite her current energy brief, she’s
for the Conservative leadership
recently penned commentary pieces on platforms such as Con
David Cameron’s confirmation during last year’s General Election
Home about other policy issues. Could this be a sign of early
that we would not seek re-election in 2020 generated a plethora of
positioning as a candidate?
speculation over who could take his place. His resignation this morning has, unsurprisingly, elevated speculation to fever pitch.
• A question mark hovers over Michael Gove. He is widely recognised within Conservative party as a mighty intellect and is
It’s easy to divide potential candidates according to their stance on
well liked, even among pro-Remain Tories. However, he has never
Brexit. It’s likely the looming leadership contest will be fought along
expressed appetite for the leadership and is likely viewed as being
these lines as the party membership tries to settle its historical
most effective in behind the scenes policy deliberation. It may be
divide.
that post-October, we know him as Chancellor Gove.
Lists of names on both sides are lengthy. In the leave corner we have
In the Remain camp, George Osborne was for a time an obvious
the favourite, Boris Johnson. One of the few certainties in the post-
choice, but no longer. His ownership over the ‘long term economic
Brexit world is that he’ll announce his bid in the coming days. Other
plan’, policy agendas like the Northern Powerhouse and ardent
names include:
support for Remain have positioned him as the de facto Cameroonian continuity candidate. This compromises him, as does
• Liam Fox - A long-time Eurosceptic and former Defence Secretary,
his high-profile U-turn on tax credits and failure to meet his own
Fox is well-liked among backbenchers and party members,
economic targets. Accordingly, the bookies have him at 20/1,
particularly those supportive of leaving the EU.
compared to Boris’s 5/4. Other remain candidates include:
• Priti Patel - Patel’s ascendance within the government has been a
• Theresa May – With her record as longest serving Home Secretary
rapid one, having become an MP in 2010. Her position to the right
since 1892 and her steely disposition reminiscent of Thatcher,
of the party may stand her in good stead with some parts of the
May is a real contender for the leadership. She has not cultured a
Conservative grassroots.
following within the parliamentary party however, which could hurt her chances when it comes down to selection. This might be
• Andrea Leadsom - Leadsom has over 20 years’ City experience and is a close ally of George Osborne, having worked closely with
mitigated by her pragmatic Euroscepticism, which endears her to the Conservative grassroots despite her support for Remain.
Joseph Jones, Account Executive: “I am an active and committed Labour Party member (though not a Corbyn fan). The poor result in this referendum hints at deep worries for Labour. The Party leadership has once again demonstrated a disconnect from traditional Labour supporters, with many more voting Leave than expected in post-industrial towns. In order to survive, the labour party will have to work out how to reconnect with these voters and come to a new settlement on issues like immigration. While Corbyn coup plots are exciting and good for live news, this is the real challenge for the party.”
Angus Hill, Account Manager: “In my work in the energy sector, the impact from Brexit is largely likely to focus on investment decisions. With a need for investment in generation in the UK, investors and developers will need to look closely at changes in emphasis on energy policy. There remain separate questions to be answered as to whether the UK will continue to participate in the EU Internal Energy Market. With current Secretary of State Amber Rudd being a leading Remain voice there will be questions as to her future within government, and the impact that this could have on energy policy.”
Fiona Elliott, Senior Account Executive: “In England, what is most striking is London’s isolation. People have grumbled for a long time about the political and cultural separation between the capital and the rest of the UK, something that today’s result has thrown into sharp relief. With the City of London facing an uncertain future over its status as Europe’s financial capital, keep a close eye out for the emergence of a new London-centric political movements that celebrate its distinction from the rest of the country.”
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• Nicky Morgan – Morgan’s team has already sprung into action,
• Stephen Crabb – The recently appointed Work and Pensions
with reports today that she is considering making a run. Time will
Secretary is seen as a moderniser and has been well received in his
tell what her ‘pitch’ will be. To date, it’s not been particularly clear.
new role. However, questions might be raised over whether he has the experience to be Prime Minister. It’s worth remembering
• Ruth Davidson – After a stirring performance in the BBC’s referendum debate and her storming success in the recent
though that at 43, Crabb is the same age as Cameron was when he became Prime Minister.
Scottish elections, many have pointed to Davidson as a leadership candidate. She’s been clear, however, that her priorities lie in Scotland, so we may not see her run this time.
Rebecca Brake, Senior Account Manager: “Brexit presents a number of potential risks and policy changes. From schools to HE there is a clear potential impact on staffing, at a time of teaching shortages. This impact also translates to EU student access to UK universities. The impact on the significant research funding received from the EU will undoubtedly also be a focus for the HE sector. For schools there have been concerns that important policy developments, such as the National Schools Funding Formula will be subject to changes arising from shifts in Conservative thinking. In the skills sector, the main focus is the apprenticeships levy, following previous comments by Skills Minister Nick Boles that this may need to be postponed should Brexit lead to a recession, as well as the impact on training funding from the European Social Fund.”
Helen Roberts, Account Director: “My personal reflection is that David Cameron’s resignation as Prime Minister and Leader of the Conservative Party will not have come as a surprise following his defeat in this referendum – although it will be a disappointment to many One Nation Conservatives. Cameron’s emotional speech on the steps of Downing Street in part reflects his disappointment that the result will affect his legacy. As a party activist for over a decade, I hope that in the long run, he will be remembered for being a progressive Conservative leader who made significant reforms to the party. Under Cameron, Britain became the fastest-growing western economy, taxes were cut for the poorest workers, many more BME and female Conservative candidates were elected, gay marriage was pushed through Parliament and the Conservatives won their first parliamentary majority in two decades.”
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