By Halo Financial Team
British MPs have rejected a no deal Brexit and want an alternative to the Irish backstop – but the vote is not legally binding.
‘Alternative arrangements’ to the backstop
In a series of Brexit vote
s on Tuesday night (29th January) MPs approved a motion from Conservative Sir Graham Brady supporting Prime Minister Theresa May’s current Brexit deal, as long as "alternative arrangements" are found to the Irish backstop.
‘Not open for re-negotiation’
However, it looks as if Europe is not interested in amending the current deal. European Council President, Donald Tusk, issued a statement immediately afterwards, saying, “The backstop is part of the withdrawal agreement and the withdrawal agreement is not open for re-negotiation.”
No deal amendment only advisory
An amendment from Conservative MP, Caroline Spelman, rejecting a no deal Brexit and framework for the future relationship was also passed. However, it is only advisory and has no legislative force.
Sterling falls after binding motion defeated
After a binding amendment from Labour MP Yvette Cooper to delay Brexit was defeated, the Pound immediately dipped from 1.747 to 1.736 against the US Dollar in typical mid-market rates and fell further to below 1.734 an hour later.
Pound weakens over no deal fears
David Johnson, Founding Director of Halo Financial, says, “Sterling dips whenever the treat of a ‘no deal’ Brexit rears its head. So, all now depends on whether the EU will stick to its guns and refuse to renegotiate; which, in itself is a pretty blatant negotiating tactic, or whether the new mandate from the UK parliament can secure an amended deal without a backstop.
Remember, though, that the EU economy has slowed significantly, still has a 7.9% unemployment rate and more than 60,000 German jobs rely on the €20.8 billion worth of motor trade exports to the UK per annum. That’s just one example of why the EU needs access to Britain’s economy as much as the UK needs access to the EU. A deal is commercially critical for both sides. A bit of sanity and less posturing would be helpful in the coming days.”
Labour leader enters talks
Now MPs have signalled they want a deal with Europe, Labour leader Jeremy Corbyn says he will begin talks with Theresa May to try and break the impasse.
Business leaders frustrated
Amid fears of severe food and medicine shortages in the event of a no deal Brexit, business leaders are relieved that MPs want a deal with Europe, but they are frustrated and angry that there will be more delays before a final decision is made.
Renegotiation ‘must happen quickly’
Carolyn Fairbairn, Director General of the Confederation of British Industry called it another deeply frustrating day for British business. “The never-ending parliamentary process limps on while the economic impact of no deal planning accelerates.
“The Brady amendment feels like a throw-of-the-dice. It won’t be worth the paper it is written on if it cannot be negotiated with the EU. Any renegotiation must happen quickly – succeed or fail fast.”
The public needs answers
There was a similar view from Adam Marshall, Director General of the British Chambers of Commerce, “Government and parliament are still going round in circles when businesses and the public urgently need answers.
“The real-world result of Westminster’s interminable wrangling is market uncertainty, stockpiling, and the diversion of staff, money and investment. For every big-ticket business announcing high-profile Brexit-related decisions, there are many more quietly making the changes they need in order to safeguard their operations in the event of a disorderly Brexit. The net result of this displacement activity and uncertainty is slow but very real damage to the UK economy.”
Appeal for EU flexibility
Stephen Martin, Director General of the Institute of Directors (IoD), hopes for flexibility from Europe. “While it is something that MPs have managed to form a majority in any vote, the path ahead is still far from clear. The prime minister clearly faces a difficult task in winning a compromise on the backstop. However, if the choice is between trying to change the deal and leaving without one, business will have to hope the EU can be flexible and consider whether any legal changes at all could further clarify that the backstop is not a permanent fixture.”
No deal not off table yet
Mike Cherry, chairman of the Federation of Small Businesses points out that the Spelman amendment is only advisory. “The amendment does not have any force in law, so a no deal Brexit on 29th March isn’t off the table yet. This vote cannot simply be a symbolic one, we need government and parliament redouble efforts to prevent it.”
On Tuesday, just two amendments from 15 put forward in the Commons and seven voted upon by MPs were passed.
Sharing ambition to avoid no deal
The full statement from Donald Tusk says the EU welcomes and shares the UK Parliament’s ambition to avoid a no deal scenario. “We continue to urge the UK government to clarify its intentions with respect to its next steps as soon as possible. The Withdrawal Agreement is and remains the best and only way to ensure an orderly withdrawal of the United Kingdom from the European Union. The backstop is part of the Withdrawal Agreement, and the Withdrawal Agreement is not open for re-negotiation.”
Ahead of the votes, French president, Emmanuel Macron, also warned that the withdrawal agreement, including the Irish backstop, “is the best accord possible. It is not re-negotiable.”
EU talks ‘will not be easy’.
Theresa May admitted on Tuesday night that even though there is a “substantial and sustainable” majority who want to leave the European Union with a deal, securing one “will not be easy”. The government would, however, double its efforts to do so.
What happens next?
What happens next, if the EU refuses to amend the withdrawal agreement is not entirely clear. The first step is for Theresa May to try to renegotiate with Europe over the Irish backstop.
If no new deal is reached, MPs will get a further Meaningful Vote as a Valentine’s Day present on Thursday, February 14th – UK Prime Minister Theresa May has promised. Should that not happen, then there will be another vote on Thursday, 14th March.
However, even though MPs say they want a deal, if none can be reached the default position is that Britain will leave the European Union on 29th March without agreement.
Get in touch today to find out how all this affects the price of Sterling and your international finances.
The backstop made easy
With Britain due to leave the European Union, one of the important questions in what happens on the border between the Irish Republic and Northern Ireland.
At present, both are in the single market and customs union, so goods coming in and out do not need to be checked. But when Britain leaves the EU, the Republic of Ireland would be in Europe and Northern Ireland outside.
Both the United Kingdom and Europe want to avoid a ‘hard border’, which would require checks on goods passing between the two.
The backstop agreement is proposed as a last resort or a safety net if no deal is reached over Brexit. Under the proposals agreed by the EU and the UK in December 2017, the backstop would maintain cross-border cooperation, support the all-island economy and protect the Good Friday peace agreement.
The EU believes that Northern Ireland should stay in the EU Customs Union, some of the single market and tax systems.
But the UK is against this, as it would mean the customs border would be somewhere in the Irish Sea and goods coming into Northern Ireland would have to be checked to ensure they met EU standards.
Theresa May initially suggested that the UK as a whole should remain aligned to Europe for a limited time after 2020, but offered no solution concerning regulatory issues.
In November 2018, the UK cabinet agreed to Northern Ireland following some EU customs regulations if an alternative could not be agreed by 2020. This includes goods being checked to see that they meet EU standards. This would also keep the UK as a whole in the customs union until both the UK and EU agree it is not necessary.
The EU approved the idea, but British MPs rejected it, as some feared the arrangement could continue indefinitely.
MPs have now voted to amend the backstop regulations, but the EU has said the issue is part of the withdrawal agreement and is not up for debate.