Following the referendum held on 23 June 2016, the UK Government formally notified the European Council on 30 March 2017 of its intention to withdraw from the European Union, officially triggering a two-year negotiating period as stipulated under the EU Treaties (Article 50 TEU).

Well over two years later, evidently the UK has not yet left the EU. The process has been subject to considerable delay and there continues to be great uncertainty over whether Brexit will still happen at all and if so, when and on what basis.

The Council of the European Union has provided at least an outline framework. At the European Summit on 10 April 2019, EU leaders rejected the UK’s request to extend the Brexit deadline for a second time to 30 June 2019 and instead specified a new deadline of 31 October 2019. The EU27 again stated that there could be no renegotiation of the Withdrawal Agreement, but reiterated their willingness to reconsider the contents of the accompanying (and non-binding) Political Declaration on the future relationship between the EU and UK. With the UK remaining an EU member for the time being, it duly participated in the European Parliament elections, with the newly formed Brexit Party topping the polls, but when participating in the EU’s decision-making progress the UK will be expected to refrain from any measures which could jeopardise the EU’s wider objectives – with this to be reviewed at the next formal meeting of the EU Council in June 2019.

Since the April Summit, the UK Prime Minister, Theresa May, has announced her resignation, although she remains in place until late July, by which time her successor is expected to have been chosen following a two-stage Conservative Party leadership contest, with Members of Parliament selecting the top two candidates and members of the Party making the final decision.

All the leading candidates to be the next Prime Minister are committed to going ahead with Brexit, rather than seeking to suspend or reverse it, but views have differed considerably on how to achieve this. The present UK Government relies for its majority in the House of Commons on the Democratic Unionist Party (DUP) in Northern Ireland. As long as the Withdrawal Agreement contains ‘backstop’ provisions which would result in a new regulatory/trade border between Northern Ireland and the rest of the UK, in order to avoid the same between Northern Ireland and the Republic of Ireland, the DUP will not support it. With the main Opposition parties and a hard core of both pro-Brexit and anti-Brexit MPs in the governing Conservative party all still opposed, it is difficult to see the Withdrawal Agreement and Political Declaration as they stand, being approved. A number of the candidates to become the new UK Prime Minister have argued that the Irish ‘backstop’ provisions can be renegotiated or time-limited in further discussions with the rest of the EU – and have claimed that if this fails to happen, then the UK would leave without a deal on 31 October, despite the clear lack of a majority for a no-deal Brexit in Parliament. For its part, the European Commission and leaders of the EU27 have been all but unanimous in saying no renegotiation of the Withdrawal Agreement is possible.

Against this background, fears of a no-deal Brexit have increased. There will be calls to try to break the current impasse by holding a general election or a second referendum, but it is unlikely any new Conservative Prime Minister would wish to risk calling and then losing a general election with Brexit still unachieved and with the new Brexit Party eating into the Conservative vote, as seen in the recent European Parliament elections. The new deadline set by the EU Council also does not leave sufficient time for the necessary legislation to allow for a second referendum to be called, even if a new Prime Minister wished to consider doing so and Parliament acceded to this, unless the EU27 were to agree on a further extension after 31 October. Given the difficulties within the European Council in persuading President Macron of France to agree to the current extension until 31 October, the likelihood of a further extension cannot be counted on. The chances of this may be diminished further if EU leaders react badly to any attempt by the next UK Prime Minister to threaten to leave without a deal, unless changes are made to the current agreement.

It is, nonetheless, possible that some further progress could be made. Even if no formal agreement is reached between the governing Conservative and opposition Labour parties, the House of Commons has already come close to voting in favour of the UK seeking a permanent Customs Union with the EU, rather than only on a temporary, transitional period basis, as the UK Government had originally proposed. Suggestions from some EU Member States, notably Ireland, that despite being outside the EU, the UK could still have some consultative rights within the Customs Union, appear aimed at encouraging this route to be taken. It is likely that the EU27 would react favourably to any such change of direction: the lead European Commission negotiator, Michel Barnier, has said this could be re-negotiated in the Political Declaration in a “matter of days”, meaning Brexit could then be achieved quickly.

Any such agreement would however need to be forced through the UK Parliament against the likely wishes of any new Prime Minister and would split the Governing Conservative party – and potentially could also split the Opposition Labour party if not accompanied by a commitment to hold a second referendum. There will be continuing calls for any putative agreement with the EU27 at least to be put to a confirmatory referendum, even if this means asking for a further Brexit deadline extension. Rather than provide for any mechanism that would allow the UK to reconsider leaving the EU at all, as some EU Member States may still favour, other EU leaders may be willing to join with France in forcing a no deal exit, confident that within a matter of days or weeks of a no deal exit the UK would be back in Brussels seeking to agree the EU’s original Withdrawal Agreement terms.

For now, the prospect of the UK leaving the EU on a no-deal basis has increased. Despite the EU Council President calling on the UK to use the extra time wisely, the Brexit debate is likely to continue in the deeply divided UK without a clear resolution for some time to come – and the arrival on the scene of a new Conservative Prime Minister is unlikely immediately to change this. This will also eat into the planned transition period from 2019 until the end of 2020 (and possibly until the end of 2021) which many businesses involved in UK-EU trade had been counting on to provide at least some short-to-medium term continuity and stability. No transition period can be counted on until the Withdrawal Agreement is finally passed – and a no-deal outcome cannot be ruled out if the UK has still not been able to reach an agreed position with the EU27 by October.

How Fipra can help

Fipra can help firms assess potential risks, plan for the different scenarios that may arise, and engage with policy makers to ensure that their concerns are heard and understood. Our Brexit practice draws on the expertise of our senior advisers, with experience of both the EU institutions and complex trade negotiations.

Fipra’s Brexit team in our Brussels office and in our wider network across the EU has extensive European Commission and European Parliament experience. Our Brexit team members include: Lucinda Creighton (former Minister of European Affairs in Ireland, including during the 2013 Irish EU Presidency), Juan Prat y Coll (a former Director-General for External Affairs within the European Commission and former Spanish Ambassador to Italy and the Netherlands), Peter Chase (former Vice President, Europe for the US Chamber of Commerce, with responsibility for negotiations on the Transatlantic Trade and Investment Partnership); Robert Madelin, a former Director-General within the European Commission; and Dirk Hudig, the Head of our Brussels office and formerly Secretary General of UNICE (now BusinessEurope).

With offices in Brussels, London and every EU Member State, Fipra is in a unique position to draw on political insight and analysis from across our network, providing up-to-date assessments of the direction in which discussions are moving and advice on next steps. For more information please call Daniel Furby on +32 2 613 2828 or contact: brexit.team@fipra.com