Beaufort Analysis No. 306 – You can’t make a silk purse out of a sow’s ear
There was only one story last week. The delivery of the much-anticipated draft Brexit agreement from Prime Minister May.
The 585-page withdrawal agreement has now been published detailing what the UK and EU’s future relations will look like. The planned transition period for the UK to leave the EU is 21-months from March 2019, with a financial settlement from the UK expected to be in the region of £35bn-£39bn. The initial political response has been extremely negative, causing the pound to fall c.-0.7% intraday, but rallying +0.15% at US close, following Cabinet approval.
The Irish border solution has been one of the main sticking points during talks to which the Government has proposed a backstop for the whole of the UK. This means customs checks would be avoided between Northern Ireland and the Republic of Ireland in the event of a UK exit. Dominic Raab, Brexit Secretary, who initially signed up to the proposed Brexit deal, resigned from his post citing the backstop arrangement as one of his key reasons. This was followed by another resignation from Esther McVey, who was the work and pensions secretary. While resignations came from the Cabinet, business leaders, Chancellor Philip Hammond and Greg Clark, Business Secretary were supportive of May’s agreement, despite its “imperfections”.
May’s focus will now be on the House of Commons, where it is thought she has very little support. Scotland’s Brexit secretary, the DUP and the Labour party have also confirmed they will vote against the deal. Lead Brexiteers, Boris Johnson, David Davis and Nigel Farage were also furious with the contents of the agreement. Jacob Rees-Mogg, Chairman of the European Research Group, is also backing a vote of no confidence in May, in a letter to the Conservatives’ 1922 committee. 48 letters are required to trigger a vote of no confidence and Rees-Mogg fully expects this support will come.
Financial market access could also be in question; under the terms of the deal, UK asset managers could face restrictions on EU markets. The UK currently enjoys unrestricted access to EU markets, which is extended to countries who have a comparable regulatory regime, however, this only covers a limited range of market participation; as an example, UCITS vehicles are not included.
European Commission President, Donald Tusk has confirmed a special summit will be held on 25th November to sign the Brexit agreement barring an extraordinary event. If a deal cannot be reached by 1st December, the focus will be on plans for a no-deal scenario.