Brexit: political and public policy developments

During the week of June 19 we saw a number of important UK political and public policy developments that will have significant implications for UK and EU businesses, including:

• The start of formal Brexit negotiations
• Mansion House Speech by the Chancellor of the Exchequer
• Queen’s Speech 2017

Brexit negotiations

• On June 19, the first formal Article 50 negotiations took place in Brussels, led by Michel Barnier.
• This first meeting largely focused on process issues and determining the parameters of future sessions.
• The UK agreed in this meeting to the EU’s sequencing of negotiations, which means that issues concerning withdrawal will be discussed first—namely citizens' rights, the financial settlement, and other separation issues.
• For businesses, the key takeaway is that even under the most optimistic scenarios, they are unlikely to gain much insight into the direction of a future trade deal (or transitional deal) until late 2017/early 2018 at the earliest.
• That leaves a limited amount of time to discuss the future of a comprehensive trade agreement, which is the UK government’s stated objective.

Mansion House Speech by Philip Hammond, Chancellor of the Exchequer

• On June 20, the Chancellor set out his position on “a Brexit deal that puts jobs and prosperity first.”
• This would be done through (1) by securing a comprehensive agreement for trade in goods and services; (2) by negotiating mutually beneficial transitional arrangements to avoid unnecessary disruption and dangerous cliff edges; and (3) by agreeing to frictionless customs arrangements to facilitate trade across our borders.
• He emphasized that the issue of customs border arrangements will require a longer time to implement and would therefore mean that “we’ll almost certainly need an implementation period, outside the Customs Union itself, but with current customs border arrangements remaining in place, until new long-term arrangements are up and running.”
• The emphasis on transitional arrangements is likely to be read as an acceptance that a deal cannot be done within the Article 50 timescales.
  
  

Queen’s Speech 2017

• On June 21, The Queen set out the government's future legislative plans at the State Opening of Parliament.
• As expected, Brexit Bills (eight of the 27 bills) dominated the programme. The centrepiece is the “Repeal Bill,” which will repeal the European Communities Act 1972 and transfer all existing European law into UK law and provide powers for these laws to be amended through secondary legislation.
• The nature of the Brexit-related legislation outlined in the Queen’s Speech indicates that, for now, the government is maintaining its position, to leave the single market and customs union and pursue a comprehensive free trade deal with EU.
• Brexit-related legislation is likely to be extremely contentious. It will be difficult for the government to pass these bills through Parliament, given that the Conservative Party lacks a majority and faces hostile opposition from Labour and the House of Lords.
• If the government is defeated on these bills, then its own future will be called into question.

For businesses, this means that day-to-day political instability and uncertainty around the government’s position on Brexit and the UK’s future trading relationship will likely continue over the next 12-18 months.

This is the third article in a series tracking developments as negotiations between London and Brussels unfold. You can also view our first and second articles. As we reach key milestones, we will provide more insights into what these mean for business.