On March 12, Prime Minister Theresa May’s Brexit deal will face its second vote in parliament. If the deal is rejected again, as it was last month, another vote will be held by March 13 to determine whether the UK should leave the EU on March 29 without a deal. If this is also rejected, Parliament will vote by March 14 on whether to seek to extend the Article 50 deadline until the end of June.
This last minute scramble for a clear plan of action is critical for UK businesses. Just two weeks before the Brexit deadline, businesses will be presented with a clear picture of what the end of the month will bring. Britain will either accept May’s Brexit deal, commit to a no-deal Brexit, or seek an extension. Each of these means different things for businesses, and business owners will be sitting on the edge of their seats, waiting to act on Parliament’s decision when it is made.
Accepting May’s Brexit deal
Theresa May’s Brexit deal is historically unpopular because it fails to deliver on the majority of what the British government, and especially Leave campaigners, promised pro-leave voters. Some of the most heavily criticised points include:
● Introducing a 2-year transition period, during which the UK would slowly disentangle itself from the EU. To pro-leave voters, this effectively looks as though the country is simply delaying their decision by another two years.
● A backstop agreement with no definite end point that would prevent a border from forming between the Republic of Ireland and Northern Ireland. This would essentially divide the UK, forcing the UK to create a customs barrier inside its own borders.
● Fears that the UK will be forced to accept harsh terms from the EU during later negotiations, leaving it with close ties, but also a subordinate relationship to the larger bloc.
For businesses, accepting the deal would overall be a positive development, especially in the short term. A transition period would ensure that international trade agreements don’t automatically lose force and that the UK could continue to do business with the EU as usual. Rule changes would happen gradually and piecemeal, allowing businesses to prepare and adjust appropriately as it happens. Whether the UK economy and UK businesses would also be better off in the long term is not clear, and would depend on the outcome of negotiations during the transition period.
Setting course for no-deal
Long touted as the worst-case scenario, committing to a no-deal Brexit would mean simply cutting ties with the EU as quickly as possible. For businesses, this would mean attempting to do business on March 30 in an environment in which travel and trade rules weren’t clear. Tariffs might materialise overnight with some countries, while expected tariffs might be suspended in others. UK borders and customs would need to be appropriately enforced overnight, which may cause major import delays because the country has done little to effectively prepare thus far. The immediate effect on the costs of goods in the UK is difficult to predict, which further complicates matters for businesses who need to be able to forecast their expenditures in order to budget effectively.
Of course, the no-deal option isn’t bad in every respect. The most important benefit of leaving the EU on schedule, even without a clear way forward, is an end to the UK’s uncertainty. After March 29, the government, UK businesses, and other countries can finally get on with the business of integrating the UK back into the global economy outside of the EU.
Seeking an extension
Most UK politicians are vehemently opposed to a no-deal Brexit, but many of these also aren’t willing to agree to May’s deal to avoid it. As a last resort, May’s plan includes the option to vote to seek an extension on Article 50 from the EU. This would give May and Parliament the time to continue negotiating amongst themselves and the EU in an attempt to secure a better deal. For many lawmakers, as well as business owners, however, this is just a way to kick the can down the road, prolonging the current state of uncertainty to the detriment of the UK’s economy.
For UK businesses, this extension would be a serious blow. Tension over the issue is at an all-time high, reducing foreign investment and leaving business owners holding their breath and waiting to see what the future brings. This has already had a chilling effect on the UK’s economic growth, and an extension would extend this uncertainty.
Overall, this series of votes represents a positive development. Instead of simply allowing the clock to run out, Parliament will settle on a particular outcome by March 14, leaving businesses two weeks to prepare. While two weeks isn’t nearly enough for businesses to adequately prepare for such massive changes, it will allow them to make basic preparations, and to ensure that they aren’t completely blindsided by previously unanticipated events.