18 Oct 2019

The revised withdrawal agreement and political declaration, formally approved by the European Council on 17 October, would deliver the immediate benefit of a transition period up to 31 December 2020, with the possibility of limited extension after that date. From the perspective of October 2019, that transition period would have significant attractions for business, fending off the risk of an imminent 31 October "no deal" Brexit. It would be materially different from the extension envisaged by the Benn Act, which would avert a "no deal" only to buy time for further attempts to settle the terms of the UK's initial withdrawal from the EU. A 19 October House of Commons resolution to approve the revised deal would allow a move from the protracted uncertainty that has characterised the first stage of Brexit, and into substantive negotiations to define the future relationship between the UK and the EU. 

The House of Commons debate scheduled for 19 October is likely to turn on the fundamental question of whether the proposed deal is, as a minimum, considered to be better than "no deal". That calculation may be enough to secure the votes of former Conservatives, the ERG section of the Conservative Party and (crucially) elements of the Labour Party. For each side, the calculation might be driven at least in part by the prospect of an early general election, made possible by ruling out an immediate "no deal" exit. An election fought before Brexit has occurred would, in reality, be a single issue poll. By contrast, an election fought after Brexit has taken effect would allow the parties to campaign on a full spectrum of political and social issues. The prize for any party to emerge with a working majority would include the opportunity to shape the substantive negotiations on the future EU relationship. 

If the UK government has succeeded in framing the political narrative as "revised deal, or no deal", then there must be a reasonable prospect of a House of Commons vote in favour of the revised deal on 19 October. 

Preparing for the new Brexit?

Taken together, the revised withdrawal agreement and political declaration point towards an eventual outcome that would have many of the attributes of a "hard" Brexit.  The UK would no longer be a member of the EU, including its customs union and VAT territory. The UK would be largely free to pursue and conclude its own trade deals, and also (subject to the special provisions governing Northern Ireland) to diverge from EU regulatory standards. If the government were to decide to diverge from EU standards, then it would be a matter for UK businesses to decide whether, and how far, to continue to meet those standards in order to secure or preserve their access to the EU27 market.  

More broadly, the end of the transition period provided by the revised deal would require UK businesses to develop and implement a range of new or enhanced compliance procedures. Any transition period could be put to very good use, including:

  • Ensuring that appropriate registrations and procedures for import/export are in place. Unless already in place, registering for an Economic Operators Registration and Identification (EORI) number remains a priority. HMRC has automatically issued EORI numbers to businesses for which it held records in relation to 2018, but new businesses would still need to apply;
  • Developing or enhancing in-house or pooled expertise in relation to customs declarations and to identify and apply appropriate reliefs, facilitations or special procedures;
  • Monitoring the status of negotiations for a post-Brexit free trade agreement with the EU, and with any other potential trading partners. Separation from the EU's growing set of trade agreements would require UK businesses to develop a far more detailed and granular understanding of the tariffs and rules applicable to particular trading partners or blocs. A business with that degree of awareness and understanding would be well-placed to profit from opportunities as they emerge;
  • For any business connected with Northern Ireland, understanding the significantly different rules and procedures applicable to issues such as customs, VAT, goods, energy and state aid. From a legal perspective, this would also require ongoing application of European Court rulings and the direct involvement of EU bodies along with enforcement by UK bodies of EU-derived rules. 
  • Planning ahead to accommodate the end of free movement, and ensuring that employees required to operate on a broad regional base including the UK and EU/EEA have the appropriate status in relation to residence and rights to work, or that any additional visa arrangements are put in place ready for the end of a transition period.

A transition period would also allow time for adjustments among governments and regulators. For example, as the 31 October deadline loomed, there have been significant concerns about the flow of personal data from the EU into the UK. While many transfers of personal data could be legitimised by putting in place Standard Contract Clauses (SCCs), that approach would not necessarily work for EU data processors transferring to UK data controllers. This is because there are no EU-approved SCCs to cover that relationship. Consequently, data law specialists and regulators have been exploring a range of possible workaround solutions, none of which lead to a wholly reliable answer. This point of concern was amplified by the possibility that a disorderly "no deal" Brexit might sap the goodwill from any subsequent negotiations, reducing the chances of a pragmatic approach being taken to enforcement. A deal, coupled with a transition period, would avoid the immediate problem and would give time for regulators to put in place a reliable solution. 

Deal or no deal?

Since the 2016 referendum – and even more so since the rejection of the previous Withdrawal Agreement and Political Declaration – UK businesses have faced the challenge of adapting to a largely unknown, and unknowable, Brexit. It is a myth to say that "business requires certainty". Increased risk is often reflected in increased profits. However, it is truer to say that government ought not to be the source of uncertainty. Consequently, there is likely to be a significant body of opinion in favour of any deal, simply on the grounds that it both reduces uncertainty and allows crucial time for adaptation.

That said, the outcome of 19 October remains uncertain. Many political commentators predict a close vote, with either a narrow approval or narrow rejection. Even if the House of Commons were to approve the revised deal, primary legislation must be put in place to finally and definitively avert a 31 October "no deal". For that reason, as well as looking out for the result of the main vote, on whether to accept or reject the deal, it will also be extremely important to see the result of any votes made possible by Oliver Letwin's 17 October amendment. Under Letwin's amendment, it would be possible for the House of Commons to close a loophole in the Benn Act so that the Prime Minister could be required to request an extension if the deal were to be approved, but the primary legislation required to avert a "no deal" exit failed or was still being debated as the 31 October deadline approached.

With those factors in play on "Super Saturday", it seems possible that a "meaningful vote" might finally have some meaning.