May Leaves, Uncertainty Remains

A week really is a long time in politics. Theresa May has announced her intention to resign as leader of the Conservative Party; European Parliamentary election results showed the degree of polarisation over Brexit in UK politics; and nominations are already being declared for the Conservative leadership contest.

As something of a recap:

What led to the Prime Minister’s resignation?

After six weeks of talks between the Government and the Labour Party ended with no agreed way forward, Theresa May began last week by setting out her “new, bold offer” on Brexit in a speech in London. The offer included a vote on a second referendum, a vote on different customs options and enhanced protections for workers’ rights and the environment. Almost immediately MPs from across the political spectrum reacted negatively to the offer and the pressure from inside her own party became insurmountable. On Friday morning, 24th, Mrs May announced her intention to resign as leader of the Conservative Party two weeks hence, on 7 June. Mrs May will stay on as Prime Minister until the next leader is chosen, expected to be in July.

The European Parlimentary elections

26 May then saw the results of the European Parliamentary elections that the UK was required to participate in as a result of the Article 50 extension - elections that the government never wanted and which were treated by some in the UK electorate as a proxy referendum. The results show the degree of polarisation over Brexit in UK politics. There are various statistical analyses out there, but generally one can say that 35% of votes were cast for parties demanding a hard Brexit (the Brexit Party and UKIP), and 35% for parties calling for a second referendum (Liberal Democrats, Greens and others) - while support for the Conservative and Labour Parties collapsed.

Who will replace Mrs May?

The Conservative leadership contest will formally begin on 10 June, with successive rounds of voting by Conservative MPs in which candidates with the lowest votes drop out, until a final choice of two is put to the 120,000 Conservative Party members – or a winner is declared if only one is left standing. The views of these members are overwhelmingly pro-Brexit, with 66% of them favouring leaving the EU without a deal based on a recent Yougov poll. This is likely to push whoever is in the race towards advocating for a harder Brexit, and we are already seeing media reports of the would-be leaders indicating their Brexit positions.

What does this mean for Business?

Theresa May’s resignation increases the likelihood of No Deal. Her Cabinet was committed to leaving with a deal but a new Conservative leader may not be. The default position is still that the UK leaves the EU on 31 October 2019 with or without a deal, unless either the EU agrees another extension, or Article 50 is revoked.

One thing we have learned since the referendum, though, is that the political landscape is difficult to predict and it seems anything is possible; who knows, we may see an alternative to ‘no deal’ in the form of a partial deal and disruption mitigated. But there are other parliamentary interventions possible, including a ‘vote of no confidence’ in the Government resulting in a general election. All we can say is that the uncertain political landscape is here to stay and the only certain date business has to work towards now is 31 October.

As such, business should take this time over the next few weeks and months to reset and re-engage with their no deal planning, re-schedule and potentially repeat the No Deal actions. And bear in mind that more strategic options that were impossible to complete by 29 March have now become viable again.

If you haven’t already done so, consider:

• Brexit risk management and monitoring: review whether your risk register is comprehensive and keep fully up to date with UK Government technical notices (gov.uk/brexit) as well as EU and individual Member State notices.
• Market access: in a no deal Brexit, consider what changes might hinder your ability to sell goods and services both inside and outside of the EU, including the potential loss of EU Trade Agreements. Determine if you will need new authorisations or licences, for example.
• Supply chain and customs: map your supply chain, register for an Economic Operators Registration and Identification (EORI) number, get ready to complete and submit new customs declaration forms, and consider stockpiling/accelerating exports.
• People: make regular communications to your employees explaining their right to reside and work status. Consider EU work status for your UK workforce abroad, visa requirements etc.
• Financials: model the potential impact of no-deal in your budget and forecasts.
• Stakeholders: talk to your audit committees, customers, suppliers, and investors.

Firms have been afforded some time, and businesses that do not prepare sufficiently could be at a disadvantage if a new Conservative leader does pursue a ‘no deal’ strategy. Mrs May is leaving, but the possibility of a no deal Brexit and the resulting uncertainty remain.