Rush-hour gridlock is the bane of commuters around the globe. Londoners may feel particularly hard done by: traffic in the centre of the city moves at an average of less than 8mph, half that of Tokyo. Everything - from a growing population to an overhaul of road systems and construction programmes - has been blamed for London’s clogged roads (and the consequently abysmal air quality). The logjam is not just a fitting emblem of a stagnant economy (which expanded by just 0.1% Q/Q in Q1) but also the stagnation afflicting the political and legislative process.    

As is often repeated, there is under a year until the UK is scheduled to leave the EU. What is less well-known is that the UK parliament may have less than 75 working days until it may have to vote on the Withdrawal Bill which will dictate the terms of departure and the broad shape of the future relationship. The events of recent days, with rebel votes paving the way for changes to that Bill, mean that relationship could look very different to that proposed by the government. A vote on the final Bill has been penciled in for October, assuming the talks in Brussels proceed smoothly (more on that later) and an agreement in principle is reached. Even if that is the case, politicians may then be voting blind – if the various laws that underpin the Brexit process have not been passed.

The Withdrawal Bill apart, there are 10 such bills, and countless bits of secondary legislation, to be adopted. But 130 working days after last summer’s General Election, not a single Brexit-related bill has been given the green light to become law. Some – such as the nuclear safeguards and anti-money laundering bills – are passing quietly through the parliamentary process. A couple, specifically the ones concerning trade and taxation – have been surreptitiously delayed in transit at the House of Commons, for fear of damaging revolts and amendments. About half, however, including the immigration and fisheries bill, have yet to be introduced at all- in effect, stuck at a red traffic light

What exactly lies behind the hold up, and what are the implications?

1)     The parliamentary process. It takes much more than a simple vote for a draft bill to pass into law. Proposals for legislative changes are sometimes (but not always) set out in a government White Paper, or if public views are sought, a Green (consultation) Paper. The draft bill is then introduced formally into Parliament. It follows a series of stages (three “Readings”, a Committee stage and a Report stage), encompassing broad debate, close scrutiny by committees and votes, in both the House of Commons and the House of Lords. Extra evidence may be sought from external experts, and amendments proposed. After the third readings, amendments will be considered (and may go back and forth between chambers, in a process known as Ping Pong) and, upon agreement, the final wording drafted. Only then can the bill get Royal Assent, becoming law or an Act of Parliament. That process means it takes on average a year for a bill to be processed. However:

2)     The Brexit bills are highly contentious: Each denotes the overhaul of systems that have been in place for decades, and are of course, hugely controversial. Over 400 amendments have been tabled to the EU (Withdrawal) Bill alone, and, in total, the House of Lords has defeated the government 13 times, adding amendments which eliminate the mention of 29^th March 2019 as exit day, and dictate that  Brexit should be implemented in a way that does not lead to a hard border between Northern Ireland and the Republic. The House of Lords also argued that the government should seek to retain membership of a customs union. And in a shock development, yesterday the Lords voted through an amendment that could force the government to seek membership of the European Economic Area (EEA). This is arguably a less stringent form of single market membership, the so-called Norway model, under which the UK would retain full access to the EU’s internal market but would also have to make financial contributions, accept EU laws and allow free movement of people. 83 Labour peers (and 17 Conservative ones) defied party orders to push this through. It now falls to the House of Commons to decide whether to uphold those amendments when it next considers this bill later this month.

3)     The challenges of a minority government. After failing to win an outright majority in the June 2017 election, the government relies on support from the Northern Irish Democratic Unionist Party (DUP) to avoid defeat in the House of Commons. The Labour opposition had adopted a “Brexit means Brexit” stance but its recently embraced position of remaining in a customs union means more unrest looms, particularly over this area; the mass rebellion in the House of Lords makes this even more likely. Given the parliamentary arithmetic, the Commons may take the lead from the rebellious spirit that has galvanised their Lords’ colleagues, greatly increasing the probability these amendments are upheld. Prominent Tory back bench MPs have also tabled amendments to the Trade Bill proposing customs union membership. The government has managed to delay a vote on this bill, to stave off a damaging rebellion. The party whips, who are responsible for keeping politicians voting along party lines, have also experienced a relatively high rate of turnover (and in turn have faced accusations of bullying behaviour). It may be the case that the government is forced into passing a Bill containing a very different strategy – including a customs union or even EEA membership – than envisaged, which could greatly change the complexion of the Brussels talks. That would inflame the pre-Brexit backbenchers, meaning greater political instability would loom, threatening Prime Minister May’s survival.

4)     The right skills. The mantra goes “civil servants advise, ministers decide”. But are there sufficient able advisers? The aftermath of the referendum brought a sharp reversal to the sustained austerity-led decline in Civil Service numbers. Around 10,000 roles are estimated to have been created to deal with the challenges, with the cost of the Whitehall possibly reaching £2bn, according to the Institute for Government (IfG) think-tank. However, departments in the front line have reportedly struggled to fill posts and find the right skills. Even if they do, keeping them is a challenge: one study found that the Department for Exiting the European Union (DexEU) had an annual turnover rate of around 20% - double the Civil Service average. Reports of clashes between senior officials and the more pro-Brexit ministers are common; one former minister asserted that Brexit “goes against the grain “for Whitehall personnel, so accustomed are they to working with Brussels. A less harmonious working relationship may be one hurdle but a lack of ministerial experience may be another.   The IfG highlights that 71% of ministers  have been new in post since the election, unhelpful at a time when decisions have to be taken that rely on a depth of knowledge. Again, DExEU stands out, with three changes of minister in 10 months. Overall, there is a big question mark as to whether the full machinery of government is currently fit for the monumental task in hand.

Would a delay to the Brexit legislative timetable matter? In theory, most of these laws don’t need to be completed before the UK leaves the EU on 29 March next year. Instead, strictly speaking, they are required for when the planned Brexit “transition” period ends, on 31 December 2020. (The key exception is the EU (Withdrawal) Bill).  But for the implementation period to hold, the UK government and EU needs to reach agreement on a number of areas in the common talks. The Irish border remains a key sticking point. And Prime Minister May’s cabinet of senior ministers is dithering over what customs arrangements to propose to ease that particular bottleneck. Her Foreign Minister, Boris Johnson, has publically referred to her preferred option as “crazy”, heightening the risk of not just stalemate but political instability. So the UK’s negotiating team is uncertain what its government’s proposal even is – making agreement in time for an October vote harder to achieve. Even if a solution (or, as has been the case of late, a fudge) is found, MPs may not know what exactly what they’re voting for, if crucial legislation on say immigration or farming, is not firmed up by then.  

The fallout from the paralysis goes much further than Brexit. The sidelining of other legislative initiatives is extremely detrimental at a time when the government needs to be focusing on future-proofing the UK economy, with an imperative need to focus on infrastructure and the challenges of an ageing population for example. The to-do list is very congested – but further logjams and frustration lie ahead.  The outcome may look very different to what the government had hoped.

Source: Daiwa Capital Markets Europe Ltd.