We believe it pays to be prepared and that nothing is a foregone conclusion in politics. That is why we are today sharing our guide to what will happen next if there is a Brexit vote tomorrow. We look below at the timings of the political, rather than the economic impact, reviewing all the speculation so that you don't have to. With the eve of poll polling showing the two campaigns neck and neck, we hope this will either be redundant by Friday or serve as a starter guide to the fall out from an unprecedented turning point in our history.
Those with less time for the finer points of political process may prefer to start with our two-page summary table.
The day after (Friday 24th June)
Despite the fact that 86 MPs, including Michael Gove and Boris Johnson, signed an open letter saying David Cameron should remain after the referendum, received wisdom in Westminster is that he would resign as leader of the Conservative Party within 24hrs of a Brexit vote, setting in motion a titanic leadership battle. The likelihood is that he would stay on as caretaker Prime Minister until that process is complete as constitutionally he cannot leave the country without a successor. Depending on the margin of the result and the reaction of the financial markets, it is also in the interests of his potential successors for him to stay on in an interim role, whilst they work out a clearer agenda of their own. Indeed, it would be a particular kind of punishment for the triumphant leaders of the out campaigns to force David Cameron to use his remaining political capital across Europe to begin the painful process of Brexit negotiation.
The highly unlikely alternative is that Cameron leaves immediately and a new interim Prime Minister is appointed from within the Conservative party. Osborne, currently deputy leader, would be a controversial and unpopular choice, and may resign from his post, so the list of options would have to be extended. Anyone intending to run for the leadership proper wouldn’t want to take this on, which leaves Michael Gove, the pro-Brexit Justice Secretary, who has previously ruled himself out of running as a candidate, Philip Hammond, the current Foreign Secretary or outside choice Graham Brady, influential Chair of the 1922 Committee.
The immediate policy priorities will be to take steps to quell nerves in the stock, currency and capital markets and seek to prevent the flight of global businesses from the UK. The Government will also need to reassure EU nationals in the UK and UK ex-pats abroad that they are not facing a sudden change in their visa and residency rights.
If there is a severe economic shock and votes in Scotland and Northern Ireland (as anticipated) are overwhelmingly pro-remain, in contrast to an English and Welsh Brexit, a constitutional crisis might demand a ‘Government of national unity’ being formed from across the political spectrum. We suspect the impact will not go this far, but the prospect for a second independence referendum in Scotland and the threat to the peace process settlement in Northern Ireland will both be high on the agenda.
Handing in our notice to the EU
The next European Council meeting starts on Tuesday 28th June and agenda item number 4 is the UK’s EU referendum. The Prime Minister could trigger Article 50 at this point, but would be under pressure from domestic stakeholders not to do so. Cameron has indicated that he’d make a referendum leave verdict official as soon as possible. Michael Gove however, has argued extensively that this would be too hasty and is not necessary. Legally speaking, notification of Article 50 itself is not an automatic outcome of the referendum; it is a political choice which is why the Leave and Remain campaigns have argued about how soon it would happen or need to happen.
How will the neighbours feel?
The immediate reaction of European leaders will give some indication as to whether there is potential for leniency in negotiating concessions for the UK during the process of exit. The EU wants the UK to remain and, despite protestations there would be no further concessions in the run up to referendum, pragmatism may yet find a middle way through implementation. The counter-point to this is that the EU will also want to make an example of the UK once it is set on a leaving course, pour encourage les autres as Voltaire would have said. Any overt softening of terms could trigger more referendums in other sceptical member states, so the EU will not want to be seen to be giving the UK a better deal. According to the FT, the EU has lawyers currently working on options to prevent the UK from indefinitely stalling on Article 50 notification post a vote to leave. If the UK still has not made its Article 50 notification by Christmas, we can expect the bureaucrats to start to apply pressure to do so, potentially by announcing a negotiation team and setting out some red lines.
New domestic political leadership?
David Cameron’s resignation would trigger a Conservative leadership election campaign, which is divided into two phases:
- Parliamentary party ballot – likely to consist of half a dozen candidates, this requires only a nominator and a seconder to enter. Beyond Boris, George Osborne and Theresa May, other prospects include Dominic Raab (from the right wing) Andrea Leadsom or Priti Patel from the ‘Out’ camp and Stephen Crabb, Sajid Javid or possibly Amber Rudd from the ‘In’ camp. This process could be concluded before the 21st July recess, leaving August and September for the second stage.
- Party membership ballot – The top two candidates from the Parliamentary ballot then face a postal ballot of the 125,000 members of the Conservative party. This ‘selectorate’ is overwhelmingly Eurosceptic – polling roughly 65% leave to 35% remain. This is in contrast to the majority pro-remain Parliamentary party however, which leaves Boris at risk of tactical voting by MP colleagues. There may be an ‘anyone but Boris’ effort to ensure he doesn’t even make it onto the ballot paper of the sort that saw Michael Portillo excluded from the party membership vote in 2001.
The minimum timeframe for a Conservative leadership battle is two months, with the most likely conclusion being a ‘coronation’ of the new leader at their party conference in early October.
Is it curtains for Corbyn too?
A strong backlash within the Labour Party about Corbyn’s lack of leadership during EU Ref campaign is very likely. Those who have been biding their time to get rid of him may well strike, although our best bet is that he will survive a little longer whilst the party allows the focus to remains on the blue vs blue Conservative drama. However, his opponents in the parliamentary party may use the summer to organise a rebellion and Corbyn could yet be forced to resign in the Autumn. His popularity and mandate amongst the grassroots will protect him but not indefinitely, particularly if all those half-hearted £3 annual memberships expiring in July and August are not renewed. In this case, he would be replaced by Deputy Leader Tom Watson in a caretaker role, whilst a leadership election takes place.
The process within the Labour party is as follows:
- Parliamentary party nomination – candidates need the support of at least 15% of Labour MPs (35) to get on the ballot. There has already been speculation that John McDonnell is preparing his own leadership campaign, other likely candidates would be Angela Eagle, Chuka Umunna, Dan Jarvis, and possibly even Gisela Stuart given a bounce by her successful role in the Brexit campaign.
- Party membership and MP ballot – votes are now cast on a ‘one member one vote’ basis. The block voting ‘electoral college’ system which saw trade unions engineer Ed Miliband’s victory of brother David was scrapped in 2014.
An Autumn return to business as usual?
Once installed, our new Conservative Party Leader and Prime Minister would appoint his or her Cabinet. Parliament would return to the legislative agenda set out by the Queen’s Speech and, technically, business as usual…. However, unlike the usual situation before a General Election where civil servants begin engaging with the Official Opposition about policy implementation, this time there has been no formal or extensive preparation for a leave vote. A ‘Brexit unit’ would need to be rapidly set up in the Cabinet Office to start to prepare for the complex and challenging process both domestically and internationally. The lack of spare capacity in the civil service and the dearth of trade negotiation skills will be an acute issue for the Government.
A Parliamentary Bill would be tabled to legitimise the EU referendum verdict. This is overwhelmingly likely to pass despite threats from some pro-European MPs (fewer than 200 MPs are pro-Brexit) and members of the House of Lords that they would seek to defy public opinion and protect our access to the single market.
Or a snap General Election?
Buoyed by a post leadership contest poll bounce, the Tories could attempt to engineer a snap General Election in the Autumn. They would hope to capitalise on Labour’s unpopular leader and smaller campaign war chests to increase their wafer thin current majority of 12 to something more workable. This all depends on public opinion and the extent to which the leadership process has healed or hardened the divides within the party.
Jeremy Corbyn has already said Labour would be ready for an Autumn General Election, despite the fact that privately the party would desperately hope to avoid one. However, assuming he is still in post, anti-Corbyn Labour MPs (86 according to Jeremy’s infamous list), might see this as an expedient way to finally rid themselves of an “unelectable” leader and set off a new leadership contest post-election (see rules above).
Thanks to the Fixed-term Parliaments Act 2011 the bar to triggering a General Election before 2020 is high. There are two routes. The first requires a 2/3rds vote in the House of Commons or 434 MPs in favour of a resolution to hold an early election. With the Government (330 MPs) in favour, and Labour (234) not able to refuse (and or privately willing it) they should make this threshold, particularly if the SNP (54) also saw it as a way to secure a fresh mandate for a second Scottish Independence Referendum.
The second route requires the Government to lose a parliamentary confidence vote, followed by 14 days in which either a new government receives a vote of confidence, or an election is triggered. Although this requires a lower threshold of a simple majority of MPs voting in favour of a no-confidence motion, it is difficult to imagine that a post-Cameron Government would deliberately lose such a vote – unless they felt sure of winning a majority in the subsequent election.
Time to say goodbye?
Although there is a European Council meeting in October, we suggest this would be too soon for the UK to be ready to formally confirm intention to leave given the pre-requisite processes outlined above. The next meetings are mid-December 2016 and mid-February 2017, when we expect that a new British Prime Minister would trigger Article 50 and a two year ticking deadline for negotiations to be completed. Article 50 notifications are the point of no return - the UK leaves the room and the other member states start discussing terms without us - following which the UK could be presented with a ‘take it or leave it’ deal
No other country has managed to secure significant access to the Single Market, without having to:
- follow EU rules over which they have no real say
- pay into the EU
- accept EU citizens living and working in their country
A more limited trade deal with the EU would give the UK less access to the Single Market than we have now – including for services, which make up almost 80% of the UK economy. However, the Leave camp argue that the UK would be free to negotiate its own trade terms on an individual basis.
New EU leadership?
Both France and Germany are expected to hold presidential elections 2017, meaning the UK could become victim to populist positions adopted by candidates running during this crucial period of negotiation. France’s Presidential election is due in April/May, and will see right winger Marine Le Pen challenge incumbent, Francois Hollande, as well as possibly former President Sarkozy. Germany’s election is due in September/October of 2017 and, despite challenges over Greek bailout and the refugee crisis, Angela Merkel is currently expected to win again, but as we’ve said nothing in politics can be taken entirely for granted.
UK to lead AND leave EU?
The UK is set to assume the rolling 6 month Presidency of the European Union on the 1st July 2017. The presidency rota is set four years in advance and this would mean the UK driving the EU agenda at a time when Brexit was one of the key items on the agenda (which we are not entitled to discuss). This situation would be awkward to say the least. There is precedent for the Presidency to be passed on and we would expect this to happen.
December 2018: A done deal?
Depending on when we give our initial notification, December 2018 could be when the two-year deadline for completing negotiations over British exit from the European Union expires.
Over 40 years of law-making — tens of thousands of legal instruments — will have to be unpicked and either placed on some fresh basis or discarded. The task of repeal and replacement will be excruciatingly slow. The deadline can be extended but only by a unanimous vote of Member States, which is itself challenging. The Leave campaign has suggested that a UK/EU trade deal could be negotiated in parallel with the exit deal. They argue we could strike a good deal quickly because the EU wants to maintain access to the UK market. However, the Remain campaign argues is that it would be much harder than that – with less than 8% of EU exports coming to the UK while 44% of UK exports go to the EU.
Jan 2019 – 2029 Trade beyond the EU
Having voted to leave the EU, we lose access to trade agreements with more than 50 countries outside the EU. The UK would begin renegotiating swiftly, although these deals could not start until the the Brexit deal was finally settled. Experts in trade negotiations suggest they could take up to ten years to complete.
No one can be 100% certain as to what is going to happen after Friday. Much of what we have presented here is our best guestimate. One thing we can be certain though is that, after the result is known in the early hours of Friday morning, there will still be plenty of political uncertainty to come, which poses challenges for anyone running a business or organisation. At Atlas Partners we are on hand to try to help you navigate your way through this complex web so that, as far as possible, you can be prepared to face the inevitable rocky road the UK has embarked on.