Where to next for Brexit as May loses deal vote

We may have 72 days until Brexit but it seems all options are being thrown back onto the table. Having rejected UK Prime Minister Theresa May’s Brexit deal by 230 votes, MPs must now come up with a better alternative that is able to secure a majority in the House of Commons – far from easy amid the current political divide.

We have a look at the various scenarios that could pan out following the landmark vote.

Brexit: taking back control

The next few days will be manic in Parliament. After an amendment tabled by former Conservative attorney-general Dominic Grieve was passed last week, the prime minister has just three working days to return to the House of Commons to present ‘Plan B’ – assuming there is one. This translates to five days including the weekend, meaning May has until the end of play on Monday to outline what avenue the government is pursuing next.

Read more as British MPs demand ‘Plan B’ for Brexit

Importantly, the Grieve amendment allows MPs to debate other alternatives to May’s deal and this is seeing all divided parts of Parliament fight for control over how Brexit is managed from hereon in:

• Pro-EU members: reports have surfaced that a group of MPs, including former Conservative cabinet ministers, are liaising with the speaker of the House of Commons, John Bercow, on introducing measures that would make it easier for MPs to propose new laws and circumnavigate the government’s executive power. This would allow a no-deal Brexit to be blocked and a second referendum to be held offering two options: May’s Brexit deal or no Brexit at all.
• Hard Brexiteers: those welcoming the prospect of leaving the EU with no deal and falling back on World Trade Organisation (WTO) rules are holding firm, relying on the fact that no-deal is the default position and the fact Britain’s departure date on 29 March 2019 is written into law.
• Remainers trying to respect the result: MPs that voted to remain but have since committed themselves to delivering some form of Brexit, including current cabinet ministers Amber Rudd and David Gauke, have called for the prime minister to hold a number of indicative votes on various options to garner a cross-party consensus of where to go next.
• Labour: Jeremy Corbyn’s opposing party is resisting calls to back a second referendum and has has tabled a vote of no confidence in the government in a push for a general election, but has not yet put forward any alternative plan for Brexit should it get into power.

Brexit: will a vote of no confidence lead to a general election?

Labour immediately used the only significant weapon it wields after the vote by tabling a vote of no confidence in the government. This follows on from May surviving a vote on her own leadership abilities last month. Corbyn has followed through with his commitment to challenge the government and said beforehand he would only call a vote when he knew he could win. The Labour leader is aware he only gets one shot.

If successful, the government would effectively be ousted, and a general election would have to be held. For Corbyn, a general election would not only allow the public to vote on how to take Brexit forward – if at all – but address wider issues such as housing and healthcare that have been ignored over recent years.

Learn more about the impact of Brexit on house prices

Plenty of disgruntled Conservatives were happy to show their desire for a new leader in the vote against May’s leadership but any vote against the wider government is a whole different ball game. The Democratic Unionist Party (DUP) – which props up May’s government by giving it a slim majority – has not backed the prime minister’s efforts to deliver Brexit because of the Irish backstop but has said it would support the government should a vote of confidence be held. Plus, convincing Conservatives to effectively vote themselves out of power is no small feat.

Would Labour win a general election?

Assuming a general election would lead to a Labour government is naïve as nobody knows what either party will pledge. May, having already promised to leave before the next general election in an effort to win over her backbenchers, would likely resign to spark a leadership contest, which would be between Remainers and Leavers within the party (she could also resign regardless if she sees no way forward). Meanwhile, Corbyn, having already refrained from calls to back a second referendum, has refused to reveal what the party’s Brexit plan is until after a general election has been called. The Labour leader has said he would ask his party what they want to support before pledging it in any manifesto. While reports suggest a large majority of Labour party members back a second referendum there is no guarantee which route Labour will choose.

Speaking to the House of Commons before the vote, Corbyn said all options must now be considered and called on the EU to be open to restarting negotiations to help resolve Brexit. May argues Corbyn is calling for a general election out of self-interest at such a crucial time for the future of the country. A general election may be one way of gathering a consensus from the public without having to hold a second referendum but there is every chance that after that vote, whoever comes to power, the country will face the exact same decisions it does today.

Brexit: will May stick or twist?

Although many have supported the Grieve amendment’s efforts to ensure the government moves in a swift manner as the Brexit deadline approaches, some have said it is counterintuitive by limiting the time May has to secure a viable alternative for MPs to rally around.

This raises the likelihood that May could put forward what would essentially be the same deal for MPs to vote on, with the only change being that there is less time on the clock and a higher chance that it will secure more support from those looking to avoid a no deal and others fearing her deal is the only way of ensuring Brexit is delivered at all.

May will undoubtedly try to convince the EU to give her some more leverage but the timeframe she has been given, plus the bloc’s reluctance to undermine its own rules to benefit the UK, means a revolutionary deal that can bring together the divided House of Commons is out of the question.

Any movement from the swathes of red lines that have been cast risks dividing the country further. Many believe May is likely to warm to the idea of a permanent customs union with the EU (often referred to as ‘Norway+’) if she is to change her tune and gather a consensus. But such a move would only fuel the anger of hard Conservative Brexiteers who are steadfast against the idea. The leader of the Liberal Democrats, Vince Cable, has asked ‘why we would bother leaving’ if we adopted a relationship like Norway has with the EU: the UK would still have to take rules from the EU but have no say in making them?

Importantly, the debate continues to be about what the future trade relationship is with the EU rather than the issue at heart: withdrawing from the EU. The Irish backstop is rightly described as an insurance policy that addresses what happens should the pair fail to agree a trade deal during the two-year transition period. Those arguing against it are justified: you don’t take out insurance unless it’s a possibility, and many refuse to risk the integrity of Northern Ireland’s position in the UK. Therefore, the prime minister might float toward a permanent customs union as it is the only way to address the issues, helping to avoid a hard border and keep the DUP onside by ensuring Northern Ireland is treated no differently to the rest of the UK. However, whatever Brexit deal MPs want they still must withdraw from the EU first.

If both no deal and May’s deal are taken off the table then all roads will likely to lead to a softer version of Brexit.

No deal or no Brexit?

There may not be a single viable alternative to choose from, but it is increasingly clear that the one thing that has commanded a majority in the House of Commons is avoiding a no deal. The amendment passed last week that allows MPs to limit the government’s tax-raising abilities under a no deal scenario was the first time a government has lost a finance bill in over four decades.

But, it is often forgotten that no deal is the default position and the only one that is written into law. Hard Brexiteers, led by Boris Johnson, David Davis and Michael Gove, boldly claimed that voting down May’s deal ‘will not lead to no Brexit or to an early general election’, and see it as a matter of holding on until the clock runs down to 29 March.

Those advocating for a no deal do want a trade deal, just not a transition period with caveats like the Irish backstop. Johnson and co. are reportedly seeking to exit the EU this year before negotiating a beefed-up version of the EU’s trade deal with Canada. However, leaving the EU without a deal does nothing to solve the border issues on the island of Ireland. It also means reciprocal agreements on the likes of citizen rights would not be in place, which would undoubtedly cause a shock to the labour market.

So long as no viable alternative rallies a majority then the UK remains on course for a no deal Brexit. However, the prime minister is aware hard Brexiteers are getting antsy amid the reports their rivals are seeking to take control of the agenda and that a second referendum could be on the cards. May, who has repeatedly stated the UK will leave the EU on 29 March 2019, warned Brexiteers that voting down her deal risked Brexit altogether if it goes to a second vote. And that will be true should no deal be blocked as it will only leave softer scenarios available. Brexiteers may regret not backing May’s deal – it could turn out to be the only viable form of Brexit on the table.

Read more as May says ahead of vote, 'no Brexit more likely than no deal'

Brexit: will there be a second referendum?

There are two problems holding a second referendum. Firstly, how do you hold a second vote without undermining the result of the first? Secondly, what options do you give the public? There are currently over ten choice formats being bandied about: some want all options on the table while others want a limited choice that in some cases omits the main choices like no deal or no Brexit. This problem exists because those calling for a second referendum have decided what they don’t want but not what they do want. No alternative has been put forward and the argument for a second referendum is weak in the absence of one - as May rightly argues: 'there is no agreement on the question, let alone the answer.'

So far, only the Liberal Democrats have made a push for a second vote. Although Cable admits the party is still recovering from the loss of support as a result of the coalition government eight years ago, the party leader is capitalising on the ineffective opposition of Labour. Some pollsters have suggested support for the Lib Dems could rise from single figures to as high as 25% if there was a general election and Labour failed to champion calls for another referendum. Many disregard that forecast-considering polls show the Lib Dems have gained little support despite being the only ones calling for a vote, but if it turned out to be true then the party could overtake Labour in the next general election.

A grim but notable estimate from the former president of YouGov, Peter Kellner, suggests the voter make-up in another referendum would be markedly different to the first because, quite bluntly, old people that were more likely to vote for Brexit are dying and more pro-EU teenagers are becoming old enough to vote. It suggests the support for Leave falls by 260,000 each year and that those voting to Remain rises by 235,000. Those are numbers that could swing a vote that was decided by just 1.27 million votes the first time around.

Brexit: will Article 50 be extended?

The collapse of May’s Brexit deal means the UK has even less clarity over its exit from the EU. It is now very likely that Article 50 will be extended as there simply isn’t enough time. Some claim it might have to be extended even to facilitate a no deal scenario because of the amount of legislation that must be passed before 29 March.

May will not be eager to postpone Brexit but is likely to support such an idea so long as there is clarity over what the extension is for, but this again requires a viable alternative to her rejected deal. Corbyn has said it is likely that Article 50 will have to be extended if his strategy works and a general election is called because the EU will want to allow added time for talks with the new government to take place.

The EU is also likely to back an extension. The UK can extend Article 50 unilaterally and without the EU’s permission but keeping them onside is important if anything worthwhile is to come out of the extended negotiating period. But, Brexiteers and European leaders are on tight timeframes that mean any extension is likely to be short – the UK holds local elections in May and that is followed by European Parliament elections in July. Therefore, Eurosceptic British MPs will be eager to get Brexit over the line before the shake-up, while EU leaders will be keen to keep the mess of Brexit out of their elections. Any delay risks seeing the UK take part in the elections, possibly paving the way for more Eurosceptic MEPs to come in and make things more difficult.

Brexit: there isn’t an answer to heal the divide

The division among parliament and the public remains deep and no side of the debate seems to be giving in. The stubbornness of Hard Brexiteers has provoked enough support against a no deal scenario that talks of staying in the EU have resurfaced, risking Brexit altogether. Every version of a second referendum risks undermining the result of the first and sparking a constitutional crisis. And a general election kicks the can down the road and presents the public with another uninspiring choice between a split Conservative party and a Labour party that doesn’t know what it wants.

How could the Brexit vote impact the markets: forex and stocks?

The twists and turns of Brexit have filtered through to financial markets, which can be a good indicator of sentiment during this time of uncertainty. Reports that a no deal could be less likely following the rejection of May’s deal has helped sterling gain some ground of late, but the pound is still trading over 8% lower against the euro than before the referendum in 2016 and 2% lower versus the dollar.

Read more on how to trade the GBP after historic Brexit vote defeat

London’s stock market has continued to rise over the last two years, with the more domestic-focused FTSE 250 outperforming that of the FTSE 100 that contains more stocks with global exposure. However, both have underperformed the DAX and CAC in that time and both UK and European indices have underperformed stocks in the US.

Join IG for a live #IGBrexitChat at 1pm on Wednesday 16 January to find out how the Commons vote will affect the markets