U.K.’s May Has Reasons to Worry Despite Her Brexit Law Victory

  • Risks ahead on economy, offer to rebels of vote on final deal
  • Bill passes House of Commons unscathed but Lords scrutiny next

MIT's Van Reenen Warns of Brexit's Big Costs for U.K.

Theresa May’s latest Brexit victory should leave her happy -- but might ultimately come at a price.

Late on Wednesday, the prime minister persuaded the House of Commons to back her original 137-word draft law to start the withdrawal from the European Union. Her only concession to lawmakers was that Parliament should get an early vote on the final pact.

The question now as the House of Lords prepares to begin debating the legislation is whether that move amounted to nothing more than a sop to buy off rebels in May’s ruling Conservative Party, or will prove a significant concession that could derail her Brexit strategy down the line.

May’s team argued she merely confirmed that lawmakers will get the choice between accepting her handiwork or quitting the EU with no deal at all. Brexit Minister David Jones warned that the premier would never return to the negotiating table to ask EU leaders for a better pact.

The main opposition’s Brexit spokesman thinks the government is bluffing.

“The idea the prime minister would seriously say in 2019: ‘Well, rather than go back and see if I can improve and satisfy parliament I will simply crash out’ that would be a reckless act,” Keir Starmer of the Labour Party told the BBC Radio on Wednesday.

Weak Hand?

In that worst-case scenario, May and her European counterparts would have to decide if they really wanted to see World Trade Organization tariffs erected on their trade.

“Whether that is really the choice available will depend on the political mood at the time,” said Alan Renwick from the Constitution Unit at University College London. “Given a strong desire, in the U.K. and across the EU, to avoid hard and disorderly Brexit, strenuous efforts to find an alternative would follow any parliamentary vote against the deal.”

According to Renwick, May’s government “might well collapse” if lawmakers reject the final draft agreement. The government “will therefore do all it can to deliver a deal that parliament will accept,” he said.

The EU is also adept at stepping back from the brink of disaster at the last moment. “We also know from the euro zone crisis the skill with which the EU can teeter on cliff edges without quite falling off,” Renwick added.

Lords Next

In less than two weeks, the bill will face the House of Lords -- where the government does not have a majority. While it could receive tougher treatment in the unelected chamber, the draft law is unlikely to be blocked, leaving May ample time to meet her deadline to trigger Article 50 by March 31.

As for what happens later in the process, the timing of Parliament’s vote on the final deal is also significant. British and EU negotiators are aiming to have the agreement ready to send to the European Parliament in October 2018, six months before the U.K. will automatically leave the bloc under the legal timeline set out by the EU’s Lisbon treaty.

Read more in this Q&A -- Why Brexit’s detour through Parliament matters

By giving the U.K. Parliament a say before the deal goes to European lawmakers for approval, May has handed British legislators a potential six-month window in which they can pressure her to go back to Brussels and ask for something better.

All this hinges on opponents of May’s Brexit accord being organized enough to win a vote in Parliament. This week’s showing suggests they have a long way to go.

Labour Crisis

Labour remains in disarray over how to handle Brexit, and it showed this week. Jeremy Corbyn, the party leader, faced renewed speculation over his own position while shadow business secretary Clive Lewis resigned rather than follow orders to vote in favor of May’s bill to trigger Brexit.

The ruling Conservatives, meanwhile, have problems of their own. May took a risk when she sacked most of David Cameron’s cabinet as soon as she won power last July. This week, two of the victims -- Nicky Morgan and George Osborne -- defied May’s order to support her in Commons voting.

In all, seven Conservatives voted against May on Tuesday, in the closest act of defiance yet.

Ultimately, the state of the economy over the next two years could dictate the direction of Brexit. A sharp economic downturn has the potential to make voters think again about leaving the EU, handing May’s enemies a chance to hit back.

    Before it's here, it's on the Bloomberg Terminal.