29 March 2019: The Day Brexit didn’t happen

So we are still not OUT – though we might be out soon. Strangely, the markets don’t seem concerned. Could absentee politicians obsessed by passing inane resolutions be the reason why the UK economy is doing fine? Victor Hill tries his best not to get uptight.

Where we are now

On Wednesday (27 March) Parliament, pursuant to the agreement at the Brussels summit in the wee hours of 22 March, voted to extend the Brexit date to 11 April (or was it 22 May?) by 441 votes to 105.

If the Withdrawal Agreement is approved today (29 March) then we will leave the EU on 22 May and the new transition period (until the end of 2020) will kick in the next day. If the Withdrawal Agreement is rejected today then, in theory, we shall leave without a deal at 23:00 hours on Friday, 12 April. Except that in the latter eventuality there will be a push by the Remain majority in the House of Commons to push back Brexit day well into the middle distance – and we’d have to participate in the European elections.

As of 08:00 this morning it seems it could go either way – though the Noes probably have the better chance given Labour’s adamant stance. Labour is now the party of Remain and calculates that the longer Brexit is delayed the less chance that it will happen at all.

On Wednesday, the House of Commons, having taken control of Brexit, debated a menu of Brexit options, none of which would be negotiable with the EU Council even if it bore any goodwill to the UK (which it doesn’t) – because they have already agreed to the only deal that is acceptable to them…Watching BBC Parliament it was as if I were watching a pack of badly trained dogs each frenetically chasing its own tail. (All eight options were voted down, by the way.)

Meanwhile, Mrs May is said to be getting closer to passing her deal as the Moggites begin to panic that the Remainers might just outsmart them and paralyse Brexit to the extent that, eventually, the British people, like the prodigal son, are obliged to return to their masters in meekness and penitence. But many Moggite votes are contingent on the DUP position (including that of JRM himself) – and Ulster says NO! Meanwhile – sounds of gnashing teeth and lamentation – Boris Johnson has jumped ship.

The Prime Minister would have to change at least 75 Tory MPs’ minds to have any chance of getting her dreadful (everyone agrees it is dreadful) Withdrawal Agreement through the House of Commons – and insiders tell me that could just be doable today…It depends on whom you speak to.

And the Tory squirearchy, now adept at back-room, late-night, brandy-fuelled deals, has made its support of the May-Barnier deal conditional on Mrs May’s confinement to a warden-assisted senior residence in Maidenhead…Something they succeeded in securing at the 1922 Committee meeting on Wednesday (27 March). So now we have uncertainty about the country’s future leadership as well.

If the standing in the nation at large of our venerable legislature may be characterised by aggravated contempt, the reputation of the Westminster executive lies in tatters. This is, by any measure, the most feeble government of my lifetime – populated by grinning charlatans so dismally lacking in talent that they hop from one policy fiasco to another (failed probation reforms to contracting ferry companies with no boats) – at huge cost to the public purse – and without contrition.

This is partly a matter of arithmetic. Since the Soubrinis flounced out, Mrs May has only 313 MPs (apart from herself) who nominally take the Tory whip. Of these, over 120 would not serve under her for reasons of ideology. Another 20-40 Tories have already resigned on points of principle. That means the gene pool of potential talent in government is exceedingly small. There are some very talented ministers – Matt Hancock MP and Rory Stewart MP come to mind – but depressingly few. This is another argument to put this parliament out of its misery and to hold a general election. But no Tory wants a general election so long as Mrs May is at the helm…


At the summit of government, the Prime Minister will need the regenerative powers of Spiderman to preserve a benign legacy. There was a fabulous, if cruel, line in The Spectator’s leading article last week (almost certainly written by the brilliant Fraser Nelson):

Lord North [who lost America] is one of the few beneficiaries of the May premiership: he is now no longer the worst prime minister in our history.

That is not quite fair. Lord North[i]lost the 13 colonies after a wholly ineffectual response to a justifiable (there are Americans reading this) rebellion. Mrs May’s task was more like that of an escapologist – much more intractable.

Yes, the May government’s negotiating policy has turned out to be a total fiasco. She took power knowing that she had been given a poisoned chalice – but she chose to drink from it greedily. Now, on putative Brexit day itself, we are still in the dark – and still heading into the miasma of uncertainty – when it could all have been so simple…As Crispin Blunt MP wrote in the Daily Telegraph on Wednesday:

The loss of Mrs May’s parliamentary majority [in the June 2017 general election] was accompanied by a loss of confidence in herself, her closest political colleagues, and, shorn of her closest aides, direction and authority progressively collapsed. Instead of standing firm in the negotiations that followed, she was driven hither and thither by the EU Commission…

Oh, and Speaker Bercow – a man who has made a career out of egregiously bumptious pomposity (a characteristic which makes him a quite historic Speaker – certainly the most outstanding of my lifetime) has ruled that the meaningful vote cannot be put before the House because one of his predecessors had a funny turn back in April 1604. (He recently argued – au contraire – that we moderns should not be enslaved by precedent.) Fortunately, there was a ruse to get round this: today the Withdrawal Agreement (legally a draft treaty) will be put before the House uncoupled from the Political Declaration.

In most democracies (such as the USA) the power of the speaker is detailed in the constitution – but alas, the United Kingdom does not have a constitution in written form – rather a rag-bag of laws, conventions, precedents and legal rulings. That is one thing that comes out of this: that the political institutions of the United Kingdom are unfit for purpose in the (nearly) third decade of the 21^st century.

Future historians might wonder why a Prime Minister who had lost control of her cabinet, her party and the House of Commons – and indeed much of the civil service – might wish to perpetuate the very crisis that had undid her. She could have pressed a button on the dashboard marked “no-deal” – though that would inevitably have instigated a political crisis. The calculation of the ruling class was clearly that the political risk trumped the economic risk which (as I have argued in these pages) would be quite manageable.

Her beggarly request for an extension to Article 50 from the jamboree in Brussels last week brought humiliation upon Britain which, in the view of people like me, was entirely unnecessary.

I hope my readers in Britain and beyond will now be perfectly clear where we now are and where we are headed. Well, good on you if you are – because I’m not.

Market sentiment

The most extraordinary thing is that throughout the high-speed political fandango over the last three weeks or so the pound and the London stock market have remained entirely sober. There is an argument around that the markets, like the rest of us, are suffering from Brexit fatigue and that a paroxysm of boredom has clouded astute judgment. That, of course, is off the mark.

Madam Market is a shrewd old bird. She knows, from long experience, that well-established families with substantial assets sometimes fall out, with vicious infighting between siblings, and undignified exhibitions of behaviour at public functions. But then, at the end of day, the farm is still worth a lot of money. And numerous of those grandchildren have huge earnings potential…


I also note that government bond yields are falling rapidly in a flight to quality which is characteristic of an early-stage recession as investors anticipate that corporate default rates are about to spike. 10-year German Bunds now bear a negative yield – meaning that investors are paying the German government for the privilege of buying their paper…That also impels an inverted yield curve – which is more bad news for Europe’s (not least Germany’s) stricken banks.

The UK economy continues to hum along (despite Brexit) with unemployment down to 3.9 percent for the first time since modern records were kept in the mid-‘70s. Some economists have reflected that, with the politicians fighting one another like ferrets in a sack, they have had little opportunity to tinker with the economy – with beneficial effect.

The upcoming European elections

A major complication for extending Article 50 further is that the European Parliament elections are due to take place over 23-26 May 2019. Newly elected MEPs will take their places on 02 July. The stance of the European Commission is that if Brexit were to be extended beyond 22 May then the UK would legally be obliged to participate in the European elections.

However, the EU has already passed legislation to reallocate 27 of the UK’s current 73 seats in the European Parliament to other Member States, although this only comes into effect if the UK has left the EU by 02 July. Having already begun preparations for the elections on the basis of an increased number of MEPs, some Member States – such as France and Spain, which get another five seats each – may be reluctant to approve an Article 50 extension which would diminish their representation in the European Parliament.

Not holding elections in the UK would entail that the UK would be in breach of EU treaty obligations which require that EU citizens be represented in the European Parliament. This could lead to legal proceedings against the UK at the European Court of Justice.

Some commentators have suggested that EU leaders might be prepared to agree a protocol absolving the UK from having to hold the European elections at all. Other options mentioned include allowing the UK to hold a post facto election at a later date if it decided to remain in the EU (for example if Article 50 was extended in order for a second referendum to be held). But each of these decisions will cause major headaches for the European hierarchy, and ready agreement should not be assumed.

Under present EU legislation the total number of seats in the European Parliament would drop from 751 to 705. The remaining 46 seats will remain empty, but could be used in future for MEPs from new member states. (Makedonia, Albania?). Without the budget contribution from the UK, other member states will have to foot the bill for the 27 additional MEPs. (They earn around €8,500 a month, and receive a monthly office allowance of around €4,300.)

On a political level, the European elite (which is mostly based in Northern Europe) is scared that there will be a surge of populism across Southern and Eastern Europe – with Euro-awkward, anti-immigration social conservatives arriving in Brussels/Strasbourg in droves. The real fissures in Europe will become more apparent during those elections. I am not predicting a massive victory for the nationalist-populists but I am predicting greater strain on the European project – especially if the slowdown in the eurozone economy accelerates.

In terms of the UK, if we were to stage European elections, we can be sure that this will be political dynamite. Much has been written about how the Brexit process has undone the political establishment. Some people have speculated that both the Tories and Labour are finished – even though there was a marked swing back to the two-party system at the 2017 election, at the cost of third parties such as the Lib Dems and the SNP.

But in a forced (and unexpected) European election conducted under proportional representation the British might abandon their traditional reserve. It is quite possible that both Tories and Labour would be annihilated and that all the seats would be divided between Mr Farage’s political start-up, The Brexit Party, and Mr Umunna’s spectral Independent Group. That would be one in the eye for both outbound Mrs May and going-nowhere Mr Corbyn – but it would actually intensify the divisions over Europe rather than promoting consensus on our future course.

You were only supposed to blow the bloody doors off…!

This was Charlie Croker aka Sir Michael Caine in The Italian Job (1969). My father took me to see it for my eleventh birthday. Charlie was dismayed that a simple task of getting into a truck full of gold had turned into a fiasco of destruction. It probably wasn’t the greatest movie ever made – but it seemed so at the time, with all those shiny Mini Coopers catapulting themselves into ravines…

Sir Michael Caine, by the way, is a rich man, having invested his emoluments from Hollywood and Pinewood prudently over many years. I love his line that he always wanted to make money while lying in bed – a perfectly noble ambition, in my view. We are South Londoners both: he was born in Rotherhithe; and I, a quarter of a century later, just down the road in Camberwell. I have always admired him.

But my point is that all the British political elite had to do was to blow the bloody doors off – and not explode the entire political system, which they have done now – with extreme consequences.

Whatever happens – OUT on 12 April, 22 May, or in two years’ time – or Remain IN by virtue of some supposed People’s Vote (which will lead to more dissent over the medium-term) – faith and trust have been lost in the British political class and its ancient institutions. That is not perforce a pernicious thing if it leads to root-and-branch political reform (some might say modernisation). Though it carries very significant short-term risks. For example, Scottish Nationalists are expecting gains in a snap general election.


One school of thought within the right-wing (a word with horrible connotations – but how does one style it?) of the Tory Party is that a short, disastrous Corbyn government would be a purgative that would shock the current Party out of its present neo-liberal distemper. For such people the cure is not less democracy but more democracy – starting within the Conservative Party itself by making US-style primaries compulsory.

UKIP is going nowhere and it is very unlikely that Nigel Farage could win a seat in the House of Commons for the Brexit Party under the first-past-the-post electoral system. The Greens might make progress with proportional representation but all parties are now green – so their brand is diluted. What we are going to see is a massive transformation of the two main historical political coalitions. (I have even contributed to a book about that.)

Come Mrs May’s departure over the summer, the Tory Party, I’ll wager, will surprise us by its choice of leader. That leader will go to the polls in the autumn – just as the next round of EU negotiations will most likely begin. That’s when the British, exhausted by Brexit, might have a chance to renew their sense of the future.

Part of that renewal could be to give the country a new constitution. And what about Parliament itself? Edinburgh has the upturned boats of the Scottish Parliament. Cardiff has the shiny new National Assembly. The Palace of Westminster is in extreme disrepair (physically and metaphorically) – surely there is a case that it should be turned into a museum of our national history and a new Parliament constructed – not necessarily in London either: Manchester would be a good candidate…

While the political uncertainty continues, investors should (as Jim Mellon says) keep their powder dry; but also they should scan the horizon for value-based opportunities. Investors should never slavishly follow Madam Market – but they should always carefully listen to what she says.

[i]Frederick North, 2^ndEarl of Guilford (1732-92).