Brexit: What you may not know

Regular NZBusiness columnist Ashley Balls filed this Brexit update on June 28th, following the UK referendum.
“Brexit is unfolding into the biggest constitutional crisis in Britain since the Second World War,” he says. “I set out to write this as a diary but so many events have happened so quickly that it would take up pages. By way of a summary, the principal events have included the following:
1.    The vote was won by the ‘Leave’ team by a narrow margin (52:48).
2.    The Prime Minister resigned – or said that he would, ‘sometime before the Tory party conference in October’.
3.    Article 50 of the Treaty of Lisbon 2007 (the only place where any semblance of a leave mechanism exists) has not been activated.
4.    No vote has been called in Westminster to ratify or ignore the referendum result. The referendum was not binding. A bill must be presented to Parliament and passed prior to activation of Article 50
5.    Britain’s economy has shrunk and is no longer the world’s 5th largest.
6.    More than £300 Billion has been wiped off the stockmarket. Markets everywhere else are also down.
7.    The £ has collapsed to its lowest level in 31 years (£1 would buy US$1.35 a few minutes ago).
8.    The Bank of England has agreed to bail out the ‘too big to fail’ banks and announced that it would create £250 billion of new money if required (still no help for beleaguered bank clients).
9.    Shares of two of the country’s leading banks (Barclays and RBS) were suspended after massive falls.
10.    The leaders of the Leave team have been found to have lied about two key promises (an extra £350 million a week for the NHS and a severe brake on EU migration.)
11.    Sky TV confirmed in an interview with a government MP on 26th June that the Leave camp had no plan if they won!
12.    Scotland, which voted to Remain (along with Northern Ireland) want out of the ‘Union’ (UK) and to stay in the EU. This would effectively re-unite Northern Ireland with the Republic and possibly re-ignite the previous armed conflict.
13.    The founding members of the EU have asked Britain to ‘get on with it’ and commence exit negotiations.
14.    A well-known political scientist in Spain has suggested that the exit negotiations could take up to 10 years to complete as they will be so complicated, and the EU members are looking for some pay-back for the huge losses they too have incurred.
15.    The UK Parliament has a facility whereby citizens can start petitions and one such is seeking a second referendum requiring a 60% majority and 70% voter turnout for any change of status to occur. As at 16.45 on Monday 27th June (two working days after the referendum) there were 3,742,628 signatures on that petition! (The petition process virtually forces a Parliamentary debate on the matter when 100,000 verified signatures are achieved).
16.    The government is in disarray as a leadership contest gets underway. One MP who openly misrepresented the position is reported to be the front runner.
17.    A senior government minister, member of the Leave team and potential Prime Ministerial candidate (Teresa May) came out over the weekend saying that Britain has to leave the European Convention on Human Rights ASAP. The convention not only provides good basic employee/worker rights but provides a very sound basis for overall human rights, gender equality, access to justice, rights of assembly, freedom of religion etc., that are far stronger than the UK government is comfortable with.
18.    The opposition Labour party is also under fire as it supported Remain. The disaffected followers of former Prime Minister Tony Blair have resigned en bloc and want a vote of no confidence in the Leader (Corbyn). In the UK Labour party all major decisions are taken by the membership, not MPs, and Corbyn supporters have more than doubled the membership in the last 6 months.
19.    Parliament goes into recess on 21st July, returning on 5th September, and the debate schedule is already full until 21st July.
20.    Meanwhile the Police investigation of 33 cases of alleged election expenses fraud in the government party continues. The government has a majority of 17.
21.    The City of London – the world’s leading financial services centre – is facing a threat that the EU may apply barriers that will stifle growth and coerce migration of banks to Frankfurt.
22.    Job losses are predicted. A report just published by PWC states 50,000 City of London banking jobs will be gone by Christmas and a further 200,000 are under threat in the ensuing 2-3 years if Britain leaves the EU.
23.    Economists of all persuasions are predicting recession, falling wages, job losses, inflation and business closures.
24.    The house price boom (which like NZ has wrongly been described as a supply problem) is stuttering to a halt and prices are expected to fall. All the major house builders on the stock exchange have seen their share prices collapse 8% – 15%, with further falls predicted.
25.    Two of the leading international credit rating agencies have downgraded the UK.

The above list covers only the major issues of the first two working days following the referendum. What happens next is anyone’s guess but Kiwi exporters should not think that the devaluation of Sterling presents an opportunity. British business is entering a period of prolonged uncertainty. 
Trade with the UK may actually get more difficult despite the exchange rate volatility:
•    Forward currency positions are going to be very hard to predict.
•    Pricing of product becomes a lottery, putting margin at risk.
•    UK buyers are going to drive a very hard bargain.
•    The UK market for all goods and services is expected to shrink further.
•    Political risk and export credit guarantee insurance may become very expensive or even impossible to buy.
•    Payment delays are to be expected.

The likely timetable – presuming Brexit happens – is that Parliament will take until later this year to ratify the referendum and activate Clause 50 of the Lisbon Treaty. November/December has been suggested. The period of exit negotiation set down in the treaty is 2 years, which can be extended by mutual agreement if required or if an agreement has been reached has to be sent to every EU member state for their individual Parliamentary ratification. A unanimous decision by all member states is required for any new membership to occur or for any current member to leave. The earliest practicable date for Leave is around Easter 2019 (see 14 above).

The legal position on Brexit 
The following is a quote from Cameron in the House of Commons on Tuesday 27th June.
“That’s (a 2nd referendum) not remotely on the cards. There was a decisive result [in the EU referendum]. The focus of the Cabinet discussion was how we get on and deliver that.”

However, this is constitutionally nonsense for a number of reasons.
To move forward under Constitutional law the following is required:
•    The European Communities Act 1972 has to be repealed before ANY discussions on exit can take place and before notice is given to the other EU members under Article 50 of the Treaty of Lisbon.
•    It is unlikely a bill to repeal the above could be prepared and presented to Parliament before November 2016
•    Under the law only the House of Commons can make or break laws – which the house of Lords can then block, but only for a period. This is the accepted meaning of ‘the sovereignty of Parliament’.
•    There is no force in a referendum result; it is entirely up to MPs to decide whether to accept it – and that requires a bill to be presented to Parliament.
•    When the bill to repeal the European Communities Act is presented to Parliament the referendum result is irrelevant in the decision making process. 
•    MPs must vote according to conscience and do what they consider is best for Britain. They must only take Britain’s best interests into account and cannot be directed by political affiliation.
•    To quote leading constitutional lawyer, Geoffrey Robertson QC: “Democracy in Britain doesn’t mean majority rule. It’s not the tyranny of the majority or the tyranny of the mob … it’s the representatives of the people, not the people themselves, who vote for them.”
•    Article 50 of the Treaty of Lisbon requires that a state can only leave in accordance with “its own constitutional requirements”. In other words, the process as set out above is required and cannot be varied for political expedience.

Speculating what may happen when a bill is brought to Parliament later this year is impossible, though the true costs of exit will then be much clearer. If, as many professionals and commentators surmise, a recession is underway, Sterling is still low and the markets have not yet recovered Parliament will have no choice but to remain in the EU. If on the other hand….

For reference, Article 50 of the Treaty of Lisbon states:
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.
A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.