The results are all in and it is clear the previous Conservative Party government no longer has an outright majority in Parliament with which to pursue its previous articulated Brexit agenda. It is expected that the Conservative Party, as the largest single party, will continue to form the government and will seek to rely on the Democratic Unionist Party (DUP) from Northern Ireland in particular in order to be sure of a majority on individual voting issues.
It is too early to make too many predictions about the long term effects of this result (which has thrown up any number of political questions) but set out below are a selection of the likely implications for the Brexit process and what it means for business:
Brexit is very much still happening
An overwhelming majority of Members of Parliament from different sides were elected with a manifesto to respect the 23 June 2016 referendum vote and continue with the Brexit process. The election result does not in any way reverse the referendum result, with both major national political parties remaining outwardly committed to Brexit. The big question remains as to what form this Brexit will take, with the UK position on that now inevitably less clear than before.
Article 50 notice is running
Article 50 notice (to quit the EU) was served by the UK on 29 March 2017. The election result does not un-serve this notice nor is there an option to pause it. Article 50 triggered a two year negotiation period prior to formal exit from the EU on 30 March 2019. The "clock is ticking" on that notice period and formal negotiations with the European Commission are supposed to begin in earnest now (as of 19 June 2017).
Does the result change the UK's Brexit strategy?
Surely yes. The previous Theresa May plan was based on an assumption of a clear Conservative Party majority in Parliament that could vote through whatever accommodations were reached with the EU. This no longer exists. At the very least the Conservative Party will need to take into account the view of the DUP, but will also need to mindful more of the possibilities of rebellions within its own ranks, all of which will lead to concessions needing to be made.
Is "soft Brexit" back on the table?
There is now considerably more support for the perceived "softer" options for Brexit that had hitherto been ruled out by the Theresa May plan. Most significantly this plan had ruled out remaining in the so-called Single Market and the broad customs union with the EU, especially via membership of associate organisations to the EU such as the European Economic Area (EEA) and EFTA (European Free Trade Association). Such an option, often termed the "Norway" model (although Switzerland and other countries have their own individual variants), has been advocated by leading business organisations in particular as leading to the least disruption to business, including as it would the continued free movement of goods, services, labour and capital, and in turn securing such issues as so-called "passporting rights" for financial services from the City of London. Being in such a relationship with the EU has clear precedents via countries like Norway but the clear position from the EU is that such a future relationship contains many conditions, included amongst which are paying significant sums into the EU budget; accepting significant degrees of EU regulation with less say in its formulation, and accepting a significant level of supra-national supervision on many areas of rule of law.
Is there any chance of "soft Brexit" happening from the UK side?
As noted above the Conservative Party's current position is completely at odds with the so-called "soft" Brexit variants, and has positioned itself firmly against ongoing free movement of persons and in favour of bringing down net migration to the UK. It would require major political reconciliation to dilute such positions into a situation that allowed progress on a future relationship that allowed single market access in particular (NB. it is not impossible that the EU would concede some sort of "emergency brake" on migration to give some ground on this point but it would require a major shift in the EU position). However, the Conservative Party now needs to bring along the DUP with it, for whom possibly the primary Brexit concern is to avoid the restoring of a land border between Northern Ireland and (the Republic of) Ireland. If the UK would deal with the rest of the EU on WTO terms only (ie. no single market or customs union) as was previously contemplated, then it is hard to see how such a land border for goods at least could be avoided. This pushes the solution back towards the sort of "soft" Brexit options discussed above. The fact that almost all other UK political parties publicly support continued membership of the Single Market and Customs Union would of course assist this.
Is there any chance of "soft Brexit" happening from the EU side?
This would obviously be a political matter and subject to any amount of negotiation and bargaining. Even assuming the UK would ever seek such an outcome, any new relationship that the UK might seek has to be agreed by the 27 other members of the EU, and in the case of an EFTA relationship the four members of that too (Norway, Iceland, Switzerland and Liechtenstein). Among the biggest concerns to the EU following a UK departure is the hole in the EU budget this creates, hence the retention of significant budget contributions in this way would be attractive, as would the minimum disruption to "Rest of EU" business to the UK. Either way, the current European Commission mandate to negotiate Brexit is currently concerned with settling an ordered departure more than securing a successful future relationship hence turning the agenda from the current official EU position to one that deals with this would require considerable political agreement on many fronts.
Is "hard Brexit" and/or "no deal" now off the table?
No. The stated Conservative Party commitments were against the models described above and sought at best a new and unique free trade deal with the rest of the EU going forward. Until further notice this must be presumed to be the Conservative Party's continued objective but they will face mounting opposition to this from the other parties (and large swathes of business) and will need to placate the DUP at the very least as noted above, hence the pressure to dilute their previous stance will be considerable. It is still possible too that as at end March 2019 no deal would be struck with the EU as to either an orderly exit or a new trade relationship. The stated Conservative Party position was "no deal better than a bad deal", and this position too may need to be revisited now.
What does this mean for business and what should it do now?
Unfortunately the new election result means further and continued uncertainty. Business has learned to live with this to a degree but the previously stated Theresa May plan for Brexit negotiation and delivery of a new relationship had cut down some of the options, but the new result surely means some of these options will need to be reconsidered. A lot will happen in the coming weeks and months but for now this means Brexit could still go in any number of ways and a "no deal" scenario in which the UK defaults to WTO trading rules only is still a clear possibility. Across the sectors businesses need contingency plans against the different scenarios (eg. will my exports from UK to EU meet tariffs in future, will my goods and services provided to the EU be closed out through regulatory barriers, will my imported inputs from the EU be subject to tariffs? etc). Many businesses have been making plans to deal with the different possibilities already, but anyone who has not should remember that the Article 50 "clock is ticking" and in business terms April 2019 is not that far away.
Navigate your way through the complex issues and challenges
In order to help you navigate your way through the complex issues and challenges that Brexit presents, join us for our next Brexit Blueprint events in October. Our second in the series of events will focus on Brexit's impact on regulation and how you can make the most of the opportunity.
More details will be released soon, however if you would like to pre-register your interest please email us ›This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.