Brexit recap: Where we are and how to do business in uncertainty

By Charles Brasted and Andrew Eaton

The UK Conservative Party leadership race is in full swing, with candidates making a number of promises and pledges relating to Brexit.  In light of this, it is instructive to recap the basic legal position in which the UK finds itself and how we got here. 

Our key message for businesses is that, as Brexit and wider recent European developments demonstrate, heightened political uncertainty in Europe is the new normal and is not going away: you need to learn to live and thrive with it.  That means that getting the right political, policy and legal advice will be paramount to making good investment and commercial decisions. 

  • By notifying its intention to withdraw from the EU in accordance with Article 50 of the Treaty on European Union on 29 March 2017, the UK set 29 March 2019 as its exit date from the EU.  After two unanimous decisions of the European Council to extend the Article 50 period, the UK's membership of the EU is now due to expire at 11pm (UK time) on 31 October 2019, unless a Withdrawal Agreement is ratified and enters into force before that date.  Any further extension to the Article 50 period would require another unanimous vote by the European Council, most likely at the Summit scheduled for 17-18 October 2019.
  • The Withdrawal Agreement negotiated and agreed between the EU and Theresa May's Government provided for a transitional period whereby, following the UK's withdrawal from the EU, much of EU law would continue to apply for a time-limited period via the operation of the Withdrawal Agreement.  Following the expiry of that period (either December 2020 or, if extended, December 2022), if the UK and the EU had not agreed a future relationship agreement, the UK would have entered into the – now infamous – backstop arrangements.  The political controversy caused by the terms of the backstop, which if entered into would have provided no unilateral basis on which the UK could withdraw from them without breaching its international obligations, is ultimately what led to the UK Parliament rejecting the Withdrawal Agreement three times.
  • Without the entry into force of the Withdrawal Agreement or a unanimous decision by the European Council to extend the Article 50 period, the UK faces either withdrawing from the EU with no alternative arrangements in place on 31 October 2019, a "no-deal" Brexit, or revoking its notification under Article 50.  The consequences of a no-deal Brexit are widely believed to be highly disruptive, as many of the legal and regulatory frameworks currently in force in the UK by virtue of, or in some way intertwined with, EU law – from fishing to pharmaceuticals to financial services – would cease to operate in the same way overnight.
  • The UK Government has done much to prepare for a no-deal outcome. 
    • First, it passed the EU Withdrawal Act 2018 ("EUWA"), which ensures that much of the EU law and EU-derived UK law currently in force will be preserved immediately following a no-deal Brexit.  It does this by converting such law into "retained EU law", a new species of UK law whose interaction with pre- and post-Brexit legislation is prescribed in the EUWA.  This means that, in the event of no-deal, the EUWA will be a central part of the UK's legal order. 
    • The Government has also enacted hundreds of Statutory Instruments (SIs) under powers granted to it under the EUWA, which tweak retained EU law so that the law currently in force pre-Brexit is adapted to function appropriately in a post-Brexit situation.  This has been a painstaking task for government, done at speed and with minimal parliamentary scrutiny.  We may find that, if no-deal Brexit comes to pass, the legislative endeavours of the Government over the past year since the EUWA was enacted could give rise to a plethora of technical glitches and unintended consequences in practice (see here).  The Government's task is also incomplete: the Government continues to publish draft SIs on a daily basis, including to update previous SIs that have now become out of date – the challenge remains for the Government and Parliament to have passed into law the SIs necessary to get the UK legal system ready for a no-deal outcome, if and when it occurs.
    • Aside from preparing UK legislation for a no-deal Brexit, the Government has also been gearing up its practical post-Brexit systems, operations and procedures, for example in relation to customs, trade and immigration.  There are conflicting accounts (e.g. here and here) about whether the UK state is ready for a no-deal on 31 October.
  • The EU announced on 25 March 2019 that its no-deal Brexit preparedness programme was complete.  The EU has published 93 preparedness notices to stakeholders and adopted 46 legislative measures.  In general, the measures provide for conditional and time-limited (nine-twelve months) continuity between the UK and EU27 in a limited number of areas which would be most seriously affected by a no-deal Brexit, such as to facilitate the continuation of road haulage, rail and aviation immediately after a no-deal outcome.  Individual EU Member States have also been preparing for no-deal in areas over which they retain competence, such as those with significant trade with the UK having increased border infrastructure and/or staffing to deal with the additional customs handling requirements.
  • The UK Government has also been encouraging businesses to prepare for a no deal outcome.  In reality, however, evidence suggests that some businesses are more prepared than others, as levels of understanding, risk-appetite and capacity to address no-deal preparedness vary from sector-to-sector. 
  • Meanwhile, the established political parties are falling in popularity in numerous European countries, with many voters turning to more disruptive alternatives.  In the UK, in particular, the prevailing uncertainty surrounding how and when (and even if) Brexit will eventually occur is further compounded by the longer-term uncertainty about where the UK will be heading beyond Brexit.  Businesses can no longer afford to hold off investment and operational decisions in the hope this uncertainty will blow over.  Instead, they will need to factor political uncertainty into their "business as usual" decision-making and seek to mitigate the risks and capitalise on the opportunities such uncertainty presents. 

Hogan Lovells can help: clients are increasingly coming to us to help them develop no-deal contingency plans, analyse areas of potential regulatory and structural change for their business, engage with industry and government to influence the future policy landscape and provide political, legal and regulatory risk analysis for decision-making around transactions, investment cycles and strategic decisions.