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Interview: Brexit Update From London

Posted on Sep. 16, 2019

Tax Notes Talk host David Stewart catches up with Jeremy Cape of Squire Patton Boggs in London about the current state of Brexit.

Read the podcast episode's transcript below. The post has been edited for length and clarity.

David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: Brexit update. I'm in London this week for the International Fiscal Association Congress. I figured it would be a great opportunity to check in with Jeremy Cape to talk about the latest developments in the ongoing Brexit saga and his recent column lamenting the state of Conservative Party tax policy. Now, we recorded this episode on September 9, so additional developments may have happened by the time you hear it. Joining me now is Jeremy Cape, a tax and public policy partner with Squire Patton Boggs here in London and a Tax Notes International columnist. Jeremy, welcome back to the podcast.

Jeremy Cape: Hey and welcome to cloudy, chilly London.

David Stewart: Thank you. So last time we talked, it was about a year ago. Can you bring the listeners up to date on what has been happening with Brexit since then?

Jeremy Cape: What has been happening with Brexit? Well, rather a lot. In summary, we thought the U.K. would be likely to leave the EU at the end of March of this year in accordance with the Article 50 process, which meant that there’s two years between serving notice and then leaving. However, the deal that Theresa May had agreed with the EU, she was unable to bring through Parliament to be through the House of Commons, which rejected it on three occasions. Therefore, the U.K. asked for two extensions — one in March and then a subsequent one in April to try and get its act together. Donald Tusk, the president of the European Council, said to the U.K., “Do not waste this time that we have given you.” Since April, we've had a leadership contest, which was won by Boris Johnson quite resoundingly. Members of Parliament then went on holiday for the summer and since the return to Parliament in September, quite a lot has occurred.

David Stewart: I think that's an understatement.

Jeremy Cape: Yeah, yeah. Boris Johnson stated during the leadership contest that he was very keen that the U.K. should leave the EU at the end of this extension October 31 — deal or no deal. He has continued to stick to this pledge, but in trying to get there, he's managed to lose his majority. He's managed to lose two ministers — one of whom was his brother Jo Johnson — and then Amber Rudd, who thought the U.K. should remain in the EU. She was brought into the cabinet to provide at least some breadth, but she resigned on the basis that she thought that Boris Johnson was no longer entrusted in negotiating a new deal with the EU that would enable the U.K. to leave on October 31 in an orderly fashion. 

David Stewart: Is it any clearer today what Brexit is going to look like than it was a year ago?

Jeremy Cape: I would say that it probably isn't. At the moment, it looks highly unlikely that the U.K. will leave on October 31 because Parliament has passed a bill that requires Boris Johnson to ask for an extension to the Article 50 process. Under that, we don't leave October 31 unless he's able to agree a deal or otherwise leave with the old Theresa May deal. But by that date, it doesn't look like he's going to be able to do that. There is some talk that he may not ask for that extension. I suspect it's unlikely ultimately that a prime minister would break the law in that way. They may be trying to find some loopholes around it, but I suspect that's unlikely. It's slightly more possible that the U.K. could ask the EU to agree to an extension and they say no. Or, as is required by the legislation, Boris Johnson may ask for an extension to January 31 and the EU comes back and says, “Well, no. The extension has to be two years,” and that goes back to Parliament and Parliament says that's too long. It's possible that the U.K. could leave with a deal — either the old deal, a new deal, or no deal at the end of October, but I think it's unlikely. We're probably looking into 2020. Ultimately, there remain three options. One is to leave without a deal. One is to leave with a deal of some sort, which will probably be like the Theresa May deal or a variation thereon, or to revoke Article 50 and remain a member of the EU like it was all a bad dream.

David Stewart: Now you mentioned that there were several defections from the government. What is the state of the government at the moment?

Jeremy Cape: Well, I think there is a majority of minus 43. This is because following the bill that was introduced by rebel MPs, Labour Conservative MPs, to require Boris Johnson to ask for the extension, 21 largely very distinguished, very reasonable, experienced MPs who supported that bill were expelled from the Conservative Party. Now for any purposes they will still support government. Most of them still regard themselves as conservatives, as members of the Conservative Party, but they are now no longer technically part of government. Boris Johnson doesn't command majority of the House and that's one reason that as of September 9, unless something strange happens, it's totally unexpected that Parliament will be prorogued, which would mean that in effect it would go into suspension for five weeks. That means that nothing really is going to happen, nothing can happen in Parliament. There's a question what the government does with that time, whether Johnson tries to negotiate a new deal with the EU or we just do nothing and wait until Parliament comes back.

David Stewart: Would holding a new election fix any of this?

Jeremy Cape: Well, it depends what the results of the election are. If there's an election and Boris Johnson wins a majority of 40 to 50 MPs, they can come back and then it should be possible for him to deliver on what he wants and that may not be a no-deal Brexit or that may be something else. If, on the other hand,you come back after a general election with a Jeremy Corbyn majority of 40 or 50, then Corbyn could well be in a position to deliver his vision of Brexit and also his vision of what a modern 21st century state should look like. That could be rather different in terms of how the U.K. is taxed compared to how it is now and how it may change if Boris Johnson remains prime minister. A lot of that does depend on what happens in the election. My prediction is it's more likely that no party ends up with a majority and the general election doesn't solve anything.

David Stewart: We're back to square one. We're at a stage where we don't know if there may be another extension. We may be waiting until 2020 for some resolution or we may just get extension after extension.

Jeremy Cape: Yes. I think there is likely to be an extension beyond October 31. It's not absolutely certain, but I think it's around 90 percent certain that it goes there. The problem seems to me that it seems likely that after that extension request is made, which will be a few days before October 31, we will then get a general election that needs to be five weeks between the calling of the general election and the general election taking place. That takes us into the end of November. We then have three weeks for Christmas and another three weeks or so in January. Unless things have been resolved in that time, which even with the majority is going to be quite hard to get all that legislation through. In theory, if you have a large majority for Johnson that could see things being resolved by January 31. But I think is quite possible that we'll be looking for another extension. At some stage, he is going to get fed up with extension after extension. While I think the EU is concerned about a no deal in the sense that they would much prefer for the U.K. to leave in an orderly manner. There are also the disruptive effects in the short term of possibly to have the U.K. outside as a tax haven, as a low-reg state. That'd be a lack of keenness I suspect on the EU to see that occur. There is a preference, but ultimately extension after extension after extension does put pressure on the EU, which would rather be worrying about other things.

David Stewart: Alright. Jeremy, I thank you very much for hosting me. I'm here in your offices and hopefully we can have you back when we know a little bit more about what Brexit is going to be.

Jeremy Cape: Yes. I look forward to seeing you in 2032.

David Stewart: Thank you very much.

Jeremy Cape: Thanks, David.

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