By Bloomberg
January 16, 2019

The U.K. stands at its most dangerous crossroads in decades after Parliament emphatically rejected Theresa May’s Brexit deal and left her facing an uncomfortable vote to oust her government.

The humiliating defeat on Tuesday evening, the biggest for any government in modern history, leaves May’s divorce agreement with the European Union all but dead and opposition leader Jeremy Corbyn trying to force a general election. While May believes she will survive Wednesday’s no-confidence vote, it’s unclear how long she—or her Brexit strategy—will last.

With the U.K. due to leave the EU in 10 weeks, there is growing alarm among British and European politicians that May will fail to end the impasse in time to avoid the potential economic catastrophe of leaving the EU without a deal. Any alternatives, including calling a second referendum, would likely require the EU to extend the March 29 departure deadline.

The prime minister said she will start cross-party talks this week to try to reach a consensus, but in such a febrile atmosphere they may already be doomed. Corbyn dismissed her offer as too little, too late.

The dramatic, if not unexpected, events in the House of Commons marked another watershed for a country that used to be a pillar of democratic stability and is now at the mercy of the divisions sewn by the 2016 referendum to leave Europe’s common market after 46 years of membership.

Landslide Loss

May lost the vote on approving her Brexit deal by 432 to 202. Giving her reaction afterwards, she was barely able to contain her frustration.

“It is clear that the House does not support this deal,” May told the Commons. “But tonight’s vote tells us nothing about what it does support—nothing about how—or even if—it intends to honor the decision the British people took in a referendum Parliament decided to hold.”

If May loses Wednesday’s no-confidence vote, Britain will be on course for its third general election in four years. Many Conservatives on her side who voted against the Brexit deal on Tuesday quickly said they’d support her leadership. If everyone on her side does turn out, her margin of safety is just 13 votes. On Tuesday night, 118 members of her party voted against her deal.

The scale of division exposed in Parliament on Tuesday evening suggests that her government can’t survive long regardless. Out of May’s 317 MPs, only 196 backed her. A loss like that would finish off a prime minister in normal times. But these aren’t normal times.

Stop Pretending

The mood in Parliament afterwards was surprisingly upbeat. Many members have been waiting months for the chance to vote on Brexit. They were denied their moment in December, when May pulled the vote. Now, they said, May could stop pretending that her deal had a chance of passing and move to discussing more realistic options.

The first sign of this was immediately after the vote, when the prime minister bowed to pressure from cabinet colleagues and said she would open talks with opposition parties.

“People are looking at how we can get through this next phase to find a consensus as quickly as possible,” Justine Greening, a former education secretary, said in an interview.

“It’s right for the prime minister to have discussions across parties as we need to get a consensus about how to go forward. I think we have to see an end to procrastination to move forward out of the gridlock,” she said.

Where Now?

The question is what that route forward looks like.

For now at least, May is sticking to the principles she’s set out already, while her aides insist that the Withdrawal Agreement she negotiated with the EU over the past two years can’t be allowed to die. While she’s not yet publicly contemplating extending the Brexit deadline, May gave a heavy hint that she won’t allow the U.K. to fall out of the EU with no deal.

“I have always believed that the best way forward is to leave in an orderly way with a good deal and have devoted much of the last two years negotiating such a deal,” she said.

Some in May’s Conservatives back a no-deal Brexit, and urged her to take that route. Others favor a customs union with the EU. There might be a majority for that—it’s the position the Labour Party supports—but were May to go for it, she would risk angering even more Conservatives.

The prime minister said she’d talk to “senior Parliamentarians from across the House,” rather than directly reaching out to Corbyn. Realistically, she’ll have to at least invite him to talk, though his office said on Tuesday evening that there was no future for anything based on May’s deal.

The pound rebounded from earlier losses on news of the plan for cross-party discussions.

Labour Pressure

For now, Labour’s priority is its attempt to trigger a general election. “Things have now got to change, starting with the government,” the party’s Brexit spokesman Keir Starmer said in a video message on Twitter.

If, as expected, that fails, there was little sign from Corbyn’s office that he’s about to move to supporting a second referendum. But he’ll come under pressure from many in his party to do so after Labour members voted at their conference last year that it should be an option. On Wednesday morning, more than 100 Labour MPs will call for Brexit to go back to the people.

“The message to the leadership from across the party—MPs and members—is that the time is now to pivot to support a public vote on whether we should accept the deal or remain in the EU,” said Mike Buckley, director of Labour for a People’s Vote. If the party doesn’t shift its position, pro-EU lawmakers are planning to propose their own amendment to the next Brexit vote.

May’s government is likewise split. Her cabinet meeting on Tuesday morning saw Pensions Secretary Amber Rudd arguing that the prime minister should publicly reject the idea of a no-deal Brexit. May didn’t go that far, but she did come close.

“I have always believed that the best way forward is to leave in an orderly way with a good deal and have devoted much of the last two years negotiating such a deal,” she told Parliament.

Angry Executives

In a conference call with business leaders late on Tuesday, chancellor of the Exchequer Philip Hammond floated the idea of delaying Britain’s departure from the EU. Adam Marshall, director-general of the British Chambers of Commerce, said after the vote that businesses he represents were frustrated, impatient and angry. He called it “a high-stakes political roller-coaster ride that shows no sign of stopping.”

May’s defeat on Tuesday leaves serious questions in Conservative ranks about whether she’s capable of the kind of political deal-making necessary to get a deal through.

It has taken 19 months from the point where she squandered her parliamentary majority by calling an election for her to publicly acknowledge that she’ll need to listen to opposition MPs if she wants to get a deal through Parliament.

“I voted for the PM’s deal tonight and will of course back her in tomorrow’s confidence vote,” Nick Boles, a former Conservative minister who has proposed delaying Brexit and handing control of policy to a panel of senior parliamentarians, said on Twitter. “But be in no doubt that she is the architect of tonight’s defeat.”

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