Brexit Heads for Delay as May Tries to Scare Up Support for Deal

(Bloomberg) --

The U.K. is on course to delay Brexit and open the door to a radical re-write of the terms of its divorce from the European Union after recoiling from an economically disastrous no-deal split.

The pound climbed to its highest level since June after Parliament on Wednesday evening rejected leaving the EU after 46 years without an agreement in place to keep trade flowing. Legislators will now vote on a postponement to the current March 29 deadline.

The EU has suggested it’s open to a delay until late May, although officials say they will need Britain to give a clear reason for pushing back the deadline.

With the country in limbo and politicians deadlocked, Wednesday was another chaotic day in London that clarified what most parliamentarians don’t want but has done nothing to suggest what kind of Brexit a majority might support.

It leaves Prime Minister Theresa May still fighting for her Brexit deal, with a third attempt to get it through Parliament likely next week. That’s even after she suffered a major rebellion from her Conservative Party that included members of her own cabinet, lost two big votes, saw a minister resign, and ended up warning that Brexit could be delayed for many months.

Struggling to keep her voice because of an illness, May pulled out of the debate. When she did speak -- after the House of Commons eventually voted 321 to 278 to reject leaving the EU with no deal -- she wasn’t happy: “The House needs to face up to the consequences of the decisions it has taken.”

No Deal

It is almost three years since Britain voted to cancel its membership of the EU and with a little over two weeks to go until exit day, May has failed to get an agreement that can get through Parliament.

The prime minister’s preferred deal, which took two years to negotiate, was resoundingly rejected by the Commons for the second time in a vote on Tuesday night. Now, members have decided to avoid leaving the bloc without a deal.

The question is, what kind of plan will Parliament vote for, and how much longer do Britain’s politicians need to make up their minds?

Chancellor of the Exchequer Philip Hammond broke ranks on Thursday to suggest a series of Parliamentary votes on the potential Plan B options. “We now have to find a way forward,” he said in an interview with Sky News. “I am very happy with the prime minister’s deal but I think we also have to explore other options for Parliament to express a view about how we resolve this impasse.”

Brexit Menu

May’s office has said there are no plans for so-called “indicative votes” in the Commons to test support for different ideas, potentially including keeping Britain inside the EU customs union, the single market, or even a second referendum.

May is trying to bring her own deal back from the dead but hasn’t ruled out allowing members of Parliament to choose from a menu of other options.

“The legal default in U.K. and EU law remains that the U.K. will leave the EU without a deal unless something else is agreed,” May told the Commons after the vote on Wednesday. “The onus is now on every one of us in this House to find out what that is.”

May said if an agreement can be struck in the next seven days, she would ask the EU for a short “technical” extension to the March 29 deadline. If there’s no deal by March 20 -- the eve of the next summit of European leaders -- the delay will be much longer, she said.

That will mean the U.K. taking part in European Parliament elections in May, something the prime minister said would not be “right.”

Now or Never?

May’s warning of a long postponement -- which is included in the wording of the motion for debate on Thursday -- is a tactic aimed at persuading pro-Brexit Conservatives and their allies in Northern Ireland’s Democratic Unionist Party to back a deal before it’s too late.

A long delay would potentially clear a path for a second referendum, which could overturn the result of the first.

The DUP is in talks with Attorney General Geoffrey Cox, who’s aiming to allay their concerns about the Irish border backstop, according to a person familiar with the matter.

Tory Revolt

But after Wednesday’s votes, May will struggle to persuade Conservative euro-skeptics to do what she tells them to. Four pro-EU cabinet ministers -- David Gauke, Amber Rudd, Greg Clark and David Mundell -- all defied the premier’s orders and abstained instead of voting against a rebel motion designed to rule out a no-deal Brexit more firmly than her own proposal. They were joined by a bevy of junior ministers.

May lost the battle, after 43 Conservative members of Parliament either voted against her or abstained in the crucial vote at the end of the night. May’s office suggested ministers who abstained wouldn’t be forced to quit, another sign that the premier’s ability to command her own party is growing weaker by the day.

Rotten Deal

Steve Baker, a leading pro-Brexit Conservative, insisted his colleagues will not give in to May’s tactics and would never support her proposed agreement. “The deal is so rotten we were right to vote it down, and come what may we will continue to do so,” Baker said.

Meanwhile in Brussels, the EU’s chief Brexit negotiator, Michel Barnier, warned that postponing Brexit won’t be straightforward.

“It could be a tactical, a political prolongation,” Barnier told Euronews TV. “In that case, I know the answers and the reaction of the EU side, the EU leaders, the EU Parliament: ‘What for? Why do you need a prolongation? Is it for organizing a new referendum, new elections or not?”’

--With assistance from Jessica Shankleman, Robert Hutton, Stuart Biggs and Ian Wishart.

To contact the reporters on this story: Tim Ross in London at tross54@bloomberg.net;Kitty Donaldson in London at kdonaldson1@bloomberg.net;Alex Morales in London at amorales2@bloomberg.net

To contact the editors responsible for this story: Emma Ross-Thomas at erossthomas@bloomberg.net, Rodney Jefferson

©2019 Bloomberg L.P.