Brexit: likelihood of key amendments passing - TDS

Further to a previous flash, Brexit: the 15 amendments in brief - TDS, the analysts at TD Securities explain here that Theresa May has been pressuring her MPs in recent days to support defeat of the amendments, and it appears that a few "rebel" Remainers have agreed to hold fire, with others claiming that the real damage can be done to the government's Brexit plans later this summer with narrower bills such as the Trade Bill and Customs Bill. 

Key Quotes:

"Because of this, defeat of the government this week looks somewhat less likely. But some votes will be very close, and could come down to the number of rebels on both sides of the House."

Of the 15 amendments, the first five are likely to be the most meaningful to markets. 

• Customs Union: Possible it passes, but odds slightly favour a government win. This is a key vote, and media will be fully-focused on it as it could go right down to the wire. If it passes, knee-jerk headlines will likely (but incorrectly) suggest that the UK will remain a member of the Customs Union, but this would be wrong. The amendment requires the government to report back on its efforts to negotiate a Customs Union; it does not require it to join one. 
• EEA Membership: Almost certain to fail. The Labour Party opposes this amendment. If this were to pass, however, it would compel the government to negotiate for EEA membership, all but ensuring a soft Brexit. The political consequences would be severe, and likely result in elections within months as the question of how to Brexit is returned to the voters.
• Meaningful Vote: Another key vote, and possible it passes. If this amendment passes, it suggests that parliament (which favours a closer relationship with Europe than the government) will have a bigger say in the negotiations. It could demand the government negotiate a softer Brexit, something that would be seen favourably by markets. 
•  Brexit Day: If this passes, it will increase doubts that the UK will leave the EU on schedule. This is already the political consensus (given the implementation phase goes to end-2020), but could increase conviction in some corners that Brexit will be delayed so much that it simply won't happen.
• "Henry VII" Powers: If approved, this complicates the picture for the government, and like the Meaningful Vote amendment, gives parliament more of a say in the government's strategy, requiring parliamentary approval of key laws. 

The other ten amendments are more technical/bureaucratic in nature, and while they might lead to more alignment with EU regulations and policies if passed (and hence a somewhat softer Brexit), they are unlikely to get the same sort of market reaction as the five above--and particularly the first two. It's entirely plausible that some of the more technocratic amendments are passed without controversy--in fact, the government supports the 15th amendment listed above. 

The Withdrawal Bill will need to pass through the House of Lords once more time before being signed into law, but we would expect this to proceed relatively smoothly: this coming week is the chance for the real showdown to occur.

Next Steps 

PM Theresa May will take the results of these votes into account as she prepares the next phase of Brexit negotiations. The UK government has now formally publish its position on Northern Ireland ahead of Theresa May's meeting with the EU leaders on 28/29 June (and the EU has already rejected it). A 150-page Brexit "white paper" will be released by the government at some point in the coming month--almost certainly after the EU leaders summit. It's at this summit where the EU leaders have demanded substantial progress on the Ireland border issue (something they're still not likely to get). 

Assuming they remain unsatisfied with the UK's approach, then nearly every open issue will get rolled into the 17/18 October 2018 EU leaders summit, at which point both sides will need to sign off on legal text covering the transition agreement and withdrawal agreement. 

The UK's desire to have a trade deal by this point already looks impossible, and we do not expect progress to be made on this front until next year. If--and only if--this is all done by October, we then expect the UK parliament to debate and approve the final agreement (subject to the Withdrawal Bill amendments above), before it returns to the EU for approval by both the EU leaders (by qualified majority) and the EU Parliament (by absolute majority)."