24 Jan 2017

Supreme Court rules Parliamentary vote needed on Brexit trigger. Public finances on track

Philip Shaw

Chief Economist

At 9.30am this morning (24 January) the British Supreme Court handed down its ruling on the appeal on the high Court decision concerning the following information.

  • Whether the government needed to put a bill to a vote in Parliament on the triggering of Article 50, beginning the formal Brexit process (rather than through the use of royal prerogative (i.e. executive order)).

  • Whether the government needed to formally receive the consent of Scotland, Northern Ireland and Wales.

The verdict on the first of the above issues went against the Government’s proposal that royal prerogative could be used (by a majority of 8-3). However there does not appear to be any stipulation from the Supreme Court detailing the requirements of such a bill. As such the government’s plan stated ahead of the hearing, to put a short bill to Parliament, continuing to work towards the triggering of Article 50 by the end of March, looks to remain valid. Reports are that the bill could be brought forward as early as tomorrow (25 January).

The decision on the role of the devolved assemblies is important and helpful for the government in meeting its planned timescales, particularly given that Northern Ireland heads to the polls for an election on 2 March; this could have marked a delay for the Government’s planned timetable.

As the detail of the Supreme Court decision came through, sterling gained on the news of the requirement for a parliamentary bill but then retreated again, falling below $1.25 against the USD, once the view came in that the devolved regional assemblies’ formal consent was not required.

From here we await the detail of the Government’s bill and planned timetable for this to be debated and voted on at the various stages in Parliament. Assuming the passage of the bill is relatively smooth through the House of Commons, one question will be whether it finds itself delayed as the Lords debate it. But even in the Common’s it seems likely that the bill will be subject to amendments; reports are that Labour, the Liberal Democrats and the Scottish National party have prepared a swath of amendments. Labour party leader Jeremy Corbyn has indicated that he will demand a plan from the government to ensure it is accountable to Parliament throughout the Brexit negotiations, but it does not appear that Labour will be looking for overarching changes to the draft legislation. Overall, whilst the Government’s timetable is tight, an end-March trigger point for Article 50 does still look to be a workable timeline.

In the background of the Supreme Court ruling was the release of December’s public finance figures. UK Public Sector net borrowing figures (ex-banks), the main borrowing measure, came in relatively close to expectations at £6.9bn (consensus £6.7bn, Investec £7.2bn). Although the Office for Budget Responsibility (OBR) has warned that figures for the final third of the year are likely to show borrowing up on year ago levels (due to lower corporation tax, lower stamp duty land tax revenues and higher debt interest requirements), the numbers suggest Chancellor Hammond is well on track to reach the £68.2bn OBR borrowing projection for 2016/17, set at the November Autumn Statement. Indeed, the Chancellor has scope for borrowing to come in more than £1bn above last year’s levels in each remaining month of 2016/17.

Note that ahead of the Budget on 8 March, Chancellor Hammond has indicated that he does not plan to undertake any further major fiscal policy changes at present. Indeed, at Davos last week the Chancellor reiterated that the Budget will be ‘steady as she goes’ and that he did not see the need to access fiscal ‘headroom’; he spoke of no radical change in outlook since the Autumn Statement.