High Court Hears UK Constitutional Challenge

Brexit map marc

The UK decision to leave the EU has been both a political and economic shock.  The near-term focus now shifts to the constitutional crisis that has ensued.  The key issue is what role does parliament have, and it is crucial because the House of Commons is less enthusiastic about Brexit.  Recall that those favoring to leave the EU won the referendum 51.9% to 48.1%.

Prime Minister May recognizes a role for Parliament but less than what many of them would like.  Specifically, claiming royal prerogative, May says it is her call when to trigger Article 50 of the Lisbon Treaty that formally begins the separation negotiations.  She also claims the right to set the strategy.

The British High Court begins hearing the case today.  It is expected to finish on Monday.  Regardless of the ruling, the losing side will appeal to the Supreme Court, and this will be fast-tracked for a decision before the end of the year.   While, the specific issue involves a treaty, which the High Court has often been reluctant to interfere with, the more general issue is the role of Parliament.  Following a non-binding referendum, does Parliament need to pass a new law to implement the outcome?

The Financial Times reports that the constitutional committee of the House of Lords concluded recently that it would be “constitutionally inappropriate” and create a troubling precedent to act on the results of the referendum without Parliament’s approval.  The judicial review at the High Court will conclude on Monday.  The appeal is taken for granted.  However, if a parliamentary act is needed to trigger Article 50, it could slow down the process, i.e., delay the formal negotiations until after Q1 17.

Some argue that the referendum was about empowering the UK Parliament over Brussels.  While it is an interesting narrative, to the extent sovereignty was the issue, it is about the UK government.   The parliamentary system is different than the presidential system in many respects.  One key way is that the party/coalition with a legislative majority has control of the executive branch.  In the presidential system, like the US, the one party can control the legislative branch, which the Republicans do now, and the other party controls the executive branch, which the Democrats do now.

Even with the likely appeal of the High Court’s decision, there could be a market impact.  Sterling’s depreciation has gathered pace since May indicated Article 50 would be invoked by the end of Q1 17 and that priority would be given to controlling immigration over preserving access to the single market.  The prospects of a hard exit from the EU weighed on sterling.  The possibility of a delay and a softer exit could spur some position adjustments that could help sterling recoup some of its recent losses.

Separately, Scotland’s First Minister Sturgeon has announced she will publish a draft Scottish Independence Referendum Bill next week.  She said, “I am determined that Scotland will have the ability to reconsider the question of independence–and to so before the UK leaves the EU–if that is necessary to protect our country’s interest.”  To be sure, the publication of the bill does not mean the referendum is imminent, but it maximizes Sturgeon’s options.   Sturgeon argues that there is a difference between leaving the EU and exiting from the single market.  Scotland may use this crisis as an opportunity to secure more powers, including over immigration.