Brexit Uncertainty, Scotland and the UK in 2018: Four Scenarios

POLICY PAPER

Brexit Uncertainty, Scotland and the UK in 2018

Four Scenarios

Kirsty Hughes | 13 October 2017 Download Publication Download PDF Version

© 2017 European Union

Introduction

If Brexit stays on track, and keeps to timetable, then by next autumn an exit deal will have been done. This will include an outline of the future UK-EU27 relationship – though detailed negotiation on that will be for the years after Brexit in March 2019.

But the Brexit process is unlikely to stay smoothly on track. The path to autumn 2018 looks murky indeed – political and economic uncertainty and instability loom. Few would place bets on Theresa May still being prime minister by then. But if not her, then who? Or will the Conservative government collapse before next autumn, with what implications for the Brexit process?

Jeremy Corbyn hopes in this latter scenario to be elected leading a radical Labour government – one that would implement, he says, a ‘jobs first’ Brexit. But would he definitely position Labour in a new election as a pro-Brexit party (as in June 2017) or might he shift? For now, Labour is supporting the UK leaving the EU concerned not to alienate ‘Leave’ voters while hoping, and rashly presuming, ‘Remain’ voters will not abandon them at the ballot box.

The Lib Dems still hope Brexit can be avoided via a second referendum on the Brexit deal but, apart from the Greens, no other party has yet supported this – even though public support for a second vote is growing. The Scottish National Party would, it says, welcome a ‘soft’ Brexit – or no Brexit for an independent Scotland in the EU – though a hard Brexit or ‘no deal’ Brexit would potentially be a clearer trigger for a new independence referendum. But whether the pro-independence side, and the SNP in particular, would want to exploit such an opportunity if it comes is an open question while support for independence remains clearly below 50%.

But neither the Lib Dems nor SNP are calling to halt the Brexit process now. The Lib Dems want a second EU referendum on ‘the deal’, the SNP perhaps a second independence referendum once ‘the deal’ is clear. In this, they are watching rather than leading public opinion – and the SNP is treading carefully around telling English voters what to do.

Meanwhile, business leaders in different sectors are sounding the alarm about the continuing uncertainty of where the UK is heading and the costs of a hard Brexit let alone of a ‘no deal’ Brexit.

Uncertainty will remain the watchword for now. A smooth path to autumn 2018 does not look likely. Scenarios abound as to how the next year could unfold. As well as deep political instability and uncertainty within the UK, there are various routes the Brexit talks could take – with the EU27’s stance centre-stage alongside the UK’s uncertain politics. And how much, and how obvious, economic fallout there is in the coming months will also feed strongly into the mix.

Four Brexit Scenarios for 2018

Opposition parties might perhaps be forgiven for watching and waiting while the Tory chaos over Brexit continues. But events are likely to move rapidly in the coming twelve months and politicians need strategies for the different scenarios that could unfold very quickly. Those who want to see the UK remain in the EU need to start considering how to lead on this, not wait for events to unfold.

Amidst the uncertainty, there are four main scenarios for how Brexit may unfold – even if multiple scenarios for how UK politics and politicians will behave. The four main scenarios are:

  • ‘No deal’ Brexit
  • Hard Brexit deal (aiming at a Canada-style trade deal)
  • ‘Soft’ Brexit deal (whether just staying in the EU’s single market like Norway or also staying in its customs union)
  • No Brexit/staying in the EU

The key political questions are what might happen for each of these scenarios to unfold. Might there be Brexit on timetable, another general election, a second EU referendum? Might Scotland turn towards a second independence referendum more quickly than anyone is now suggesting?

What an autumn 2018 deal would need

For there to be a Brexit deal of any kind in autumn 2018, the UK and EU27 need to have come to agreement on the EU27 three main ‘divorce’ issues of EU citizens’ rights, the divorce bill, and Northern Ireland. They also need, as set out in Article 50, to have agreed a framework for the UK-EU27 future relationship. This deal then needs to have been ratified by the European Council, the European Parliament and the UK.

For such a deal not to be chaotic in its implementation in the UK, there needs to be a transition arrangement, as part of the exit deal. The UK government needs appropriate legislation (the EU withdrawal bill, migration bill, agriculture, customs and trade bills, etc) to have passed through Westminster and the devolved legislatures – despite so far 70 pages of amendments on the withdrawal bill). And appropriate new administrative and regulatory structures established. In the absence of a deal, including a transition, the need for appropriate legal, administrative and regulatory structures in place by March 2019 will be vital – a huge regulatory re-engineering that looks almost impossible to bring about.

(1) Scenario One: ‘No deal’ Brexit

A ‘no deal’ scenario would be hugely damaging economically to the UK – and, to a lesser extent, to the EU27. If the UK left the EU without a deal, trade and production would be disrupted, borders and customs would be chaotic. Such an outcome would be much more disruptive than the benign-sounding ‘trading on WTO rules’ that some extreme Brexiteers espouse. There would also be a plethora of potential legal disputes against the UK (and potentially the EU27 too) for broken contracts and abrogation of rights – whether at the level of the EU itself, or other third countries, through to businesses and individual citizens.

What would drive a ‘no deal’ outcome?

For a ‘no deal’ scenario to come about, the UK and EU27 would have to have failed to agree on EU citizens, money, Northern Ireland, a transition and/or the future deal. Despite the growing negative tone between the UK and EU27, it is fairly unlikely a ‘no deal’ scenario would unfold until autumn 2018. Even if the UK walked away from talks in the next few months, would it really stay away as the clock kept ticking and economic and political consequences unfolded? It seems unlikely until time had run out, although the febrile politics of the Tory cabinet and party might mean an early ‘no deal’ cannot be ruled out.

EU citizens: On EU citizens in the UK, and UK citizens elsewhere in the EU, the two sides are not too far from a deal. It looks unlikely to be the deal-breaker. Money is highly sensitive on both sides. But with May’s opening offer of around €20 billion implicit in her Florence speech, the two sides should be able to find their way to a deal if the political will is there. But whether May (or another prime minister) can get her cabinet to agree any divorce bill deal is a crunch question. The EU, if the deal suits them, will certainly do what they can to make any future commitments by the UK (e.g. to cover uncertain projects or risks already taken on) less than obvious in any public reckoning of the bill.

The Bill: In mid-October, Michel Barnier announced that talks on the divorce bill were deadlocked. But this is a point of the talks where the EU is aiming to exert maximum pressure to get an acceptable offer from the UK on money so his language should not be treated as definitive. It will, though, take a serious shift from the UK on money to get the European Council to declare ‘sufficient progress’ has been made in the exit talks by December 2017. But it still looks likely that December is when the EU will agree to discuss a future trade deal – and draft Council conclusions for the EU27 19 October summit suggest they may start preparing trade guidelines in time for their December summit.

Northern Ireland: On Northern Ireland, the UK has made all the right noises about ensuring a frictionless border but it is hard to see how this can happen unless the UK stays in both the single market and the customs union – something no Tory government looks like doing. But ‘no deal’ would create not just a hard but a chaotic border between Northern Ireland and Ireland, so would the EU27 refuse to do a deal at this point, even if it was not the outcome they wanted? How the politics of a hard border under either a ‘no deal’ or a hard Brexit scenario might work out – in Ireland, the EU27, in Northern Ireland and the rest of the UK – is unclear. It could be a deal-breaker but it is not expected to stop the EU27 at this stage from agreeing to discuss trade.

The Future deal: If the EU27 do agree to start talking about the future trade relationship with the UK at their December summit this year, we may start to see more clarity about what sort of UK-EU27 trade deal could emerge. Theresa May does not want either a Norway-style deal or a Canada-style free trade deal – but the EU27 is likely to make it clear those are essentially what is on offer. And even if the EU is ready to negotiate some more complex service sector deals (which is not obvious) – whether for financial, legal, medical, IT or other services, for air travel, data protection, etc – none of these could be done by the end of a putative transition deal running out in 2021. They would take several more years – and the EU27 are not open to a long transition period.

To get to a basic Canada-style deal by, say, the end of 2021 (provisionally applied, needing tricky final ratification) might at a stretch be do-able. Faced with the reality of non-tariff barriers for goods trade, even under a Canada-style deal, and WTO levels of access for services (perhaps leading to a drop in UK-EU27 services trade of 60%) would the UK government really refuse to do a deal? A Canada-deal would still be better than ‘no deal’ but the UK government, faced with mounting pressures from within the Tory party, business and a deteriorating economy, might walk out, blaming the EU27.

‘No deal’ also means no agreed security and foreign policy arrangements. In the deep political crisis of UK-EU relations in a ‘no deal’ scenario, it is hard to envisage what could be rescued in the short-term, though anti-terror cooperation would surely be prioritised.

UK political responses to ‘no deal’

What will be the response in the UK in the face of the political and economic turmoil of ‘no deal’? Would the DUP continue to support the government? That seems unlikely. The chances of the government riding out the turbulence of a ‘no deal’ scenario are low, and so a new general election would be on the cards. If ‘no deal’ is most likely to happen late in 2018, then a general election might be held in December 2018 or January 2019. But the government walking out on the talks earlier cannot be ruled out.

Labour: Labour would face the key choice, in a ‘no deal’ and new election scenario, of whether to continue to support Brexit or not. If it goes into an election supporting Brexit, it may not win – Remain supporters may go elsewhere in the face of the unfolding chaos of a Brexit ‘no deal’ scenario. If Labour claimed it would negotiate a ‘jobs first’ Brexit (perhaps – as Keir Starmer has suggested – staying in a customs union with the EU) would that convince voters? It may well not. A Labour shift to a ‘soft’ Brexit, staying in the single market, might assuage some Remain voters but such a shift is not currently on the cards.

With a late 2018 or early 2019 election and with time running out to the March 2019 deadline, would Labour really want to take over the Brexit chalice? And if Labour continued with Brexit, it would have to ask for an extension of Article 50 as there would be no time to negotiate a revised exit deal and future framework, and get it ratified, in the 2-3 months left.

Lib Dems: The Lib Dems, in a ‘no deal’ scenario, would presumably argue for staying in the EU – endorsed by a second referendum. If Labour still supports Brexit, and if public opinion shifts towards Remain in a turbulent, ‘no deal’ scenario, the Lib Dems might benefit strongly.

SNP: In Scotland, the SNP would quite likely benefit too if the Tories and Labour (including in Scotland) were both still supporting Brexit at this point. One possible outcome for a crisis election would be that the Lib Dems, along with the SNP, could end up holding the balance of power.

The SNP would face a choice of whether to go for a second independence referendum as Brexit chaos and damage mounted in this scenario. How public opinion shifts in Scotland in a ‘no deal’ scenario would be centre stage. The absence of a ‘Brexit bounce’ towards independence since June 2016 could persist – though a ‘no deal’ outcome would certainly test that. And the SNP will still have to contend with the third or so of its supporters who have until now backed Leave.

But even if public opinion shifted towards independence, the general election would happen first – except in the unlikely case that the DUP were still propping up the Tory government as ‘no deal’ unfolded. If the Tory government lost a vote of confidence at Westminster, a new UK government would need to agree to a second independence referendum after the general election.

So, in an election context, the SNP would have to decide whether, with the Lib Dems, to make a second EU referendum a condition of support for a minority Labour government (if that happened) or whether they might instead ask for support for a second independence referendum – or both. One of the big challenges for the SNP in any second independence referendum, in a chaotic ‘no deal’ Brexit, would be how to deal with the risks of a hard and chaotic England/Scotland border.

The SNP are also clearly wary of supporting a second EU referendum on the deal in case it then becomes impossible for them to avoid that after a second independence referendum. But Nicola Sturgeon has recently made comments suggesting she is leaning towards a possible second EU referendum at least in the ‘no deal’ scenario. Scottish Tories would, meanwhile, be negatively affected if the Tory UK government has fallen, and Scottish Labour would face a challenge of whether to back a second EU referendum and to argue to halt Brexit even if Corbyn was not. The current support for Brexit by the Tories and Labour in Scotland did them no harm in the 2017 election but that might change rapidly amidst the chaos of a ‘no deal’ scenario.

If the UK politics unfolded so that a second EU referendum were agreed, then unless Labour had reverted to supporting EU membership, a second EU referendum would be harder to win – if Conservative and Labour parties were still campaigning for Brexit. ‘No deal’ chaos might shift Labour’s position in this scenario, as much as a deal with the Lib Dems and SNP, but it might shift it towards a softer Brexit not to no Brexit.

Overall, a ‘no deal’ Brexit would increase the chance of the UK crashing out of the EU in the most damaging way. It could also set off a series of processes – another general election, potentially a second EU referendum – that might either halt Brexit or lead to a ‘soft’ Brexit outcome. A ‘no deal’ Brexit could also be a strong trigger for a second Scottish independence referendum – but the SNP would be looking closely at how opinion was shifting before pushing for that.

(2) Scenario Two: An exit deal and hard Brexit

In a hard Brexit scenario, the UK and EU27 would have come to an exit deal including a 2-3 year transition period after which the UK would leave the EU’s single market and customs union. They would also have agreed an outline framework for a future UK-EU27 trade and security relationship that was based principally around a Canada-style free trade deal in the first instance.

Impact of a hard Brexit

In such a situation, either there would be a hard border between Ireland and Northern Ireland, or Northern Ireland would have a ‘special status’ still inside the EU’s single market and customs union, with a hard border between Northern Ireland and the rest of the UK. The politics of either outcome would be highly problematic and hard to predict.

With a Canada-style trade deal, there would be a range of non-tariff barriers which would create costs and delays both at the UK-EU border and away from the border (in terms of proof of regulatory conformity, rules of origin and so forth). There would be little in such a deal that would give services more than WTO levels of access (so they could face up to a 60% fall according to National Institute of Economic and Social Research estimates), and goods trade with the EU would also fall substantially given the non-tariff barriers (NIESR suggests as much as by 35%). All sectors would potentially be hit but especially those reliant on rapid delivery, cross-border supply chains and just-in-time production as well as all services.

In such a scenario, foreign direct investment is likely to fall, a range of companies and organisations will move offices, staff and production to the EU27. There is also no guarantee in a hard Brexit – even with a 2-3 year transition period – that the UK will be able to replicate the EU’s current trade deals with around 60 non-EU countries around the world (and this will certainly take time). So there will be a clear and growing economic downside of such a deal.

If Brexit talks move on to trade in December this year or shortly after, the new EU27 guidelines on trade that will then be agreed by the EU27 may start to make this rather clear. Once the outline of a potential EU27-UK free trade deal is much clearer, businesses and other sectors will start implementing contingency plans. The political debate and pressures will also change. The phoney Brexit war will be well and truly over.

UK political responses to a hard Brexit

If the UK government does agree such a hard Brexit deal, a key question is whether it will pass through Westminster next autumn (along with all the other Brexit legislation including the EU withdrawal bill). The Lib Dems and SNP would presumably oppose. Unless Labour had shifted – and clarified – its position to a ‘softer’ Brexit or no Brexit, it might logically support a Canada-style trade outline (since it will only be an agreed framework between the UK and EU27, not a full trade deal).

But politics could dictate that Labour opposes it – even if its current ‘jobs-first’ but not in the single market line would equally imply a Canada-style deal. It might seem unlikely that the DUP would support such a hard Brexit but they might – and Tory and Labour rebels could come centre stage at that point.

For now, Theresa May is insisting that a Westminster vote against a deal will mean no deal. But if Westminster didn’t ratify a hard Brexit deal, so the UK was facing a ‘no deal’ Brexit, it would be difficult to see a route ahead other than a general election – with a range of questions, at that point, similar to those in the ‘no deal’ scenario. Labour, in particular, might argue that they could negotiate a better deal but unless they shift towards a single market solution this would look unlikely. The EU27, in a hard Brexit, would have made clear this was the best sort of trade framework (for a future Canada-style deal) that they would offer.

If a hard Brexit deal did go through Westminster, what would the SNP do then? If a hard Brexit passed so there was clearly neither a second EU referendum nor a general election in the offing, then the SNP would be well-placed to do what Nicola Sturgeon has already said they would do – call an independence referendum when the Brexit deal was clear (though potentially still facing opposition to that from a Conservative prime minister).

Some argue that an outline trade framework would still not be very clear – it won’t after all be a final deal. But if the outline framework pointed in the direction of a Canada-style trade deal, the economic implications would indeed be fairly clear – and with many business decisions already reflecting that as investment and operations shifted to the EU27. The damage to the Scottish economy, and to both goods and services exports, would strengthen independence arguments.

But a hard Brexit means a hard UK-EU27 border. So the pro-independence side in a second Scottish referendum would have to marshal their arguments about the benefits of independence in the EU (or European Economic Area if policy shifted) even in the face of border challenges. Of course, if opinion stays static on independence even while the UK heads to a hard Brexit, then Sturgeon might well still hold off from a second referendum. But, even with a two-year transition period for the UK towards its hard Brexit, negative economic impacts will grow and regulatory disentanglement will move forward. It would seem a key moment for Scotland to decide if hard Brexit was a big enough crunch point to choose again on independence.

A two-year UK transition period out of the EU would also potentially give space for Scotland, if it chose independence, to opt-out of the hard Brexit processes the UK would continue to go through after March 2019. While less chaotic than ‘no deal’, a hard Brexit would nonetheless not be a very stable economic or political process – and Scotland would still be strongly affected by it (as Ireland would be).

Timing issues in a hard Brexit scenario

There are timing issues here for all parties. If by early 2018 it becomes apparent that the UK is negotiating an outline, Canada-style trade deal, this may trigger an upsurge in businesses shifting investment and operations to the EU27 and implementing contingency plans on this. This might impact on public opinion on Brexit. It would very likely put Labour on the spot to explain in what way any Brexit deal they would negotiate would not be the same.

Both the Lib Dems and the SNP will also need strategies for how to respond in the face of growing economic damage in early 2018. The Lib Dems have said they want a second EU referendum on the deal at the end of 2018. But in the face of mounting economic harm, and shifting public opinion, might the Lib Dems instead call for a second vote earlier than the end of 2018?

The SNP have suggested they might argue for a second independence referendum once the Brexit deal is clear (i.e. after the end of 2018). But if the likely trade deal that is being aimed at becomes clearer even in December 2017, the politics and timing could change. If public opinion starts to shift strongly earlier in 2018, both on the EU and potentially on independence, the SNP may face a choice of whether to ramp up a call for an independence referendum once again, and/or to push first and foremost for the UK to think again on Brexit (something the SNP have been reluctant to do – not wanting to tell English voters how to vote on the EU).

Both the ‘no deal’ Brexit scenario and the hard Brexit scenario could shift public opinion away from Brexit, and in Scotland might shift opinion towards independence (the crucial question then being how much). For the SNP, the challenge will be that both these Brexit scenarios give them more justification for calling a second independence referendum and arguments for disentangling from the political and economic harm of Brexit. But both scenarios also suggest a hard UK-EU27 border, which would imply a hard Scotland-England border – not an easy one to handle in making the independence case.

(3) Scenario Three: An exit deal and ‘soft’ Brexit

There are broadly two types of ‘soft’ Brexit. One would be a Norway/European Economic Area (EEA) arrangement whereby the UK stayed in the EU’s single market, respected all four freedoms associated with that, including free movement of people, but ran its own trade policy. A second, ‘softer’ Brexit would keep the UK in both the EU’s single market and in a customs union arrangement with the EU. This has never been done together – Turkey has a customs union but is not in the single market. Labour’s Keir Starmer has hinted at staying only in the or a customs union – but Turkey’s experience shows that does not mean seamless trade, just-in-time production or open borders.

Both main forms of ‘soft’ Brexit may be acceptable to the EU27. But both mean the UK losing its say and vote on EU regulations for the single market and, in the second case, on future EU trade deals. It is hard to see how a large country like the UK could live for long with such an outcome.

The Norwegians talk of a ‘fax democracy’, but they at least set their own trade policy. The EU27 would surely soon enough take regulatory and/or trade decisions that jarred with UK concerns and perceived interests or views. Despite being the preferred ‘compromise’ choice of some more pro-EU Labour and Tory MPs, and of the SNP and Lib Dems, the reality of ‘soft’ Brexit if it was seriously considered politically might suddenly look much less appealing or reasonable.

For such a ‘soft’ Brexit to happen, then a deal would have been done on all three main areas of the exit deal (i.e. EU citizens, Northern Ireland and the divorce bill). And the future relationship between the UK and EU27 would have been set out – whether as part of the EEA or as EEA plus customs union. In that case, a transition period may not be necessary – certainly not if the UK remained too in a customs union set-up.

A single market and customs union deal would also solve the challenges of the Ireland/Northern Ireland border. A single market deal alone would not – Norway has its own agricultural policy, its own trade policy, faces rules of origin declarations in its trade with the EU and spot-checks and cameras on the Norway-Sweden border. Equally, a customs union deal alone would not remove all non-tariff barriers that would stand in the way of an open, frictionless border.

UK politics of a ‘soft’ Brexit

But what would have had to happen in UK politics for such a ‘soft’ Brexit outcome? It is inconceivable that the warring factions in the Tory party and cabinet would opt to stay in the EU’s single market respecting free movement of labour. So a ‘soft’ Brexit implies that the government has fallen and a new government is in power that is following a ‘soft’ Brexit strategy. This would suggest Labour had shifted their position to ‘soft’ Brexit and won an election either with an overall majority or with support from Lib Dems and SNP.

This is quite hard to imagine at the current political juncture given Corbyn’s reluctance to adopt a position of staying in the EU’s single market. If Labour had shifted but needed support, would the Lib Dems simply support them or still insist on a second EU referendum, arguing that having a voice and vote was preferable to being a Norway-style ‘fax democracy’? It might seem likely the Lib Dems would still push for a second EU referendum. But whether Labour would grant this, and where public opinion was by then, would be key.

The SNP – given its position on a ‘soft’ Brexit of single market and customs union – might push for a Labour minority government to stay in both, and it might push for it to agree a second independence referendum (depending on Scottish opinion polls). If the UK went down a single market and customs union route, then it might take away any urgency, and some support (coming from opposition to hard Brexit in Scotland), for a second independence vote.

But it would equally make it easier to argue the case for independence, since an independent Scotland in the EU would not face any border or regulatory challenges vis-à-vis the UK. If the UK did end up in both the single market and customs union, it would also mean that those who argue for an independent Scotland to be in the EEA not the EU would have a weaker argument. If Scotland were in the EEA but outside the customs union while the UK was in it, then border problems would resurface. A UK ‘soft’ Brexit would also reinforce those on the pro-independence side who argue for a delay before any second independence referendum – Brexit urgency would have dissipated.

Overall, a ‘soft’ Brexit scenario only looks likely if there is a major shift in UK politics in the year ahead. It is not currently conceivable with a Conservative government in power.

(4) Scenario Four: Staying in the EU

In this scenario, Brexit doesn’t go ahead and the UK stays in the EU. This might involve both a general election and/or a second EU referendum. It also assumes that the UK would, and could, withdraw its Article 50 notification and that the EU27 would go along with that.

UK politics of halting Brexit

For the UK to change its mind on Brexit, the Conservative government would surely have had to collapse. What combination of deteriorating economic conditions and political opposition might lead to this is an open question. The government might fail to get its EU withdrawal bill and other Brexit legislation through the Commons – and this legislation is currently likely, too, to be opposed in both the Welsh assembly and at Holyrood, exacerbating the already simmering constitutional crisis. Equally, if the Brexit talks with the EU27 break down and the government walks away, heading towards ‘no deal’, that too would undermine and quite likely bring down the government. Or a final Brexit deal could be voted down next autumn at Westminster.

In this ‘no Brexit’ scenario, there would be a new election but whether earlier or later on in 2018 is an open question. If there is potential for the UK government to fall before autumn 2018 then too there is potential to halt Brexit before then too. For the UK to stay in the EU, then Labour would have to have shifted its position back to opposing Brexit at a general election or at the very least to have agreed – under Lib Dem and perhaps SNP pressure and too from some of its own backbenchers – to hold a second EU referendum.

Even if Labour won a general election on a pro-EU position or a second EU referendum were won by a substantial majority, there would still be deep divisions at least in England. The Tories meanwhile would be likely to be in serious disarray.

How would the EU27 respond? This would depend on how the politics of this scenario unfolded. If pro-EU political forces, and public opinion, were seen to have become a clear majority, and the new UK government was moving rapidly to mend the huge damage done to UK-EU relations and to its international standing since the Brexit vote, then the EU27 might broadly welcome this.

If the UK still looked deeply divided, unstable and quite likely to shift back to Brexit again within a couple of years, the EU27 would be less welcoming. It is quite hard to conceive of a political scenario of the UK staying in the EU that did not involve a great, constructive coming together again of the EU28 (hard though that is to imagine today). A reluctant or unwelcoming EU27 – and European Parliament – would impact on unfolding UK political dynamics. So while some continue to debate whether Article 50 can be unilaterally withdrawn by the UK (many legal voices say it can), the real questions in this scenario will be political.

Where would a UK back inside the EU leave the SNP and any push for independence? In the short term, it would surely take away any immediate urgency for such a vote. Equally, it would make independence at any future point, even more so than under a ‘soft’ Brexit scenario, much easier to manage if both Scotland and the UK were in the EU. Both Scotland and the rest of the UK would benefit economically and politically from staying in the EU, so any independence debate would take place in a calmer political and economic context than the current highly fractured Brexit one. But if the UK decision to stay in the EU was a knife-edge one, then on-going divisions in English politics might encourage some to argue for an earlier independence vote.

Conclusion

There are four main scenarios for where the UK is heading in 2018: a ‘no deal’ chaotic Brexit, a hard Brexit (with a Canada-style trade deal), a ‘soft’ Brexit, or a no Brexit/‘stay in the EU’ scenario.

Under the current UK government, the UK is either heading towards the chaos of ‘no deal’ or towards a hard Brexit with a Canada-style trade deal as the ultimate goal. That also makes it more likely that a second independence referendum for Scotland could come sharply back onto the political agenda at some point in 2018.

The government could well fall at some point in the next twelve months. This might be due to the chaos that would surround a ‘no deal’ scenario or for other reasons, including Westminster voting down a hard Brexit deal next autumn or mounting economic damage as the implications of a hard Brexit/Canada-style trade deal start to become clear – even as early as December 2017.

What the outcome would be of a general election – whether earlier or later in 2018 – is unclear. If economic damage is mounting from Brexit, and the talks have broken down, perhaps Labour would come out ahead. But would Labour shift away from its own hard Brexit stance?

Whether the Lib Dems and/or SNP might hold the balance of power at Westminster if there is another general election is another unknown. But if so, the Lib Dems could push for a second EU referendum. The SNP might back them on that or not. But without a shift from Labour, a second referendum could be tough.

For a ‘soft’ Brexit scenario – of staying in either the EU single market or both the single market and customs union – there would have to be both a change of government and a change of heart by Labour and Jeremy Corbyn.

And a scenario where the UK stays in the EU after all would require a sea-change in UK politics which currently looks unlikely. But if Labour did shift its position, and won strongly at a general election on a pro-EU ticket – and if that was reinforced by Remain winning a second EU referendum – then it is possible. This would need political support from the EU27.

All the opposition parties need to be ready for Brexit chaos – both economic and political – and for the possibility of an early general election. Most of all, they need to decide what political lead to give in 2018 – whether they want to halt Brexit, to argue for a ‘soft’ Brexit or to support a hard Brexit (as Labour’s position currently implies), rather than simply watching Tory in-fighting and waiting to see if public opinion changes. Tough choices could arrive much sooner than next autumn for Labour, the SNP and the Lib Dems too.

Labour cannot simply stick to Brexit vagueness, pretending opposition to hard Brexit. Both Labour and the SNP need to think through whether to support a second EU referendum. And the Lib Dems may need to be ready early in 2018 to call for a rapid second EU referendum not one at the end of 2018 or in early 2019.

If the UK government either falls or the Brexit process descends into ever more chaos, a second independence referendum may come back on the agenda sooner than some expect. With a hard Brexit or ‘no deal’ Brexit most likely under the current UK government, those on the pro-independence side who want to disentangle the arguments for independence from Brexit may find that is not possible in the coming crucial and uncertain year. But a ‘soft’ Brexit or no Brexit would undermine any case for an urgent second independence referendum.

The last year may come to be seen as a sort of ‘phoney war’ phase of Brexit. But the reality of Brexit is now impinging hard onto UK politics and economics. Key political choices lie ahead for all parties, whichever scenario the UK and Scotland face next. For now, ‘no deal’ Brexit or a hard Brexit look most likely. But for 2018, expect the unexpected.

Kirsty HughesKirsty Hughes | Twitter

Scottish Centre on European Relations

Dr Kirsty Hughes is Director of the Scottish Centre on European Relations. She is a researcher, writer and commentator on European politics and policy, and she previously worked for a number of leading European think tanks.