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Brexit: What are the backstop options?

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A key part of the Brexit negotiations has been the border that separates Northern Ireland and the Republic of Ireland.

The border is a matter of great political, security and diplomatic sensitivity in Ireland.

Therefore the UK and EU agreed that whatever happens as a result of Brexit there should be no new physical checks or infrastructure at the frontier.

This is where the controversial “backstop” comes in.

Why might the backstop be needed?

At present, goods and services are traded between the two jurisdictions with few restrictions.

That is because the UK and Ireland are part of the EU’s single market and customs union, so products do not need to be inspected for customs or standards.

But after Brexit, all that could change – the two parts of Ireland could be in different customs and regulatory regimes, which could mean products being checked at the border.

The preference of both sides is to prevent this happening through a deep and comprehensive trade deal.

However, the UK’s ambition to leave the customs union and the single market, could make that very difficult.

And if both sides couldn’t reach agreement on a deal keeping the border as open as it is now – that’s where the backstop would come in.

So how might it it work? There are several options:

A Northern Ireland only backstop?

This is what the EU originally proposed.

It would involve Northern Ireland alone remaining in the EU’s single market and customs union, leaving Great Britain (England, Scotland and Wales) free to strike trade deals.

But the DUP – a Northern Ireland unionist party that propped up Theresa May’s minority Conservative government – objected to this.

It said it would see Northern Ireland treated differently and could threaten the union.

Boris Johnson has also specifically ruled this out.

A UK-wide backstop?

After the DUP’s objections, Mrs May agreed a backstop involving the whole of the UK retaining a very close relationship with the EU – staying in the customs union – for an indefinite period.

It would also see Northern Ireland staying even more closely tied to some rules of the EU single market.

These arrangements would apply unless and until both the EU and UK agree they are no longer necessary.

he backstop would not apply if the UK left the EU without a deal but the potential problems with the border would remain.

Opposition to the backstop

The backstop plan was agreed by UK-EU negotiators and formed part of Theresa May’s withdrawal agreement in November 2018 (often referred to as the Brexit “divorce deal”).

It sparked a backlash from many Conservative MPs (and the DUP) at Westminster and several of her own ministers resigned in protest.


Brexit: DUP rejects deal ‘as things stand’ as PM heads to EU summit

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Boris Johnson has suffered a blow to his proposed Brexit deal as the Democratic Unionist Party said it cannot support plans “as things stand”.

The support of the Northern Irish party is seen as crucial if the PM is to win Parliament’s approval for the deal in time for his 31 October deadline.

The DUP said it would continue to work with the government to try to get a “sensible” deal.

It comes as Mr Johnson heads to a crunch summit to get the EU’s approval.

The BBC’s Europe editor Katya Adler said EU ambassadors had expected to get a copy of the legal text of a deal this morning, but it had not arrived.

One EU diplomat told her: “We are more and more pessimistic.”

The PM spoke to the European Commission President Jean-Claude Juncker ahead of the meeting, with the EU’s chief spokeswoman tweeting: “Every hour and minute counts before the [summit]. We want a deal.”

And German Chancellor Angela Merkel said negotiations were “on a better path now”, but added: “Let me say clearly this morning, we haven’t reached the goal.”

The UK government has yet to approve any legal text and the DUP remains unhappy about elements of the prime minister’s revised plan for Northern Ireland.

In a joint statement released on Thursday, the DUP’s leader and deputy said discussions with the government were “ongoing”, but “as things stand, we could not support what is being suggested on customs and consent issues and there is a lack of clarity on VAT”.

“We will continue to work with the government to try and get a sensible deal that works for Northern Ireland and protects the economic and constitutional integrity of the United Kingdom,” Arlene Foster and Nigel Dodds added.

Housing Secretary Robert Jenrick said it was a “very sensitive moment in the negotiations”, and while there was still a “possibility” of a deal, it required “more hard work and more pragmatism on all sides”.

Mr Johnson’s proposals for a new Brexit deal hinge on getting rid of the controversial backstop. the solution to Irish border issues agreed by former PM Theresa May which proved unpalatable to many MPs.

However, his plans would see Northern Ireland treated differently from the rest of the UK – something the DUP, among others, has great concerns about.

The DUP has helped prop up the Conservative government since the 2017 general election.

In the past, a number of Tory Brexiteers have said their own support for a Brexit deal was contingent on the DUP’s backing of any agreement.

The BBC has learned that the draft Brexit deal has a mechanism enabling the Northern Irish Assembly to approve or reject the border plans.

This would give the Stormont Assembly the chance to vote on Brexit arrangements four years after the Brexit transition period ends in 2020.

But the DUP has demanded assurances around this so-called consent mechanism.

Mr Jenrick said there would be more “intensive” work in the “coming hours and days” to reassure parties.

He told BBC Radio 4’s Today programme: “Movements and compromises have been required, but we are close to an agreement.

“We now need to go back and see what more we can do to persuade each side so we can get this done.”

Mr Jenrick added: “It would be a huge missed opportunity to miss this chance to get Brexit over the line and to move on with the life of the country.”

As well as the DUP, Mr Johnson is trying to secure support from Tory Brexiteers, most of whom are part of the European Research Group.

ERG chairman Steve Baker said on Wednesday evening his group “hope [to] be with the prime minister, but there are thousands of people out there who are counting on us not to let them down and we are not going to”.

The Irish Prime Minister Leo Varadkar has said that if a deal cannot be completed at the two-day summit, European leaders could gather again before the end of the month to continue Brexit talks.

Mrs Merkel told the German Parliament on Thursday there had been “significant movement”, but there were still questions around customs plans.

“We have to and we will do everything to make this negotiation a success,” she said.

“An orderly Brexit is still possible and we will negotiate until the last second. If necessary, we can call a special summit, but let’s see where we get.”

Mr Johnson faces another deadline on Saturday – the date set out in the so-called Benn Act, which was passed last month by MPs seeking to avoid a no-deal Brexit.

If MPs have not approved a deal – or voted for leaving the EU without one – by Saturday, then Mr Johnson must send a letter to the EU requesting an extension to 31 January 2020 – something he has repeatedly refused to do.

On Wednesday, Brexit Secretary Stephen Barclay confirmed Mr Johnson would write such a letter if no deal was in place by Saturday.

The prime minister’s official spokesman confirmed the government will table a motion for Parliament to sit this Saturday from 09:00 to 14:00 BST.

However, this does not mean the House of Commons will definitely sit on Saturday – the government could table the motion but not push it to a vote.

Former Attorney General Dominic Grieve – who wants any new deal to be put back to the public to approve – said it was not “realistic” for the prime minister to expect Parliament to scrutinise and approve a legal text on Saturday – even if Mr Johnson does manage to finalise the plan with the EU.


‘Special relationship’ won’t guarantee UK-US trade

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The UK should not expect that its “special relationship” with the US means it will get more favourable terms when it comes to trade.

That was the warning from former US trade chief, Michael Froman, talking exclusively to the BBC.

The US would not compromise its own economic interests, he said.

His comments came as new tariffs on UK exports, including Scottish single malt whisky and Scottish cashmere, are set to come into force on Friday.

Whisky and cashmere are amongst a range of products that will see a 25% tariff imposed when they are sold to US customers, as a result of a 15-year-long trade dispute between planemakers Airbus and Boeing.

The World Trade Organisation has given the US the green light to impose $7.5bn in tariffs (taxes) on EU products after a ruling that member states in the EU (UK, Germany, France, Spain) had provided illegal subsidies to Airbus.

Scottish businesses feel they have been unduly punished. But Mr Froman, who was the United States’ trade representative under President Obama, said the UK should not expect special treatment.

“Just because we have a special relationship, it doesn’t mean that we’re willing to sacrifice our economic interests in the context of a trade dispute or a trade negotiation,” Mr Froman said.

“That by the way applies to whatever future trade agreement is agreed between the US and the UK as well,” he added.

Dragged in

The impact of the tariffs imposed this week falls particularly hard on Scotland as rival products from the EU – such as single malt from the Republic of Ireland and cashmere from Italy – have been spared the tariffs.

Patricia Dillon from Speyside distillery near Aviemore said she felt the company was being unfairly drawn into a dispute not of its making and would have to review its plans to increase the 60,000 litres of Spey whisky it currently exports tariff-free to the US.

“We feel we have been dragged into a trade war that has nothing to do with us whatsoever,” she said.

“A 25% tariff is not something we can absorb, so we have to reconsider our position in the US market.”

t cashmere maker Johnston’s of Elgin, chief executive Simon Cotton said the tariffs would put his company at a disadvantage to their main Italian rivals and would limit its future growth plans.

“This is going to hit consumers in the US, their cashmere will be more expensive. That in turn means we will be able to export less, grow less and we will have to downscale our plans.”

Highest priority

Michael Froman insisted the UK was not being unfairly targeted – as there would be tariffs on French German and Spanish products.

But what the dispute illustrates is that trade is very complicated: it’s a balancing act between international and domestic politics and economics.

In this detailed and delicate balance, not every sector will win. Some will have to lose for both sides to get something out of it.

On a more fundamental level, Mr Froman says the UK is going to have to make some very difficult choices if it is serious about concluding a trade deal with the US.

“The UK in particular is in a difficult position. After Brexit it has got to decide how closely it wants to remain aligned with EU regulations – which is still its biggest trading partner – and how much it wants to open itself up to partners with different standards – like the US.”

The UK government told the BBC that securing a trade deal with the US is one of its highest priorities. Is it as high as securing a trade deal with the EU? That’s important because a trade deal with one makes a trade deal with the other more difficult.

As for the tariffs coming in this week – the subject was raised on a personal call with Donald Trump last week with the prime minister urging him to rethink.

Johnston’s of Elgin is hoping that Johnson of Downing Street can persuade the US to give Scottish business a last minute reprieve.


Eurozone gets fresh help to bolster flagging growth

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The European Central Bank has unveiled fresh stimulus measures to bolster the eurozone, including cutting a key interest rate.

The deposit facility rate, paid by banks on reserves parked at the ECB, was already negative, but has now been cut from minus 0.4% to minus 0.5%.

The ECB also said it was re-starting quantitative easing. It will buy €20bn of debt a month from 1 November.

The eurozone’s main interest rate has remained unchanged at zero.

The moves come as the ECB combats an economic slowdown. The bank said its asset purchase programme would “run for as long as necessary”, while interest rates would remain “at their present or lower levels” until eurozone inflation reached its target rate of 2%.

Quantitative easing, or QE, is a way for central banks to pump money into the financial system when interest rates are ultra-low and conventional stimulus methods no longer work.

The central bank buys assets, usually government bonds, with money it has “printed” – or, more accurately, created electronically.

Making more money available in this way is supposed to encourage financial institutions to lend more to businesses and individuals.

Under its previous QE programme, the ECB bought €2.6 trillion of bonds between 2015 and 2018.

 

ECB chief Mario Draghi told a news conference that the inflation outlook had been further downgraded.

“Headline inflation is likely to decline before rising again towards the end of the year,” he said.

Mr Draghi also announced that the ECB had lowered this year’s and next year’s GDP growth forecasts for the eurozone. It now expects growth of 1.1% this year and 1.2% in 2020.

He said the eurozone was suffering from the “prevailing weakness of international trade in an environment of prolonged global uncertainties”.

The eurozone’s biggest economy, Germany, is widely thought to be on the brink of recession.

The ECB’s decisions drew a swift reaction from US President Donald Trump, who tweeted that the ECB was “trying, and succeeding, in depreciating the euro against the VERY strong dollar”.

Mr Draghi Said “We have a mandate, we pursue price stability, and we do not target exchange rates, period.”

‘Serious policy easing’

Mr Draghi is due to make way for incoming ECB President Christine Lagarde on 1 November.

The ECB’s main refinancing rate has been at zero since March 2016.

“At first glance, the ECB has not quite thrown the kitchen sink at the eurozone economy,” said Ranko Berich, head of market analysis at Monex Europe.

“The QE package is shy of market expectations, which were €30bn a month. But the Bank is clearly back in the business of serious policy easing and more aggressive action could easily be taken in response to a worsening in conditions.”


Analysis

By Andrew Walker, BBC economics correspondent

So the ECB has fired off another volley of its monetary policy ammunition. But will it hit the target? Will it get inflation up towards the ECB’s target and will it stimulate the eurozone’s flagging economy? Many people are very sceptical.

The interest rate move takes us even further into the strange world of negative rates. There is a view that that measure is actually counterproductive, that it has an adverse impact on bank profitability. Perhaps ECB policy more widely has reached the limit of its ability to stimulate economic activity.

The other main weapon against economic weakness is in the hands of governments – fiscal policy, or public spending and taxation. For some governments in the eurozone, their scope to use that weapon is constrained by the amount of debt they already have and by eurozone rules. But the likely next head of the ECB, Christine Lagarde has called for more action in that area.

Countries such as Germany have strong government finances, but so far have been wary of departing from what they see as prudent financial management. There is, however, a growing debate about what the eurozone needs.


Trump delays some tariffs on Chinese imports

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The US is delaying imposing tariffs on some imports from China until 15 December because of “health, safety, national security and other factors”.

The products include mobile phones, laptops, video game consoles, some toys, computer monitors, and certain footwear and clothing.

The surprise news from the United States Trade Representative office sparked a rally in share prices.

Other items facing a 10% tariff will go ahead as planned on 1 September.

US President Donald Trump, speaking to reporters, said that the delay was in part to avoid hitting US shoppers this Christmas.

The USTR’s announcement was released minutes after China’s Ministry of Commerce said Vice Premier Liu He had conducted a phone call with US trade officials.

Technology investors welcomed news of the exemptions, pushing an index of chip stocks up 2.8%. Retailers and industrial shares also rose, with General Electric up 4.4%.

On Wall Street, the three main share indexes were up more than 2% at one stage. The Dow Jones and S&P 500 finished 1.4% ahead, while the tech-dominated Nasdaq finished up 1.9% – led by a 4% rise in Apple.

In the UK, stocks exposed to global trade also rose, with miner Glencore closing up 2.3%.

Mr Trump said on 1 August he would impose a 10% tariff on $300bn of Chinese goods, blaming China for not following through on promises to buy more American agricultural products.

He also personally criticised Chinese President Xi Jinping for failing to do more to stem sales of the synthetic opioid fentanyl amid an opioid overdosing crisis in the US.

But in a tweet on Tuesday, Mr Trump hinted that he was expecting something in return, suggesting that China’s failure to “buy big” from US farmers could be about to change.

trump tweet

The USTR’s announcement comes amid growing concerns about a global economic slowdown. Goldman Sachs said on Sunday that fears of the US-China trade war leading to a recession were increasing.

Some analysts said Tuesday’s delay does not mean the trade war is over. Elena Duggar, associate managing director at credit rating agency Moody’s, said: “This seeming de-escalation in ongoing tensions may be a temporary reprieve… Relations between the world’s two largest economies will remain contentious, punctuated with occasional steps towards compromise.”

Earlier on Tuesday, China’s chief trade negotiators, Vice Premier Liu He and Commerce Minister Zhong Shan, spoke to their US counterparts, Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer.

The Xinhua news agency said that the Chinese officials issued “a solemn protest” against the punitive duties set to come into effect on 1 September. Mr Lighthizer and Mr Liu have scheduled another telephone call in two weeks.

The two sides were due to hold another round of meetings in Washington in September, but the deterioration in relations in the past two weeks cast doubt on whether the talks would take place.

Additional details and lists of the specific product types affected by the announcement are due to be published by USTR later.


UK wage growth picks up to 11-year high

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Wage growth in the UK picked up to 3.9% in the year to June, the highest rate for 11 years.

However, the unemployment rate in the April-to-June period edged up slightly to 3.9%.

The employment rate was estimated at 76.1%, the joint highest since comparative records began in 1971.

Figures released last week showed the economy shrank 0.2% in the second quarter, the first fall since 2012.

Wages have been outpacing inflation since March 2018.

Part of the reason for this month’s rise was the unusual timing of annual pay rises for public health workers last year, when a larger-than-usual increase was deferred until July.

In real terms (after adjusting for inflation), regular pay – which excludes bonuses – is estimated to have increased by 1.9%.

ONS deputy head of labour market statistics Matt Hughes said: “”Excluding bonuses, real wages are growing at their fastest in nearly four years, but pay levels still have not returned to their pre-downturn peak.”

Income squeeze graph

The employment rate for women was 72.1% – the highest on record – and for men was 80.1%, slightly lower than the previous three-month period.

Overall, a record high of 32.81 million people were in employment – 425,000 more than a year earlier, largely because of more people working full-time.

Mr Hughes added: “Employment continues to increase, with three-quarters of this year’s growth being due to more women working. However, the number of vacancies has been falling for six months, with fewer now than there were this time last year.”


Brexit: Next boss says UK can avoid no-deal chaos

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The UK can avoid severe disruption in the event of a no-deal Brexit, the boss of one of the country’s leading retailers has told the BBC.

Lord Wolfson, chief executive of clothing firm Next, said he still hoped a deal could be done before 31 October.

But he said the government’s increased focus on contingency planning meant the UK was close to being well prepared.

Simplified customs and border procedures had made the chance of hold-ups of goods far less likely, he said.

Lord Wolfson was a strong advocate of Brexit in the run-up to the referendum but has previously warned that a no-deal Brexit would bring about “chaos and disorder”, while stopping short of a catastrophe.

In an exclusive interview with the BBC Today programme, he said the last government had failed to adequately prepare – a situation that was now being addressed.

“We are a long way from disorder and chaos, the fact that HMRC has introduced these transition methods will make an enormous difference. I think the encouraging thing is that we are rapidly moving from the disorder and chaos camp to the well-prepared camp.

“I should stress that I would much prefer a deal to no deal, but I am much less frightened by no deal if the government is prepared, and there is every indication it’s taking it more seriously.”

He said he was still hopeful a deal could be done before 31 October and that increased preparation for no deal would help secure one.

“In the vast majority of deals I’ve done, if the deadline is midnight, the deal gets done at 11:55 but we need to have nerves of steel and prepare ourselves for either outcome.”

Next store

Even if the UK ports wave everything through, Lord Wolfson concedes that the government cannot influence what will happen on the other side. He said that Next had moved all its imports and exports out of Calais to other ports.

There will be some who will say that redirecting all your business away from Calais does not square with being confident that all will go smoothly.

He did concede that at bottlenecks like Calais, there was a chance that smaller companies without the right preparation could cause a big problem by getting in the way of everyone else. If that was the case, we would need to get them out of the way – sending them back to the EU empty if necessary.

‘Scared of no deal’

The Next chief also had sharp criticism for the last government’s lack of preparation.

“There was a wilful attempt to not prepare. They were so scared of no deal they couldn’t allow anyone to admit it could happen. That’s changing and I think that means in the worst case you get mild disruption – in the best case – you get a deal.”

Lord Wolfson was however critical of the government’s approach towards future immigration. He said the imposition of a minimum salary of over £30,000 was a mistake.

“I think it is a very unwise way to measuring need by looking at someone’s salary”.

Lord Wolfson summed up his guide to a successful Brexit with four P’s: Ports, people, prices and perception. If you can get those right the UK can both cope with no deal and in so doing, increase the chances of getting one.

His stoic position is at odds with dire warnings from some business groups and some former cabinet ministers who have described no deal as a catastrophic outcome and here will be many who say that it’s all very well for a business with a turnover of over £4bn a year to be well prepared.

Lord Wolfson acknowledges there will be many smaller businesses who may struggle. But he also argues the government is now doing its job – the rest is down to them.


Brexit: What happens now?

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New UK Prime Minister Boris Johnson says he plans to renegotiate the Brexit deal agreed with the EU by his predecessor Theresa May. He says he is committed to leaving on 31 October come what may.

That does not mean we can be certain about what will happen. There are still many possible outcomes.

Chart on how the government could seek renegotiation of the Brexit deal.

Mrs May’s deal with the EU had two main elements – a binding withdrawal agreement (on the terms of the UK’s departure) and a non-binding political declaration (on the shape of the long-term future relationship). The deal was resoundingly rejected by MPs.

Mr Johnson’s plan is to negotiate with the EU to remove the Northern Ireland backstop from the withdrawal agreement (WA). The backstop was designed to ensure there could be no return to a hard border on the island of Ireland. (It would keep the UK in a customs union with the EU if there is no free trade agreement that avoids a hard border ie physical infrastructure and checks on goods.)

Mr Johnson would also like changes to the political declaration.

The difficulty is that up to now the EU has consistently said it will not reopen the withdrawal agreement, although the EU is open to changes to the political declaration. Mr Johnson insists they will reconsider now it is clear that the British government is prepared to leave without a deal. And he says that the backstop is unnecessary to prevent a hard border.

Another factor is time. Nothing much is usually done in Brussels during August, and the new European Commission does not take office until 1 November.

Mr Johnson is determined that Brexit should happen on 31 October, even if a new deal has been agreed in principle but not ratified and brought into law. In those circumstances there would almost certainly be questions about whether a short delay was sensible.

Perhaps the biggest question, though, is what would happen if no new deal is negotiated – or if MPs reject whatever new deal is brought back.

1. No deal
No-deal Brexit is still the default outcome if MPs cannot agree anything else and there are no further extensions. The deadline is 31 October.

It would also be possible for MPs to back a no-deal Brexit, although there has been a majority against that option when they have voted on it before.

There has been considerable discussion about whether MPs would be able to stop no deal if the new prime minister was determined to press ahead.

It has been suggested Mr Johnson could prorogue Parliament to let a no-deal Brexit happen. Proroguing effectively means Parliament is shut down – there would be no debates or votes.

In July, MPs and Lords voted for a measure that attempts to stop Parliament being closed down.

If MPs did want to oppose no-deal Brexit and did get a chance to do so, their ultimate weapon would be ousting the prime minster through a confidence vote.

2. Another no-confidence vote
Theresa May’s government survived a vote of no confidence on 16 January by 325 votes to 306. Labour could table a no confidence motion in the new government at any time.

Flowchart explaining process of vote of no confidence

Under the Fixed Term Parliaments Act 2011, UK general elections are only supposed to happen every five years. The next one is due in 2022.

But a vote of no confidence lets MPs vote on whether they want the government to continue. The motion must be worded: “That this House has no confidence in Her Majesty’s Government.”

If a majority of MPs vote for the motion then it starts a 14-day countdown.

If during that time the current government or any other alternative government cannot win a new vote of confidence, then an early general election would be called.

That election cannot happen for at least 25 working days but the precise date is set by royal proclamation on the advice of the prime minister. So the election could come after Brexit has happened if there’s no further delay.

3. Request a general election
A vote of no confidence isn’t the only way to bring about an early election. It could be that Boris Johnson decides it’s his best way forward.

Chart on how the government could call an election.

The prime minister does not have the power just to call an election. But, as in 2017, Mr Johnson could ask MPs to vote for an early election under the terms of the Fixed Term Parliaments Act.

Two-thirds of all MPs would need to support the move. The earliest date for the election would be 25 working days later but it could be after that – the prime minister would choose the precise date.

4. Another referendum
A further possibility is to hold another referendum.

It could have the same status as the 2016 referendum, which was legally non-binding and advisory. But some MPs want to hold a binding referendum where the result would automatically take effect – like with the 2011 referendum on changing the voting system for UK general elections.

One widely discussed option would be for a “confirmatory vote” – where the public would be given the choice between accepting a deal or remaining in the EU.

Chart on referendum options

Others argue that any further referendum should have the option of leaving the EU without a deal.

Either way, a referendum cannot just happen automatically. The rules for referendums are set out in a law called the Political Parties, Elections and Referendums Act 2000.

There would have to be a new piece of legislation to make a referendum happen and to determine the rules, such as who would be allowed to vote.

It could not be rushed through, because there has to be time for the Electoral Commission to consider and advise on the referendum question.

The question is then defined in the legislation.

Once the legislation has been passed, the referendum could not happen immediately either. There would have to be a statutory “referendum period” before the vote takes place.

Experts at University College London’s Constitution Unit suggest that the minimum time for all of the required steps above is about 22 weeks. That already takes us beyond 31 October.

5. Cancel Brexit
The European Court of Justice has ruled that it would be legal for the UK to unilaterally revoke Article 50 to cancel Brexit (without the need for agreement from the other 27 EU countries).

It is not totally clear what the process would be. But an act of Parliament calling for Article 50 to be revoked would probably be sufficient.