David Hannay is a member of the House of Lords and former UK ambassador to the EU and UN.
As talks finally get under way in Brussels over the terms of Britain’s divorce from the European Union, one extremely smelly red herring needs to be discarded right at the outset. Whoever it was in No.10 or in the Department for Exiting the EU who invented the silly slogan “No deal is better than a bad deal” is either ignorant or a bluffer, or both. And it is unwise to try to bluff when the other party to the negotiation knows you are bluffing, and that you will do more damage to yourself than to them if you walk away without a deal.
So, to aid in such red-herring destruction, here are 12 reasons why no deal would be the worst possible outcome. There are probably plenty more.
1. Individual rights
If there is “no deal”, both the roughly 1 million Brits in other member states and the more than 3 million EU citizens here will lose their automatic rights under the EU’s Residence Directive and their protection against discrimination on, for example, health care and employment. And automatic rights of free movement to study, work or retire across the EU would go too.
2. Trade in goods
British exports to the EU (44% of the total) would become subject to the EU’s Common External Tariff rates which while modest in many cases are substantial in others (see below). Our imports from the EU would be subject to similar charges, raising prices to consumers and inflation. Trade would be subject to non-tariff barriers and customs controls to verify origin and accordance with phyto-sanitary rules. Currently 14,000 trucks enter and leave the UK without such controls every day.
3. Trade in services
This accounts for 80% of UK economic activity, with a large surplus on that trade with the EU. World Trade Organisation rules would be of little help in this sector. Mutual recognition of professional qualifications under EU law would disappear.
4. Financial Services
Financial services would feel particularly strong effects. The loss of “passporting” for banks and insurance companies in the UK (£40 billion of the UK’s £200 billion in financial services revenues comes from EU business). Regulatory equivalence would not be there as an (anyway inadequate) replacement.
5. Automotive industry
There would immediately be 10% duties on cars in both directions, with corresponding damage to supply chains.
6. Pharmaceuticals, chemicals and nuclear industries
There would be severe problems as all these industries are currently regulated at EU level (more than 30 EU regulatory agencies would need to be replaced overnight by national ones – but exports to the EU would still need to meet EU regulatory requirements). 60% of UK exports in pharmaceuticals and chemicals go to the EU.
7. Agriculture and food
In this sector, 70% of our trade is with the EU. Some EU tariffs on foodstuffs are very substantial (25% on confectionery, 35.5% on dairy products, 87% on frozen beef). There would be major supply-chain problems here too, particularly between the two parts of Ireland.
8. Civil aviation
Loss of the European Common Aviation Area regulatory framework (which also covers flying between Europe and the US). Loss of rights for budget airlines to fly between EU destinations. Immediate travel disruption and more expensive holiday flights.
9. Security and Justice
Loss of membership of Europol and Eurojust (the agencies for law enforcement and judicial co-operation). Loss of access to the Schengen Information Service and other EU databases, including those covering DNA. Loss of rapid extradition in both directions under the European Arrest Warrant.
10. Budget payments
This would at last produce a saving, but probably an illusory one as the EU would pursue the UK through international courts ensuring that our mutual relationship would not calm down quickly after a no deal exit.
11. Foreign and security policy
Major loss of influence in an area of EU policy which is likely to become more significant and which will adversely affect British influence worldwide. Any “deal” outcome would be likely to seek to preserve as much of this influence and co-ordination as possible.
12. Reputation
The UK has hitherto stood by its treaty obligations and worked for a rules-based international order. The reputational damage from leaving the EU without an Article 50 agreement would be considerable.
That is quite a list, you might think. It is surely up to those who, like the foreign secretary, say that leaving without a deal would be “Perfectly OK” to debate the issues set out here; and, if they cannot gainsay them, to drop that silly slogan. Of course it is not possible at this stage to guarantee that Britain will not leave in March 2019 without a deal. But we do need to recognise that, if we do so, March 29, 2019 would be a Black Friday for the British economy.