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Analysis

Everything you always wanted to ask about ‘no deal’

by Luke Lythgoe | 23.07.2019

Boris Johnson says we’ll leave the EU “come what may” on October 31. Given his totally unrealistic demand for doing a deal with the EU – namely the removal of the “backstop” designed to keep the Irish border open – he is in effect threatening to crash out without a deal.

Here is our dossier of short-term chaos, mid-term misery and long-term pain that “no deal” would bring. And it’s not all about the economy. 

Short-term chaos

In a no-deal Brexit, the UK will fall out of the EU’s legal framework, becoming a “third country”. The UK will crash out of the customs union and single market – and a whole range of other projects, treaties and programmes from which we currently benefit. 

Gridlock at border

The EU will insist on customs checks at ports and airports – and quite possibly “phytosanitary” ones too, to ensure sub-standard agricultural products don’t enter their market. Lorries could face six-day long queues at Dover if checks last just 70 seconds longer than they do now, according to research obtained by the FT

Rotting goods and shortages

Goods – such as medicines with a short shelf life, fresh fruit and vegetables, and fish – could perish in traffic jams. There simply isn’t enough capacity for refrigeration on the trade routes. Essential imports – such as chemicals we use to purify our drinking water – could struggle to get through. Supermarkets could also see shortages of fresh produce not grown in the UK. Panic buying could exacerbate the problem.

Supply chain snarl-ups

Just-in-time supply chains used by big manufacturers – for example in the car industry – will get gummed up as border blockages make delivery times slower. Several vulnerable firms scheduled temporary shutdowns around the original Brexit deadline of March 29. Now they need to plan for no-deal disruption on October 31 or beyond.

Tariffs on imports

Tariffs will probably be slapped on some goods from the EU, in the same way that we currently charge tariffs on goods from other countries where the EU doesn’t have a trade deal. Although the UK could scrap those tariffs, under international trade rules it would have to abandon tariffs on goods from outside the EU too. That would expose our farmers and manufacturers to competition from global giants. Not surprisingly, the government currently plans to impose tariffs: for example, 10% on cars, 7% on beef, 24% on tinned tuna, and 12% on underwear. This will push up the cost of living.

Services sector mayhem

Our services industries, which make up 80% of our economy, will suffer. Most of the EU rules allowing bankers, insurers, tech firms and other services industries to trade across the bloc will cease to apply. Companies may lose the right to send data backwards and forwards to the EU, seriously snarling up many businesses. The recognition of professional qualifications – for the likes of doctors, vets, accountants, teachers – will no longer fall under EU rules but the different rules of each EU country, meaning some professionals arriving after Brexit could struggle to operate in some European countries.

Vanishing trade deals with other countries

As a member of the EU, the UK enjoys over 40 free trade agreements with more than 70 non-EU countries, accounting for 16% of our trade. The Department for Trade has still only managed to roll over 11 out of these 40 deals, most of which are fairly small such as those with the Faroe Islands and Liechtenstein. The really big economies such as Japan and Canada haven’t rolled over their deals – indeed, Ottawa has said it won’t. That means businesses trading with many non-EU countries could suddenly face tariffs and quotas on exports and new “non-tariff” barriers, like other countries no longer automatically recognising UK standards.

Other lost deals

Around 400 “relevant” bilateral agreements, unrelated to trade, that the UK has with other countries via the EU could also be disrupted, covering everything from aviation rights to data-sharing. If these aren’t replicated, UK citizens could lose rights and businesses face barriers around the world. Many of the most crucial – for aviation or nuclear cooperation – have been rolled over. Others – for example on judicial cooperation or professional qualifications – are outstanding. Even some of those deals which have been carried over aren’t quite as good as our current EU treaties – such as the US-UK aviation agreement, which has tighter restrictions on airline ownership and barriers to new entrants to the transatlantic market.

Northern Ireland under the cosh

A no-deal Brexit would mean a hard border across the island of Ireland. This would now be a border between the UK and EU – and the bloc could not guarantee that goods wouldn’t be smuggled into its market if the border was open. At the moment, the economies of Northern Ireland and the Republic are intertwined. People and goods – particularly agricultural ones – cross the invisible frontier frequently, often many times during their production process. If border controls are imposed, both economies will be severely damaged.

Pound may tumble

Given all this chaos, nervous investors will probably hammer the pound. That will push up inflation, making the country poorer. Bank of England governor Mark Carney has suggested providing a stimulus to the economy by cutting interest rates. While lower rates should boost consumer and business borrowing and spending, it will probably also mean a weaker pound, making imports more expensive and pushing up the cost of living even more. 

Civil unrest

As chaos and shortages unfold, there is a risk of looting and violence. The police have amassed their biggest ever peacetime reserve – 10,000 officers – in preparation for no-deal unrest, warning that inflammatory rhetoric from politicians could also stoke tensions. Officers could only easily operate at this intensity for “the first seven days” though, after which 12-hour shifts and cutting back of “non-core” police work might come into play.

Political crisis

The government doesn’t have a proper majority in Parliament. If we crash out, it could collapse – triggering either an election or some form of emergency national government.

Mid-term misery

Beyond the immediate shocks, the economy would deteriorate, jobs would be lost and UK citizens would start to find all sorts of commonplace things more expensive or time-consuming.

Recession

Leaving the EU with no deal would send the UK into a recession with the economy contracting by 2% in 2020, according to the Office for Budget Responsibility, thanks to new trade barriers, customs delays, barriers to services firms and the loss of trade agreements with non-EU countries. The governor of the Bank of England has said that a no-deal Brexit could see average food shopping bills rise by 10%, the economy shrinking by 8%, house prices crashing 30%, unemployment nearly doubling and inflation spiralling to 6.5%.

Bust companies

Businesses will go bust. Some will be exporters facing new customs duties and arduous paperwork. Others will be importers facing shortages and tariffs. Yet others will be struggling from loss of business in the economic downturn.

Disinvestment

Big international manufacturers wanting to avoid disruption to their supply chains may move elsewhere in the EU. BMW and Toyota, which have plants in Oxford and Derby, have warned as much. So has Airbus, which employs 14,000 people in the UK.

Lost jobs

As a no-deal recession bites, the CBI has warned unemployment could double to 7.5% – meaning an extra one and a quarter million people out of work. Regions where the economy is more focused on exports and manufacturing, such as the North East or West Midlands, would probably be hit hardest.

Public finances get hammered

A smaller economy means fewer tax receipts, which means less money in government coffers. Johnson has suggested he’ll spend tens of billions of pounds that we don’t have on everything from full-fibre broadband to building a bridge from Great Britain to Northern Ireland. Markets will probably take fright – pummelling the pound yet more and making it even harder for people to make ends meet.

Companies can’t get talent

Many sectors would suffer staffing shortages, both for skilled jobs the local workforce aren’t trained for and “unskilled” work Brits don’t typically want to do. The Brexit vote itself has already seen EU net migration fall to a 10-year low – thanks to a weaker currency, uncertainty for the future and sense of feeling unwelcome – causing recruitment problems in sectors from construction and farming to hospitality and healthcare. Net migration from non-EU countries has stayed roughly the same since 2016, but a dramatically weaker economy could put them off travelling to the UK too. We’ll find it harder to build homes, pick fruit and look after the sick and elderly.

Brits lose free movement rights

UK citizens’ horizons will be much smaller once their EU citizenship disappears after Brexit. Today a kid leaving college with mediocre grades has the same opportunity to go and work in Barcelona or Milan as a Premier League footballer. After the UK ends free movement for EU citizens, our own citizens will have to jump through the hoops – be it wealth, qualifications, age – of migration systems in 27 other EU countries.

Uncertainty for UK expats 

The continued rights of the estimated 1 million UK expats living in the rest of the EU will be up in the air if we have a no-deal Brexit. In March, the European Commission rejected a blanket deal protecting all UK expats in the event of no deal, saying such a “mini deal” would signal that the main negotiations has failed. Some countries, like Spain, have gone ahead and protected their UK migrant community’s rights unilaterally. But even if all countries follow suit, expats could face several other tedious tasks like getting an EU driving licence and possibly taking a local test, or new costs and hassle when withdrawing private pensions. One thing which looks almost certain to disappear is Brits’ right to move and live in a different EU country – even if they’re already living in the EU before Brexit.

Anxiety for EU citizens

The government has given the more than 3 million EU citizens living in the UK some peace of mind by unilaterally protecting their rights after no deal. However, this requires them to apply for “settled status” by December 31, 2020 – and some have already encountered difficulties. Concerns have also arisen over vulnerable people – children in care, victims of human trafficking, those working illegally, older or poorly people – who, for whatever reason, don’t make the deadline and can’t prove their pre-Brexit residency. Heavy-handed Home Office cock-ups like the Windrush scandal hardly inspire confidence.

End to student exchanges

The 17,000 UK students waiting to study abroad under the EU’s Erasmus+ in September are facing huge uncertainty, not knowing whether funding will disappear. Without an EU-UK deal, the scheme would no longer open to new UK applicants. What’s more, schools, training and other educational activities across the UK would lose Erasmus funding.

Travel hitches

People who just want to travel to the EU would face new requirements including: visas for stays longer than 90 days; an international driving permit; pets needing blood tests and lengthy waits to travel; more expensive use of bank cards. The loss of our European Health Insurance Cards (EHIC) would be a hassle for many, and could stop some people with long-term medical needs – such as kidney dialysis – from travelling completely because insurance would be just too expensive.

Lorry worry

Our lorries may not be allowed into the EU. The EU has plans for a nine-month grace period where access will be open to all road haulage, but only if the UK sticks to rules of fair competition. After that period, the UK will have to allocate permits to vehicles – there are only around 4,000 for an estimated 40,000 trucks which currently travel to the continent.

Unrest in Ireland

Border controls would be required in Ireland. Physical border infrastructure – cameras, customs checks (even away from the border itself) and the staff manning them – would be anathema to militant nationalists and could become targets. Police Service Northern Ireland is already training almost 1,000 additional officers brought in from England and Scotland.

Loss of crime-fighting tools 

Our police forces will have fewer crime-fighting tools and more blind spots than before.

The UK will lose access to EU crime-fighting bodies like Europol and Eurojust and no longer be able to extradite criminals quickly using the European Arrest Warrant. Data sharing will also be tough because, without a legal framework, the EU will have no guarantee that the UK will use the information appropriately. 

Legal chaos

The UK will crash out of the EU’s system of rules and regulations. A few things will simply stop working, for example moving controlled chemicals such as mercury. In other cases, the current smooth legal framework will go – for example, rules to stop parents in divorce cases fleeing abroad with their kids. In yet other cases, time-limited measures will be put in place to mitigate the damage – though often only in a bare-bones state. Examples include: aviation rights for UK airlines; banks moving money; electricity flowing between the UK and its neighbours; and the use of medicines approved in the EU. The EU has made these emergency measures dependent on the UK adhering to its standards and other rules.

Long-term pain

The effects of a no-deal Brexit would build up over the years.

Smaller economy

The government’s own analysis showed that under a no-deal Brexit the economy could be 9% (£230 billion) smaller by the 2030s than it would have been if we’d stayed in the EU. That means people will be poorer than they would otherwise have been.

Less money for public services

A smaller economy means fewer tax receipts, which means less money in government coffers – £90 billion less each year according to chancellor Philip Hammond. That means less to spend tackling the problems which led to Brexit in the first place: saving our NHS, better funded schools, regenerating our neglected towns, building more housing stock.

Less private investment

Companies won’t want to invest in the UK so much because it won’t have access to 27 other countries’ markets. Lower investment means lower growth and a less productive economy. That means people won’t get such good jobs.

Bad news for financial services

Lots of industries – manufacturing, agriculture and services – will suffer from the loss of their markets and talent. One of the hardest hit will be our largest industry, financial services industry. It will lose its “passport” which allows it to operate freely across the entire EU. This won’t just hurt the firms and their employees, it could also mean the government loses £20 billion in tax every year. Without that money, the public finances will be in a bad state.

Risks to poor regions, farmers and science

EU funding to help stuggling UK regions and nations – such as Wales and Cornwall – has averaged £2.1 billion per year. UK farmers have got a further £2.9 billion per year. UK scientific research also benefits disproportionately from EU funds – to the tune of £1 billion a year.  The government has guaranteed unpaid EU funding for farming and science until the end of 2020, and for the lifetime of projects in the case of research projects. It also plans a “Shared Prosperity Fund” to replace EU regional funding. But with the public finances under the cosh, it will be hard to maintain these pledges in the long run. 

UK becomes a pariah state

Theresa May signed a deal saying we owe the EU £39 billion. If we crash out with no deal and don’t pay that bill, we will become a pariah state. The EU will pursue the UK through international courts. Meanwhile, the UK will trash its reputation as a reliable partner which settles its debts. That will make it even harder to clinch deals with other countries.

Possible loss of rights

There would be no agreement to keep the UK in line with the EU’s workplace, consumer, social and environmental rights. A right-wing government could cut them.

#IndyRef2?

Scotland’s first minister Nicola Sturgeon has called for a new independence vote before 2021. 62% of Scots voted to Remain in the EU in 2016. If we crash out in chaos, the SNP may find it easier to persuade Scotland to leave the UK.

Northern Ireland leaves the UK?

The imposition of border controls in Ireland, and the ensuing economic and political upheaval, could lead to calls for Northern Ireland to quit the UK altogether and unify with the Republic of Ireland. The Good Friday Agreement, that brought peace to Northern Ireland, states that the UK’s Northern Ireland secretary must enable a border poll “if at any time it appears likely” that the majority of voters would express a desire to form part of a united Ireland. A poll would also need to take place in the Republic.

Gibraltar’s future up in the air

A no-deal Brexit would throw Gibraltar’s future up in the air. It has a border with an EU country, Spain. Will that be free flowing? Meanwhile, much of its economy is based on financial services, which will lose their lucrative passporting access to the EU’s single market. Spanish claims of sovereignty over Gibraltar remain. If we crash out the EU, we will will need to find a new forum in which to discuss disputes with Spain.

Would we crawl back asking for a deal?

We’ll still need to get a deal with the EU if we’re to end the economic pain. Only now we’ll be in an even weaker negotiating position.

Sure, the EU will suffer too under no deal. But we need the EU more than it needs us. 

Our exports to the rest of the EU account for 8% of our economy. Their exports to us account for only 2.3% of the total EU economy.

Some of their companies rely on UK suppliers. But it will be much easier to find alternative suppliers in 27 countries than it will be for our companies to switch to new suppliers in just the UK.

Their companies will miss out on UK talent. But, again, it will be much easier to find alternative employees from 430 million people across 27 countries than it will be for our firms to find the missing talent from inside the UK.

Some EU citizens will be unhappy that they can’t come to the UK. But they will still be free to live, work and retire in 27 countries. Our citizens will be only be free to live, work and retire in the UK.

Brexiters say they can bring the EU quickly to heel by withholding the £39 billion we owe them. But that equates to only 0.3% of the EU’s GDP. The more we threaten them, the more they will play hardball. Even to start emergency talks after crashing out, the EU is planning to require us to pay the £39 billion bill.

So it looks like we will either come to heel pretty rapidly and desperately plead for a deal in what would be a huge blow to national pride. Or we will dig our heels in and endure years of misery, while politicians fight over who is to blame and nobody fixes the country’s real problems.

Edited by Hugo Dixon

5 Responses to “Everything you always wanted to ask about ‘no deal’”

  • The far-right coup d’etat is almost upon us – and democracy will be among its victims. Don’t forget that for many in the ERG, Pinochet is their hero and they aim to replicate his model of the Chilean State in the UK. Serfdom awaits.

  • The ERG are a horrifying group of dinosaurs led by the rt. hon. member for the 19th century, Jacob Rees Mogg, (who, incidentally, has the creepiest smile I have ever seen) but don’t believe that they are in the majority. They are very noisy and very good at giving the impression that they represent ALL the people. In fact, most polls now suggest that the majority of the voting public are now beginning to feel a little scared of no-deal and, indeed, leaving the EU at all. Whether there is a referendum or an election, one thing is for sure, Johnson will do whatever he thinks benefits his career, ERG or no ERG, and if that means an extension, he will do an about-face. The ERG may have elected a new leader, aka Prime Minister, but the Tory MPs are the ones who can dethrone him, as they nearly did with May in 2018. And if more Tory MPs begin to see the awful dangers of no-deal, that threat may force BJ to think along different lines.

    Hope springs eternal.

  • As usual with the remain side: all this is should be, will/would be and can/could be. Nothing definite, nothing that upsets brexiteers, as they easily shrug it off as yet another injection with project fear serum. Anyone who by now still believes that Boris the joker Johnson is a serious player worthy of the position the ERG voted him into, as much as that Jacob Rees-Mogg or Nigel Farage have their voters’ best future position at heart, is too deluded to be willing or able to change. And it is therefore hardly worth the time addressing them any longer. Direct your effort to organizing the necessary steps in case an election or a second referendum does crop up, so everyone against Brexit knows what to do.

  • The coup d’etat further manifests itself with Johnson bringing back all the bad guys who are arch Brexiters, such as Dominic Cummings and other nasty bits of work who worked for Vote Leave. Many of these people were planning all of this mayhem way before the referendum was announced. They were the ones who coined phrases such as ‘take back control’ and, if there is a GE, they will run Johnson’s campaign. Should we ever get to a second referendum then they will be involved as well. It is easy to argue from a destructive point of view and sing Land of Hope and Glory. (All hope and no glory).
    It frustrates the life out of me the Remain side is made up of numerous groups sending us all e-mails asking us ‘to chip in’. I lose count of all the e-mails I get from such groups. Is it beyond the Remain’s side intellect to get these groups together to form one large, united pressure group? Then we need to have some well recognised and known faces to be in the public limelight repeating our argument over and over again. Politicial parties also need to form a Remain alliance in the event of a GE/Second Vote. WE need to unite and present a common front with a well presented narrative of why we need to stay in the EU.
    InFacts and The New European are valuable mouthpieces but they are preaching to the converted. We need to broaden our base and get out there. Everyone knows who Farage is and Johnson but do they readily identify with anyone on our side such as Lord Adonis or Alastair Campbell?
    Personally, I would like to see Rachel Johnson ejected from writing a (boring) column for the New European. If I was related to Boris Johnson I would never speak to him again, let alone embrace him on becoming PM and an advocate of no deal. I don’t trust her at all or Stanley (who gives me the creeps). They are just climbers. Get shut of her, please.

  • If the pain from post Brexit continues indefinitely, more Britains will probably emigrate to Canada, Australia and New Zealand as it becomes more difficult to move to neighbouring European contries which are mostly in the EU. Some Britons may move to Ireland and maybe Scotland if it becomes independent, that is unless it is still suffering post Brexit crash out as it would take years for Scotland to rejoin the EU as presumably because it will be treated like a new potential member but just one country could veto them joining the EU I.e Spain because of their problem with Catalonia wanting independence. But if rejoining the EU is a success for Scotland then it would probably attract many English aad Welsh migration.