Brexit: What Would No Deal Really Mean?

Theresa May and other prominent Conservatives are increasingly raising the spectre of “no deal” being a possible result of the Brexit negotiations, usually with the assurance that the UK could cope quite easily with such an outcome.

Arch-Brexiteer MP John Redwood, for instance, repeats time and again that a no deal situation “would be perfectly fine”.   The bravado may be intended as a negotiating tactic but the reality remains that leaving the EU without a comprehensive set of arrangements to reduce the inevitable disruption to Britain’s most important relationships would hurt the UK much more than the EU. Home Secretary Amber Rudd has admitted that leaving without a special deal “unthinkable”. So what would a no deal divorce actually look like? Would the UK really be “fine” in such a scenario?

Trading Troubles

While it is hard to imagine what would happen if there was no deal governing things like aviation rights, access for both high and low-skilled workers, and exchanges of nuclear materials the impact on normal trade is easier to understand.

In the event of no comprehensive deal  trade would be conducted on standard World Trade Organisation rules, which govern trade in goods but do almost nothing to ensure access for the services exports on which Britain relies so heavily.

Even when it comes to trade in goods the Confederation of British Industry has calculated that WTO rules would apply to 90% of the value of such British exports and would likely make them less competitive when compared with their EU competitors.

Research by the Guardian claimed that the extra cost to UK exporters of WTO rules would be in the region of £6bn a year. Goods imported from the  EU would also be hit with import tariffs compared to the free movement of goods within the EU. Such a move would damage British industry immensely with “UK in a Changing Europe”, a think-tank based at Kings College,  estimating that WTO rules could lead to a 40% drop in EU-UK trade in the next 10 years and a 2.9% decrease in GDP per capita.

Irish Nightmare

In addition to tariffs, there will be non-tariff barriers to trade such as diverging regulations in hundreds of areas, new compliance rules, customs checks and licensing. Those obstacles will hurt some industries and regions more than others. The most obvious example is the disruption that would surround the implementation of a hard border with the Republic of Ireland.

Aside from the security and political risks involved with returning to a hard border the economic cost for Northern Ireland would be severe. Northern Ireland’s economy relies heavily on EU exports, with 38% of its exports heading to the Republic of Ireland. The economic risks of such a move have already been voiced by Diageo, the parent company of Guinness which claims that border delays could cost it an extra £85 for each of 13,000 lorry loads of Guinness which cross the border each year.

Customs Chaos

Elsewhere in the UK there would be chaos at the ports, especially Dover. A white paper published by the Government highlighted that there is simply not enough space at the ports to cope with new customs  requirements and facilities, and there would be an enormous administrative strain on border services after decades of relying on EU customs rules.

Food and drink trade would be especially vulnerable with the OECD indicating that when dealing with perishable goods “inefficiencies around border clearances alone could add costs of up to 10% of the value of goods traded”  That means higher costs for farmers and consumers as the prices of food and drink increase.

Overall, the claim that reaching no deal would be “better than a bad deal” seems to be largely a negotiating tactic. Brexit Secretary David Davis has insisted that even if there is not a comprehensive Brexit divorce package he is confident there would still be narrower agreements to cover areas such as security and aviation.

The danger is that the rhetoric about a “no deal” outcome being fine for the UK” could become self-fulfilling if negotiators on either side are pushed into a rigid stance by a failure to compromise on contentious issues such as the UK’s bill for financial commitments it made as an EU member. “No deal” could end up being not a mere negotiating scenario but a really big deal.

 

by Thomas Chambers

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