The true costs of No Deal – the most complete independent assessment yet

Britain in a changing Europe is as near as we’ve got to an objective think on the subject of Brexit. Today as the Commons votes  to forestall a No Deal outcome, they publish their independent assessment on what No Deal actually means for the UK (not the Republic).  

 

This is the Executive summary

No deal will mean a prolonged period of uncertainty. Not only do we not know with any certainty when and how no deal impacts will reveal themselves, but the longer-term UK-EU relationship will still need to be negotiated and agreed.

 

• Half of UK goods exports will face disruption. The share of the UK’s goods exports that go to the EU would face border checks where none currently exist, with new tariffs applying to a substantial proportion, especially agricultural exports and cars. Advance planning, and reductions in trade volumes, may reduce immediate disruption at key ports, but some disruption to trade is inevitable. Some preferential trading arrangements with a number of countries, including Canada, Turkey and Japan, would also no longer apply

 

. • Northern Ireland would be particularly badly hit. The speedy reintroduction of border controls for goods moving to Ireland would mean a decrease in exports, the curtailment of supply chains in key industries, and an increase in black market activity. Unemployment would rise. There would be a very real possibility of a return to direct rule from London, undermining the Good Friday Agreement. (a value judgment there).

 

• No deal would likely reduce the safety of UK citizens. In a world where data is key to solving crime, there will be a significant impact on policing and security. The UK will lose access to EU databases and other forms of cooperation including the European Arrest Warrant, the Schengen Information System and Europol. No deal would lead to the immediate suspension of EU assistance to operations, including ongoing operations.

 

• The UK’s international reputation may suffer. The UK may not be legally liable to pay the remainder of the £39 billion Brexit bill (although this is contested). But should it fail to do so the EU may withdraw some of the unilateral mitigations that it has put in place, let alone negotiate a new trade deal.

 

• Any deal with the EU after no deal would be much more difficult. Striking a deal outside the Article 50 framework would be far harder, take far longer and might lead the EU to ask for more concessions as national parliaments in member states get involved.

 

Impacts on 1 November:

• The impact on trade would be immediate. Sterling would almost certainly fall further. However, by 1 November the impact of no deal may already have been ‘priced in’ to the value of the pound. The financial system overall will remain stable.

• Traders from Northern Ireland crossing the Irish border would face an increased burden. They would have to make customs declarations, pay tariffs, ensure proper certification for goods, make sure notification is given in a timely way and be registered as economic operators.

• There would be some disruption to supply chains. This would have knock-on effects on production in sectors such as the car industry and others that are dependent on just-in-time production processes.

• Residency rights will mostly remain unchanged. EU citizens currently resident in the UK, and UK citizens resident in the EU, will not lose residence rights and will mostly see no immediate changes.

• However, the position of new arrivals would be much less clear. There would likely be a sharp drop in migration flows. The UK would face significant administrative complications in distinguishing between EU citizens who arrived before and after Brexit. Recent government statements have been confusing and potentially damaging

• If disruption were prolonged, it is likely there would be shortages of some foods within a fortnight. November and December is the worst time of year for storage in the food and drink industry. • Given current trends, the UK economy could fall into recession, although its depth and severity would be uncertain. The overall economic impact in the short to medium term would depend on a number of factors: the extent of the direct disruption to trade, the impact on consumer and business confidence, and the effectiveness of any government and Bank of England policy response.

Long term implications:

 

• No deal would not bring the Brexit process to an end. It is highly unlikely that debate would cease or that it would mark an end state for the UK’s relationship with the EU.

 

• The longer-term impacts would depend on the terms of the future relationship. These will depend on how quickly and on what terms both sides return to the negotiating table. It is likely that future negotiations would be acrimonious and that the UK’s negotiating position could be significantly weaker.

 

• ‘WTO terms’ would mean the UK economy growing more slowly. If the future relationship with the EU was on WTO terms, the UK economy would continue to grow but at a significantly slower pace than if the UK had remained in the EU. Per capita income could be 4% to 9% lower in ten years than it would otherwise have been.

 

• It would take years to resolve long-term arrangements for key economic rights of UK citizens abroad. This applies for issues such as healthcare and social security requirements. • A bespoke future security arrangement would take a substantial amount of time to negotiate. The Europol-Norway agreement took seven years to negotiate.

Northern Ireland in full

When it comes to Northern Ireland, the UK government’s long-term economic analysis estimated a fall in gross value added (GVA), relative to remaining in the EU, of 9.1% of a no deal exit for the province. According to a paper released on 10 July by Northern Ireland’s Department for the Economy, some 51% of NI goods firms and 46% of NI services firms involved in external trade have low profit margins and/or low sales growth, putting them ‘at risk’ in a no deal Brexit. These businesses have a limited capacity to absorb market access shocks. In light of this, the Department for the Economy has estimated that at least 40,000 jobs are at risk in Northern Ireland as a consequence of no deal. This equates to one in 20 jobs in the region, particularly damaging in a context where private sector employment is already 10 percentage points lower than the UK average.

And of course whatever happens on or around the Irish border has extraordinary symbolic and political significance in Northern Ireland. For republicans, it would be a material and stark demonstration of the indifference with which the British government view Irish concerns. They can be confident of a rise in support and sympathy for their analysis in the event of a no deal. Although some will treat the negative effects of no deal with political expediency, the fact is that those negative effects will not be confined to just one sector or community in Northern Ireland. The consequences will be measurable, deep and difficult to recover from. Placed in a context of political tension and a crisis in British-Irish relations, this will be extraordinarily difficult to manage.

Conclusion

This report has attempted to cut through the chatter. Drawing on the work of a number of academic experts in their respective fields, we try to elucidate what we do – and do not – know about the potential nature and impact of a no deal Brexit.

But in far more important ways, we stress that we do know what no deal ultimately means. Whether it be on day one or day 10, or day 50, it means that the UK will no longer be able to trade as it does now with the European Union. That as a ‘third country,’ the UK will see checks and tariffs applies to its products on the EU border. That it will lose access to data and anti-policing that have been crucial in the fight against crime and terrorism. And the economic consequences will be negative not only on the country as a whole but also on specific sectors.

 

At an individual level, we also draw attention to the problems it would cause both to EU citizens in the UK and UK citizens in other member states. In the medium term, much will hinge on whether, and when, the two sides return to the negotiating table. Yet even should they do so, the fact that negotiations can no longer take place under Article 50 means they will be far harder, longer, and potentially more politicised (on the EU side) than during the period since March 2017.

Looking further forward, we identify real problems ahead for the car industry, for aerospace firms, for the health sector and financial services.

And we emphasise the enormous problems that a no deal outcome will cause for Northern Ireland, not simply in terms of the economic damage it will inflict, but also in the political, social and security challenges it will give rise to.

And it is worth bearing in mind that the politics of no deal more generally have not received the attention it should. And yet no deal will shape what happens thereafter as much, if not more, than any economic implications.

 

Clearly, the economics will be important. But the political narrative that dominates the immediate post-no deal period will be crucial (and will in turn hinge on how no deal comes about). How politics in the UK and the EU develop, and the nature of relations between the UK and EU are exceedingly hard to predict, which is why we have not addressed them directly in this report. It is worth emphasising, though, that they will shape the nature of the economic relationship, and hence the impact of a no deal Brexit.

As far as we can tell, however, and given the difficulties that will be confronted if and when the two sides return to the negotiating table after Brexit, the impact of a no deal Brexit will be significant, damaging and long-lasting, albeit not as immediate and visible as some earlier reports have suggested. Perhaps most importantly, there is no sense in which no deal will give governments, businesses or households ‘certainty’, either in the UK or in the EU. No deal will not be the end of Brexit as the central political issue in the UK, or even the beginning of the end. When the dust clears, however, it may be – in the words of Winston Churchill – the end of the beginning.