Dr David Shiels is a Policy Analyst at Open Europe and also works on contemporary political history.
The Government has made its move. Having submitted its proposal on an alternative to the backstop this week, London must now wait and see if progress towards a Brexit deal can be made on time for a 31 October exit.
There is clearly a high risk of failure. Notwithstanding the high likelihood of a Brexit delay, a No Deal Brexit remains the default outcome unless Parliament agrees to a deal or revokes Article 50.
In a new report, published today, Open Europe has looked into the potential consequences of No Deal and offered proposals on how the UK should respond. The report, written by my colleague Dominic Walsh, argues that a No Deal Brexit poses challenges for the UK but suggests that the Government can take steps to address them. As the report’s title puts it, a No Deal exit would be Manageable but Material.
The political consequences of No Deal are difficult to predict. Much would depend on how the country arrives at No Deal and whether it happens after an election. A Government with a majority would be in a much better position to make necessary decisions, but British politics would remain unstable and could become more so.
Some of our proposals stress the need for the Government to effectively communicate No Deal issues. Part of this is ensuring businesses are fully prepared, but individuals also need to be reassured that disruption to their daily lives will be kept to a minimum. Where the Government has already taken action to mitigate risks, it should say so.
We don’t know for certain how the EU would respond to No Deal in the event, but our assessment takes the EU at its word that ‘No Deal means No Deal’, with no standstill transition period and no series of mini-deals. The only circumstances in which zero-tariff arrangements could apply require the EU’s consent, and will come at a price. All the same, some of the most important mitigation measures for No Deal – for example, to ensure flights can continue – have already been put in place.
A top priority for the Government is to provide greater certainty for EU nationals living in the UK and their employers. The Prime Minister has acknowledged this as one of the most important points of any Brexit scenario.
The Government should push for a bilateral deal with the EU on citizens’ rights and address the well-documented issues with the EU settlement scheme. Freedom of movement should be ended gradually, and replaced with a controlled but liberal immigration policy that allows employers access to international talent. Reducing or scrapping the £30,000 salary cap for skilled migrants, for example, would send a strong signal.
There is understandable concern about what happens at the border in the event of a No Deal Brexit. There are ways that the Government can alleviate pressure on British ports, particularly the Dover-Calais route, by ensuring that import and export processes are as smooth as possible. In particular, outbound trucks without the correct paperwork must be kept away from sensitive ports. Because of the integrated nature of modern supply chains and the closed loop system at Dover-Calais, a queue on the way out could quickly create one on the way in.
The Government should pre-clear consignments at regional centres away from ports, divert non-compliant freight to lower volume ports, and could even consider sending empty trucks across the Channel so that they can return with imported goods.
What happens at the UK’s land border with Ireland is more politically sensitive, especially as the Irish Government will be obliged to take steps to protect its place in the Single Market. In the immediate aftermath of No Deal, the UK Government should stand by its unilateral commitment not to impose new checks and controls. However, while this is better than the alternatives, it is not a long-term solution. Any view that Irish-imposed controls on exports from NI are “not our problem” is misplaced; checks in the South will hit jobs and livelihoods in the North.
The impact of No Deal on the wider economy will be uneven, and will vary according to sector and region. The UK cannot prevent the EU from imposing third country tariffs and checks on UK exports, and those sectors which face high tariffs and certain heavily-regulated sectors will be adversely affected by No Deal. By contrast, the UK has much greater control over trade in the other direction, and it is welcome that the Government is largely avoiding the imposition of burdensome tariff and regulatory checks on imports from the EU.
There has been speculation about the UK signing a trade deal with the USA to offset disruption to trade with the EU, but these expectations will have to be tempered. In reality, the UK is going to have to be realistic about what is possible to achieve – and getting a deal ratified in Washington, let alone London, may be difficult for as long as there are concerns about the Irish border. In the end, the UK needs to have a mature debate about its long-term trade policy objectives, but this may not be possible in the political climate immediately after a No Deal exit.
That said, the Government should continue to pursue continuity agreements for existing EU free trade agreements where possible. It will also have to provide businesses with greater clarity on what the UK’s tariff regime will look like beyond the next twelve months.
Whether with or without a deal, Brexit will be very difficult to reverse and any form of exit at least answers the question: are we leaving? A No Deal exit could have the effect of resetting the negotiations with the EU so that both parties find their way back to the negotiating table. But the EU may expect the UK to make commitments it cannot accept, such as a return to the backstop. A new negotiation may only happen after some time. It would be prudent for the Government to prepare for the steps that may be necessary in this scenario.