19 December 2018

When it comes to leaving the EU without a deal, Tim Durrant says the Government should stop pretending it is ready.

This week was supposed to ramp up the Government’s no deal planning. But the announcements have amounted to little more than rhetoric.

Troops on standby (to do what?), hundreds of pages of information to be published (the Friday before Christmas) and an extra £2 billion to be spent after the UK has left the EU. Even the deluge of new webpages today consists mainly of regurgitated text, with precious little new information.

Of course, it has been clear for some time that the UK will not be ready for a no deal Brexit. Even the best-case scenario would see some disruption, it was never the case that no deal meant no change. But we are now too late to have only minimal disruption.

The head of HMRC told MPs that the date for installing the best customs system for a no deal exit was months ago.  

And many of those in the private sector who would need to do much of the preparation for a no deal exit are still unsure of what they need to do. Hence the warning from business lobby groups that “hundreds of thousands” of businesses won’t be ready..

That is not to say civil servants and ministers have been sitting on their hands. Some progress has been made on preparing for no deal, with air service agreements in place with certain countries, plans to stockpile medicines and negotiated ongoing membership of the Common Transit Convention, which facilitates cross-border trade but does not remove the need for all checks.

The EU plans to mitigate the pain… a little bit, for a limited time

The EU has today made clear it is not willing to negotiate a so-called managed no deal – it will take temporary unilateral measures to mitigate the impact of no deal on EU businesses and citizens. They are not planning for the UK to retain “the terms of any transition period”, which is a key component of the Withdrawal Agreement – so there is no “managed glide path” available either, where the UK keeps the transition and reneges on the rest of the Prime Minister’s deal.

The no deal measures set out by the Commission cover important areas such as flights and financial services. On the former, they will allow UK air service providers to fly between the UK and an EU destination, but they will not be allowed to fly between EU27 cities.

On financial services, the Commission is granting ‘equivalence’ in a very limited number of areas, for a period of up to 24 months. This will not fully remove the need for some firms to reregister their services with an EU regulator – and the decision could be unilaterally revoked by the Commission at any point.

Another unilateral decision by the EU will allow UK hauliers to enter the EU, to continue transporting goods – meaning they will not need to apply for the limited number of alternative permits available – but that only runs for nine months.

The Commission says that individual EU member states must protect the rights of UK citizens living there – another area in which the UK is dependent on the goodwill of the other 27 EU governments. The Commission will work with member states to protect benefits and other social security for EU citizens living in the UK and Brits in the EU.

There are still many outstanding questions, including the UK’s new tariff regime

In the event of no deal, the EU has said UK exports will face EU tariffs as with any third country. UK exporters will also be required to go through full customs processes, which the Commission stresses member states need to be ready to manage. 

But the UK Government has still not told businesses what tariffs they will be have to pay on imports from the EU.

The Government faces a big choice. If they decide not to levy any tariffs on imports from the EU, they will be required under WTO rules to do the same for all imports. Conversely, if the UK applies the same tariffs on EU imports that they do for imports from countries with whom we have no special deals, this will raise costs for businesses and consumers and cause problems for integrated supply chains.

Apart from a few exceptions, the Government has not said how it is doing on its ambition to ‘roll over’ existing EU agreements with other countries.

These include free trade deals, which currently govern around 12% of the UK’s trade. One of these, with Switzerland, will continue whether the UK leaves the EU with a deal or not. Despite a new publication today, there is no clarity on what the UK expects it might have agreed by 29 March. No rollover means that tariffs and other barriers to trade with countries around the world will reappear.

It’s time for the Government to be honest about no deal. Leaving the EU with no deal will cause disruption across large swathes of the UK’s economy. Even with the best will in the world, it is impossible for the Government to solve all these issues on its own – so if it wants to take the country over this cliff edge, it should be clear what will still be waiting at the bottom. 

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