19 July 2018

The EU has published a document spelling out the consequences of there being no Brexit agreement by the end of March next year. Jill Rutter sets out the issues the Government needs to address in response.

Early this year the EU issued around 70 “notices of preparedness” on the consequences of the UK’s exit from the EU. Today the EU has pulled those together in one place. These are the consequences of the EU and UK failing to reach a deal by the 30th March deadline. For business, the principal consequences are as follows:

  • The UK becomes a third country, with no preferential deal for customs purposes or for VAT
  • Licenses and approvals issued by the UK are no longer recognised by the EU
  • Companies based in the UK can no longer operate in the EU as a member state and need to either move business or establish a representative in an EU country
  • The UK is no longer an approved destination for some EU business (e.g. ship recycling, some waste management)
  • UK professional qualifications are not recognised by the EU
  • The UK stops being part of EU systems – like the aviation area or the energy market

Some of these consequences are quite niche – but would severely affect the few people for whom they matter. Others could be highly disruptive. For example, being outside the single aviation or energy markets, which could disrupt flights and continuity of energy supply, would matter a lot more to the UK than being outside the “single railway area”. Agriculture and agri-food would be particularly severely impacted by the EU’s border inspection regime – as well as potential tariffs.  Service businesses – well beyond the much-discussed financial services – would need to redesign their business operations and apply for new licences if they wish to supply the EU 27. Reciprocal arrangements on police and justice cooperation would end. And the most visible crunch will be at the border.

The EU is warning the 27 what to expect. That is its job The UK only now seems to be gearing up to act. 

What businesses need to do to continue to do business in the EU

Savvy businesses have been reading the signs from Brussels. They have developed plans to move business, reapply for licences and ensure they have qualified staff. But these plans all entail costs and the willingness of businesses to activate them depend on two judgements. One is on timing. If, for example, UK-based broadcasters are not going to benefit from “country of origin” rules, which allow them to broadcast into the 27 from the UK, then the calculation is when to enact plans, not whether. By March 2019 or by December 2020? For other businesses, the calculation is whether to make changes, risking nugatory spend if the final deal allows them to continue more or less as normal.

What businesses need to do to continue to do business in the UK

The authorisations and licenses issued by EU agencies in Brussels currently form the legal basis for many businesses' activities in the UK, as well as their trade with the Continent. The UK has to decide whether to continue to recognise the decisions of those EU bodies in UK law, even if the EU does not reciprocate, or play tit for tat. 

Politics and practicalities point in different directions. The politics point to the UK Government mirroring the EU’s hard line. Practicality points to continuing at least for a period as now, given the lack of capacity in UK agencies and bodies to cope with a flood of new authorisations and licence applications, even if that means giving EU businesses a far easier ride than the 27 give British firms. It is not even clear at the moment who the new responsible bodies will be – nor their state of preparedness. Credible ‘no deal’ planning means that responsibilities have to be clear.

How the border will operate

The immediate changes would happen at the border. The UK needs to warn businesses, particularly those which only export to the EU27, how they need to prepare for customs and regulatory checks the EU may impose, and that the EU will expect importers to pay VAT upfront when goods cross the border.

But credible ‘no deal’ planning also means the UK needs to show how it plans to manage the UK's borders after Brexit - whether it intends to impose checks, and how it will collect tariffs on trade with the EU27. It will also need to show it has contingency plans for managing delays that could be created the other side of the channel. Today’s National Audit Office report suggests there is still a lot of work to be done.

It is possible that a failure to agree on a backstop for the Irish border will scupper a deal. The UK needs to set out its plan for managing the land border after Brexit.

How the Government plans to roll over third country agreements

The EU has promised that once the UK signs the withdrawal agreement, it will write to all countries with whom it has an agreement – on trade, aviation, customs or data - to ask them to treat the UK as an EU Member State during the transition.

‘No deal’ planning has to assume that those arrangements will not be in place. That means the UK needs to prepare a priority list of countries and agreements, renegotiated and re-ratified by 29 March 2019 – and it needs to warn business of the consequences if those agreements are not in place.  The Government claims it is making good progress on third country agreements, but it needs to be much more transparent to give business confidence this is really happening.

What happens to people if there is no deal on citizens’ rights?

Businesses are employers.  The withdrawal deal means guaranteeing the rights of EU citizens in the UK and UK citizens living in EU countries. No deal, no guarantees. In that scenario the Government might need to make a unilateral offer to all EU citizens in the UK of something like settled status – and communicate it rapidly to them, to their employers and their landlords. It would also need to make clear how this affected their access to welfare and public services.

The EU might decide to make a similar unilateral offer to UK citizens. If it didn’t, the UK would need to negotiate bilateral deals with each member state to protect UK citizen rights.  Where that was not possible the UK would have to ready itself for an influx of returning disgruntled Brits.  Brits abroad are already pretty unhappy with the efforts the Government has made on their behalf. Preparedness means stepping up those efforts.

Businesses would need to know not just the status of existing employees but whether they would still be able to offer jobs to EU nationals after a ‘no deal’ Brexit. We have yet to see any proposals for post-Brexit migration – but the Home Office needs to show it has a plan, even if that involves unilaterally extending free movement while a new system is put in place.

How Government is preparing itself

It’s not just businesses that need to prepare. The Government does too. The EU Withdrawal Act is now on the statute book – as are three other pieces of Brexit legislation. Around 800 pieces of secondary legislation are needed to prepare the statute book for exit, but promised Agriculture, Fisheries and Migration bills are yet to appear (in the last case we are yet to see even the White Paper). The Government needs a clear plan for legislative readiness.

‘No deal’ means no access to EU agencies. So the UK would need its own capacity. In some cases it could build on existing UK agencies – eg for medicines. But in others it would need to start from scratch. The Office of Nuclear Regulation is already gearing up for life outside Euratom. But there is no chemicals agency set up yet. And the Civil Aviation Authority has already said it cannot be a substitute for the European Aviation Safety Agency – so it’s not even trying.

The Government need more convincing answers when Parliament resumes

The Prime Minister was pretty unconvincing about the state of Government readiness at the Liaison Committee yesterday. If the Government is to be really ready for ‘no deal’, it needs to be able to provide answers to all these questions – and many more – by the time Parliament is back in action on 4th September. Even more importantly, it needs to start communicating its decisions in a comprehensive and user-friendly way, not ducking politically inconvenient questions.

 

Comments

Great blog, Jill. It sounds like preparation for a major national disaster. But what sort of collective derangement would take us down this route if the government could write a letter to prevent the disaster in the first place? Who voted for stockpiling food, losing thousands of jobs and becoming a pariah state? And for what? When did we last hear a benefits case for Brexit that comes remotely close to matching the huge costs. Or any benefits at all...? I fear no-deal Brexit and its diehard supporters have assumed the character of a cult.

Great blog, Jill. As per usual, the Institute of Government is truly doing God's work.

No Deal will still mean other deals.
Which aspects of the above will EU27 still be keen to avoid disruption in, and still have an incentive to do a deal on, despite the bad blood emanating from an A50 no Deal?

I think that is the interesting question - there may be a patchwork of last minute fixes where th eresults would mess up EU MS and citizens.. but where the impacts are just on the UK - less incentive..

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