No deal Brexit preparations

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Since the Brexit referendum, the Government has declared that leaving the EU with "no deal is better than a bad deal". The Prime Minister and others have made it clear that while they want to get a good deal, the UK is prepared to leave the EU in March 2019 with no agreement in place.

This would mean a significant and immediate change in the UK’s relationship with the EU. The UK would no longer be part of the EU’s regulatory regime, introducing barriers for businesses trading between the UK and EU. Leaving with no deal would also create uncertainty around the legal status of EU residents in the UK and Brits living in the other 27 member states.

As part of its preparations, between August and October 2018, the Government published a series of ‘technical notices’ setting out how government bodies, businesses and individuals would need to prepare for the UK leaving the EU with no deal in March 2019.

The Government has published 105 notices, along with one summary document, covering a range of areas from flights between the UK and EU to pet passports to exporting organic food.

What does the Government need to do to prepare for no deal?

The majority of the notices set out actions that the Government and/or business will need to take ahead of a no deal exit, to ensure they are prepared. 

For the Government, the biggest challenge will be establishing a large number of new systems and processes, to replace those currently carried out by EU bodies. These range from a new licence system for trailers at the Driver and Vehicle Licensing Agency to managing funds currently disbursed by the European Commission to creating a temporary licence for banks from the EU to continue trading in the UK.

The Government will also have to pass legislation for many of the areas covered in its notices. Much of this will be ‘secondary legislation’ under the EU Withdrawal Act. The Leader of the Commons, Andrea Leadsom, told Parliament that the Government does not expect any difficulty in passing the required secondary legislation before exit day. However, this volume of legislation is straining government drafting capacity – the National Audit Office found that by June 2018, the Department for Environment, Food and Rural Affairs had drafted only 33 of the 93 statutory instruments it requires by March 2019 to implement Brexit smoothly.

Several notices refer to other legislation that may or may not fall under the Withdrawal Act. And we know that the Government will have to pass at least two more pieces of primary legislation before a no deal exit – the Trade Bill is proceeding but no legislation protecting citizens’ rights has yet been introduced.

Another strategy the Government will pursue in the case of no deal is to attempt to reach agreement with the EU, or individual member states, on specific issues. Around a quarter of the notices suggest some kind of ‘side deal’, particularly in transport-related areas like flights and road haulage. However, Michel Barnier, the EU’s chief Brexit negotiator, told the Exiting the EU Select Committee that "if there is a no deal there is no more discussion" and no ‘mini-deals’.

What does business need to do to prepare?

Businesses also face a significant amount of work to prepare for no deal. Given all the new processes and systems that the Government will be setting up in the UK, there will be a lot of new British bureaucracy for businesses to deal with, including filling out customs declarations, changing labels on food products and getting export health checks for exports containing animal products. 

Those businesses that export to the EU may also face bureaucratic hurdles to ensure they can continue to sell their products or services in the other 27 member states. Many will have to seek new approval for their exports from an EU body, as the EU will no longer recognise approvals issued by UK authorities. This affects many sectors of the economy, from car manufacturers to media companies broadcasting from the UK to other EU countries to UK banks providing financial services in the rest of the EU. A smaller number of notices recommend that businesses establish some form of presence in the rest of the EU to be able to continue to serve that market.

How dependent are preparations on new government IT?

Around 55 of the notices say that the Government will create a new process, to replace a function currently carried out by the EU. We estimate that almost half of these new processes require new IT systems, which need to be ready for March 2019. These include a replacement for the EU’s Trade Control and Expert System (TRACES), used for managing the import and export of live animals and animal products, along with organic food and feed; an e-notification service for public sector contract opportunities in the UK; and new systems for validating UK VAT numbers and collecting VAT from overseas businesses.

These new systems come on top of the Government’s plan to build a new IT system for customs declarations, which HMRC was planning before the referendum but has been brought forward to be ready for when the UK leaves the EU next year. However, HMRC has been criticised recently for not providing enough information to businesses on what the new process will entail.

Simply setting up government systems is not enough. Many of them will need to be accessed and used by business, who may need to make significant changes to their own technology in order to adapt. A full list is provided at the end of this explainer.

Which government departments face particular challenges in preparing for no deal?

The amount of work faced by businesses in preparing for no deal is reflected in the distribution of technical notices by departments, with the Department for Business, Energy and Industrial Strategy (BEIS) and the Department for the Environment, Food and Rural Affairs (Defra) publishing or co-publishing 29 notices each (a number of the notices are co-published by multiple departments).. The top two departments facing the greatest pressure are unsurprisingly also the ones which have the most Brexit workstreams: 72 for BEIS and 64 for Defra.

What will the devolved governments have to do if there is no deal?  

All the notices refer to the need for the Government to work with the devolved governments to prepare for no deal. Around a third of them make explicit reference to work that the UK Government is doing with its counterparts in Wales, Scotland and Northern Ireland to prepare for such an outcome.

The majority of these relate to agricultural or environmental policies or processes which are some of the most high profile areas currently governed by EU rules but which are devolved. Currently the governments of the UK are in discussions about how to manage these areas when they return to the UK, although nothing more than a preliminary UK Government analysis has been published. In other areas, such as chemicals and state aid, it is more commonly accepted that new UK-wide rules will be needed and the technical notices refer to Westminster agreeing these with the devolved governments.

The devolved governments have not published their own notices, although the Scottish Government has warned of the impact of leaving with no deal and has made funds available for firms to adapt to post-Brexit trading circumstances.

What do the notices say about EU businesses doing business in the UK?

Almost half of the UK notices – 50 of the 105 – express an intention to unilaterally recognise EU standards and measures in the hope of minimising disruption in March 2019, at least for a time limited period.

This recognition covers EU product authorisations in a number of goods categories, including most plants and plant products, medical devices and some car components. The UK has proposed introducing ‘temporary permissions regimes’ for various financial services, allowing EU firms to continue to trade in the UK for a period after Brexit. Among other things, the UK also plans to accept EU road haulage documentation, aviation safety standards, and data protection standards.

But there are some areas where the UK proposes to treat the EU like those from any third country straight away: for example with relation to the quality of blood or organs, vehicle insurance, and (almost all) civil legal measures.

How will no deal affect UK citizens?

In 27 cases, the technical notices suggest UK citizens will face some kind of additional burden.

Any additional costs of doing business with the EU may be passed onto UK consumers. For instance, rules governing trade in electricity between EU member states will no longer apply to the UK – disrupting the supply of electricity between Great Britain and the continent as well as potentially severing the integrated Single Energy Market on the island of Ireland, both of which could result in higher prices for UK consumers.

UK citizens would also lose access to EU laws protecting their ability to work, travel or live in other EU member states. For example, access to consumer rights that allow UK citizens to take EU businesses to court will be diminished, professional qualifications or licences enabling UK citizens to provide services – from road haulage to auditing – in the EU will no longer be recognised, and taking pets or horses abroad will be costlier or require additional bureaucracy.

The technical notices do not cover UK citizens living in the EU. However, as remaining EU member states begin their own process of contingency planning for no deal, it may become clear that those UK citizens will be affected too. The French Government has published a draft law preparing emergency Brexit measures and other member states are also starting to make preparations.

What has the European Commission said about no deal?

The EU began publishing its own no deal notices in early 2018. Unlike the UK, the EU has said that it will no longer recognise UK approvals for products or services if the UK leaves with no deal. This is because legally the UK will be a ‘third country’ – i.e., one with no special arrangements with the EU.

As a result, many UK firms that want to continue trading in the EU will need to seek new approvals for their products and services; and as noted, some may need to establish a presence in one of the remaining 27 EU countries. Professionals, including pilots, aviation engineers and certified seafarers, may need to seek new recognition of their qualifications and/or licences in another member state.

How will the Government deal with the Irish border in a no deal Brexit?

Seventy-four notices contain a reference to the UK’s ‘unique relationship with Ireland’, stating that the UK is committed to the Good Friday/Belfast Agreement and that the UK will work with the Irish Government and the rest of the EU to ‘act in the best interests of the people of Northern Ireland’.

The majority of the notices that contain this reference relate to issues that are particularly pertinent for the border between Northern Ireland and Ireland, including the import and export of animals, cross-border road transport and trading in goods with the EU – which recommends that businesses trading across the border consider asking the Irish Government for guidance.

One notice sets out that the rights of Irish citizens to live and work in the UK will not change, with no action needed from individuals. It also makes clear that the Common Travel Area between the UK and Ireland (as well as Jersey, Guernsey and the Isle of Man) will remain in place regardless of the terms of Brexit.

However, despite the Government’s previous commitment to avoiding a hard border between Northern Ireland and Ireland, there is as yet no clarity as to how this will be delivered.  

New government IT systems needed for no deal

Responsible department

Relevant notice(s)

Purpose of new system

BEIS

Civil nuclear regulation

For authorising new shipments of spent fuel and radioactive waste

BEIS

Horizon 2020

For ensuring payments to beneficiaries of Horizon 2020 funding can continue

BEIS

Nuclear research

For ensuring beneficiaries of Euratom research and training grants can continue to receive funding

BEIS

Trading goods regulated under the ‘New Approach’

For listing approved UK product testing bodies (database)

CO Accessing public sector contracts For publicising public sector contract opportunities

Defra

Accessing animal medicine IT systems

Regulation of veterinary medicines

For submitting regulatory information on veterinary medicines and applying for market authorisation approvals

Defra Commercial fishing For managing the increase in export catch certificates to be submitted to UK fisheries authorities

Defra

Importing animals and animal products

Importing high risk food and animal feed

For notifying the Food Standards Agency in advance about imports of high-risk food and feed

Defra

Importing animals and animal products

Producing and processing organic food

Importing high risk food and animal feed

For tracing imports of animals and animal products, and organic food, replacing TRACES

Defra

Regulating chemicals (REACH)

Control on persistent organic pollutants

For registering chemicals, to replace REACH

Defra

Regulating chemicals (REACH)

For notifying Defra about chemicals imported from the EEA without a REACH registration (transitional process)

Defra Regulating pesticides For checking decisions on active substance approvals (database)

Defra

Regulation of veterinary medicines

For applying for market authorisation approvals

Defra

Using and trading in fluorinated gases and ozone depleting substances if there is no Brexit deal

For managing UK quotas of fluorinated gases and ozone depleting substances

DfT

Commercial road haulage

For registering trailers travelling internationally

DfT

Commercial road haulage

For allocating road haulage permits

DfT

Reporting CO2 emissions for new cars and vans if there is no Brexit deal

For recording and verifying new car and van registrations for emissions compliance

DHSC

Labelling tobacco products and e-cigarettes

For submitting information about new tobacco products and e-cigarettes

DHSC

Submitting regulatory information on medical products

For submitting regulatory information on medical products

HMRC

VAT for businesses if there is no Brexit deal

For validating UK VAT numbers

HMRC VAT for businesses if there’s no Brexit deal For collecting VAT from overseas businesses selling goods worth up to £135 into the UK
HSE Classifying, labelling and packaging chemicals For listing substances requiring mandatory classification and labelling
HSE Classifying, labelling and packaging chemicals For notifying HSE with details of any self-classifications for substances placed on the market
HSE Export and import of hazardous chemicals For notifying HSE about exports of listed chemicals from the UK, replacing ePIC
HSE Regulating biocidal products For receiving and processing applications for active substance approvals and biocidal product authorisations (interim arrangements for March, then new IT system)

 

Update date: 
Thursday, October 18, 2018