Fears that the UK and the EU will not agree a trade deal were fuelled by Michel Barnier on Monday when he told envoys in Brussels that he “cannot guarantee” an agreement. Although hopes have been raised about a breakthrough on fishing, his words caused a drop in sterling and give a glimpse of the volatility that can be expected in the event of no deal. What happens if there is no agreement? The political fallout will be intense domestically and internationally. The UK’s economy, already reeling from the pandemic, will be dealt another shock with tariffs on imports and exports introduced from 1 January. It has been said frequently that a no-deal Brexit would represent a failure of politics, and it is likely that it would damage relations between the UK and the EU for some time. The EU has said the notion that it would just resume talks next year is “dangerous thinking”. A Cabinet Office document leaked to the Guardian outlined the devastation of the worst-case no-deal scenario. “The likelihood of a systemic economic crisis has increased and will have major impacts on disposable incomes, unemployment, business activity, international trade/commerce and market stability, and security decisions/capability improvements in the context of prosperity,” it said. What changes would there be to trading relations? Trade barriers in the form of customs and regulatory checks will come in, as the government has already decided the UK is leaving the EU customs union and single market. No deal would mean tariffs and quotas on imports and exports would increase prices of cars by 10% and some foodstuffs, such as cheese and beef, by 50% or more. What about the impact on the economy? The Office for Budget Responsibility last week warned that industries such as manufacturing, financial services and agriculture would be hammered by no deal, which would wipe 2% off the UK’s economic output on top of the hit caused by Covid. A report on Friday by the London School of Economics Centre for Economic Performance found that seven in 10 firms “expect a no-deal Brexit to negatively impact their business”. “New data on how businesses are preparing for Brexit, while simultaneously coping with the largest economic shock for a century, suggests that only 59% of UK businesses consider themselves to be at least ‘somewhat prepared’ for a no-deal Brexit,” it concluded. “The consequences of no deal are severe and the spread of the pandemic has only increased the importance of agreeing a deal,” they added. Northern Ireland The Northern Ireland protocol, which mandates that the region follows EU rules on customs and standards, kicks in deal or no deal. However, in a no-deal situation the UK government has threatened to disapply the protocol and remove the barriers. This would poison relations with the Irish government and the EU because of the perceived risk to the invisible border with the Republic of Ireland. Fishing The UK would have control over its waters and would be entitled to block access from EU fishing vessels.
However, the Cabinet Office says in the worst-case scenario, “EU and UK fishers could clash over the lost access to historic fishing grounds” with blockades at French ports including Boulogne, where much British fish is processed. Delays of one to two days could result in value loss of 60% of fresh crab and live/fresh scallop exports. Food prices An estimated 30% of food eaten in the UK is imported from the EU, according to the Cabinet Office, with 10% coming across the Channel. Prices would be affected by tariffs, sterling depreciation and supply chain disruption. Cabinet Office analysis suggests prices could increase across the board by 3-5% as a result of tariffs on imports from the EU. “Lower-income households are more exposed to food price rises: around a 10th of expenditure is on food and non-alcoholic drinks for the average UK household; the equivalent figure is around 15% for the poorest 20%. Lower-income households also tend to have less ability to ‘trade down’, probably because they are already purchasing cheaper products,” says the analysis. Tourist and business travel Tourist visas for travel to Europe could be imposed and business travel, even to meetings in European capitals, conferences or exhibitions, would require significant paperwork and advance notification. The Cabinet Office document had this warning: “UK nationals travelling to the EU after the end of the transition period will be treated as third-country nationals (TCN). They will face additional checks at Schengen border, leading to significant delays. TCN visa requirements and work permits will adversely impact business mobility, as would the lack of social security coordination in a non-negotiated outcome.”
Aviation and haulage The EU would make time-limited unilateral measures to allow planes to continue flying and trucks moving goods to and from the UK. There could be severe disruption nonetheless. In a no-deal scenario, truckers would need special permits and the transport minister Rachel Maclean recently admitted that the UK has only a fraction of the permits needed for the 39,000 trucks involved in cross-border transport. “The UK has up to 1,668 annual and 5,040 short-term permits available for 2021,” she said. Supply chains The government has already warned of queues of up to 7,000 lorries in Kent in the event of a deal. Disruption to supplies would be greater in the event of no deal. Medicines The government has secured more than £80m in ferry capacity as a no-deal contingency for the supply of medicines and other high-priority goods. Science and Erasmus No deal would end the UK’s participation in the EU’s flagship £80bn Horizon Europe programme and the educational exchange programme, hitting university research heavily. Data A data deal is needed to enable businesses to continue trading online and support businesses that rely on cross-border data exchange, such as financial services, medical and security collaboration, hospitality and transport. Security and policing No deal would end decades of joint law enforcement, including the UK’s departure from the European arrest warrant and European programmes involving live passenger data exchanges critical in criminal and counter-terror operations, as well as programmes sharing police alerts on missing persons, stolen goods, DNA and fingerprint data.