4 October 2019

Open Europe has today published a new report, “Manageable but Material: The consequences of No Deal and how the Government should respond.”

The report is not a consideration of the merits or otherwise of leaving the EU without a deal. Instead, it assesses the issues raised by No Deal and proposes an action plan for the UK Government. Overall, our judgement is that No Deal will cause some disruption, but that much of this can be managed with the right set of responses.

Key recommendations

Open Europe’s report calls on the Government to urgently:

  1. Provide greater certainty for EU nationals and their employers. The Government should achieve this by continuing to push for a bilateral deal with the EU on citizens’ rights and addressing administrative issues with the EU settlement scheme. The Government should also pursue a liberal, pro-business immigration policy in the medium-term, and either reduce the salary threshold for skilled migrants or replace it with a needs-based assessment.
  2. Alleviate pressure on UK ports and the Dover-Calais route, by ensuring both import and export processes are as smooth as possible. In particular, non-compliant exporters must be kept away from vulnerable ports – for example, by pre-clearing trucks at regional centres.
  3. Effectively communicate No Deal issues, so businesses and individuals are clear on what actions they need to take and what actions the Government has already taken.
  4. Provide businesses with greater clarity over the UK’s long-term tariff regime. The current temporary regime offers little certainty beyond an initial twelve months.
  5. Avoid imposing any checks or controls at the Irish border. Such a unilateral commitment is insufficient to ensure an open border, but is the only politically appropriate action the Government can take in the short-term.
  6. Provide short-term support for sectors and regions hit by new trade barriers. The UK cannot prevent the EU from imposing third country tariffs and checks on UK exports, so mitigation efforts here will have to focus on compensation.
  7. Provide continuity for product regulation but put wider economic competitiveness measures back on the table. Unilateral maintenance and recognition of EU product standards will provide importers with short-term regulatory stability. However, the Government should consider wider reforms to boost competitiveness.
  8. Continue to pursue continuity agreements for EU free trade agreements (FTAs), but temper expectations of a quick trade deal with the US. The UK should only sign major deals when it has a clearer idea of its trade policy objectives, and be realistic about the practical and political obstacles to a US FTA.
  9. Pull available economic levers to offset any disruption, in both the short-term and the medium-term. There are a variety of actions, such as reducing income tax or corporation tax, which the Government can pursue to support the economy, maintain business and consumer confidence, and ensure the UK is seen as open to business.

The precise consequences of No Deal are difficult to predict with any certainty. Open Europe’s assessment of the impact of No Deal is as follows: 

  • The UK should take the EU at its word that there will be no temporary standstill transition period or a series of “mini-deals” in the event of No Deal.
  • Similarly, it is important that businesses and individuals are reassured that many of their worst fears can be avoided through government action. There is a risk that predictions of disaster become a self-fulfilling prophecy.
  • The UK and the EU have already put a number of mitigation measures for No Deal in place. Though these are unilateral measures rather than “mini-deals”, they do eliminate some of the worst potential consequences of No Deal on day one (such as disruption to flights).
  • While the UK Government has done a lot of preparation, managing No Deal also relies on the level of business preparedness – and there are other issues beyond the control of either, which rely on actions taken by the EU.
  • The impact of No Deal on the UK economy will also be uneven:
    • Sectors which face high tariffs, are heavily regulated, or are particularly reliant on trade with the EU, are likely to experience more disruption than those which do not.
    • Goods, particularly agriculture, are generally more exposed than services – the UK’s trade in the latter is much less EU-orientated. Moreover, the difference between a deal and No Deal is far greater for goods than for services. (Under the backstop, UK goods would have enjoyed tariff-free trade with the single market, whereas UK services would have faced new non-tariff barriers).
    • UK exporters are likely to experience more disruption than UK importers, due to asymmetry in the tariffs, checks and controls the UK and EU are set to introduce.

The colour-coded table below summarises Open Europe’s assessment of 20 key areas affected by No Deal. It takes into account both the extent of disruption, and whether the problem can be mitigated by UK Government action. To see the more detailed version of this table, click here.

Ultimately, our judgment is that No Deal will not be painless for the UK or the EU, and that a negotiated exit would be a preferable outcome. Nevertheless, with the right set of policy responses, No Deal remains an outcome which the Government can manage.

No Deal will also have unpredictable political consequences. The case for a UK-EU trade deal eventually being agreed will remain strong; No Deal is likely to be a reset, rather than a resolution, to negotiations between the UK and the EU. Moreover, whether with or without a deal, Brexit will be very difficult to reverse. This will provide new facts on the ground for the UK’s domestic politics; a case would have to be made for re-joining the EU, rather than not leaving it.

If you cannot see the PDF reader below, click here to access the full report.

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