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As I See It

Would No Deal really wreak havoc with the economy?

Brian Monteith portrait

The Treasury has groaned and the Bank of England has moaned – and any executive of a business association worth his or her salt has chipped in, too. We are all doomed, if there’s no deal, apparently. 

With only Theresa May’s deal supposedly on the table (and make no mistake it is very much her deal) MPs are being urged to accept it or face “catastrophe” and “chaos”.

With all the economic doom-mongering, including dire forecasts from the Bank of England and the Treasury,  one might be forgiven for believing a Brexit “No Deal” had happened already and was wreaking the havoc predicted.

But there is plenty of good news around. Investment is still pouring into British companies, and orders are still piling in from overseas companies.  Berlin has just ordered 200 buses from Alexander Dennis in Falkirk  and a French drinks company has put its faith in Scotch whisky by buying up the Cutty Sark brand from Edrington. These and other developments are happening in the face of warnings of a No Deal Brexit.

But what about those tariffs and all those queues at the ports? Will they not be an issue from April next year? The truth is there may be some upheaval, some changes may be required and made. But catastrophic? Apocalyptic? 

A report released last week by Global Britain  looked at customs operations and found the problems were mostly imaginary or grossly inflated. It looked at 17 alleged problems and found them all resolvable, including arrangements for ‘Just in Time’ processes where over 20% of car parts already come from outside the EU without difficulty.  

The scare stories about aircraft not flying and visa-free travel ending are, one-by-one, all being resolved – with the EU already having announced what we have always known, that it is in its interests that aircraft fly and that free movement for visitors will continue. 

When it comes to the vote on the 11 December the most likely outcomes facing the UK are:

May’s deal gets through the Commons: everyone focuses on their Christmas shopping.

May’s deal is defeated: There are now 100 Tory MPs that have said they will rebel, while there is no political incentive for Jeremy Corbyn to help her – as he will benefit from political chaos and confusion in the hope of forcing a general election or referendum. Likewise Labour’s various factions each have their own tactical reasons to vote the deal down to strengthen their hand. Attempts will be made at bringing forward other compromises or solutions, but none are expected to gain enough support in Parliament – nor is it certain the EU the EU would accede to overtures for further compromises anyway.

No Deal becomes a reality: If May’s deal is defeated then the default position under the European Union (Withdrawal) Act is that we leave the EU on 29 March without a trade agreement and will therefore trade under the rules of the World Trade Organisation, of which the UK was a founding member. This is how most other countries such as the US and China trade with the EU. The UK will be able to set its own import tariffs (possibly making foods and clothing cheaper) but face tariffs for some of its exports (such as some goods and foods) to the EU. Fortunately, the fall in value of sterling offsets the cost of EU tariffs in many cases. From day one new trade deals can be negotiated with other countries and there is no obligation to hand over £39 billion to Brussels. 

The only way to stop “No Deal” is to amend the Act, but passing a motion is not enough, it requires a full parliamentary process and there might not be enough time.

A general election or referendum: Thanks to the Fixed-Term Parliaments Act there would need to be a two-thirds majority of MPs voting for a general election – but this will be opposed by Conservatives who would fear losing many of their seats. Likewise, calling a referendum to take place before 29 March appears impossible due to lack of time.

Coup against May: Faced with this scenario more rebellious Tories from the leaver and remainer camps can be expected to try and remove Mrs May following her inability to negotiate an acceptable deal, believing they need someone new to solve the mess and fearing she will also make a disaster of the next general election in 2022. The likely winner will be Boris Johnson, Savid Javid or Jeremy Hunt – who will have until 21 January to negotiate a better deal than Mrs May has managed. On that date a motion must come before the Commons stating what deal has or has not been achieved. After that it must be No Deal if nothing has complied with the Withdrawal Act.

Last ditch attempt for a Norway-style relationship with the EU:  This option means joining the European Free Trade Association that allows membership of the European Economic Area which would put the UK inside the Single Market with open EU migration, while paying a hefty fee for doing so. As it would mean being outside the Customs Union it does not solve the Irish Backstop problem so the EU is unlikely to agree – and even Norway has raised doubts about the UK’s membership of EFTA.

Faced with these options we can expect all sorts of last minute customs and trading arrangements to be proposed – with the last throw of the dice being an attempt to extend the date of leaving beyond 29 March – but this too requires and amendment to the Withdrawal Act.

Conducting business under WTO rules is not unusual, in fact it is more normal than trading from a Customs Union like the EU, but the UK has been slow to prepare for it and if that is how we are to trade then the quicker we accept it and plan for it the better it will be for our exporting businesses.

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