As negotiations turn sour, we consider the potential implications of a crash out of the EU.
As the prospect of a no-deal Brexit looms larger and larger, it is becoming increasingly important to consider what the fallout from such a disappointing denouement would entail for the UK, especially when combined with the aftermath of the COVID-19 pandemic. This week, Boris Johnson has given the EU an ultimatum: if a trade deal has not been reached by the 15th of October, allowing the two sides enough time to prepare and implement policy by the end of the year, then the U.K. is ready to accept this and “move on”. Johnson has called a no deal exit a “good outcome”, despite the fact that since the beginning of the transition period members of his government have ensured they would “get a deal” and deliver the Brexit set out “in [their] manifesto”.
Concern over whether a deal will be reached within Johnson’s timeframe is growing due to the government’s refusal to budge on its ‘red lines’, namely EU access to UK fishing waters and state aid to industries, are themselves part of a broader debate surrounding fair competition rules.
When the UK left the EU in January, it signed a political declaration which would guide its future relations with the EU – and would serve as a starting point for negotiations on a trade deal. A central tenet of this declaration was that the UK and the EU should collaborate to maintain the “level playing field”. This meant that in exchange for continuing to benefit from free trade with the EU, the UK would follow certain rules to ensure fair competition. For example, the EU does not want the UK to undercut its commitments to environmental or workplace standards, or to massively increase state aid to businesses, because these would damage the EU’s competitiveness in the free market. Disagreements between the UK and EU have stemmed from the former’s wish to regain its sovereignty over matters such as these.
Another sticking point has been EU access to UK fishing waters. Currently, EU law allows fishermen to fish in the waters of other member states – which individuals in the industry have claimed to be unfair. An individual in the business claimed that EU fishermen fish about six times as much in UK waters as UK vessels fish in EU waters. Boris Johnson and Michael Gove have used fishing regulations as symbols of regaining the UK’s “sovereignty”, and this symbolism has gained traction across Leave supporters. However, fishing only makes up around 0.12% of the UK’s GDP, and the majority of fish eaten in the UK (cod and haddock) is imported from other EU member states. Overall, the UK imports 70% of the fish it consumes – 34% of which comes from the EU – and exports 71% of what it fishes to other member states. Therefore, a lack of an agreement on fishing policy – and the potential closing of the EU market to UK fish – could end up severely hurting the industry.
Source: House of Commons Library (2017), “The UK Fishing Industry” Debate Pack, http://researchbriefings.files.parliament.uk/documents/CDP-2017-0256/CDP-2017-0256.pdf
A no-deal Brexit is looking increasingly likely, as tensions rise between the two negotiating teams following a report by the Financial Times which claimed the UK government was going to backtrack on some of its commitments regarding Northern Ireland made in the Withdrawal Agreement. The Withdrawal Agreement has the legally binding force of an international treaty. Therefore, rolling back previously agreed-upon commitments has led to increased distrust and anger from the EU, the US, and within the UK government.
The President of the European Commission, Ursula Von der Leyden, called on the UK government to implement the withdrawal agreement fully – a “prerequisite to any future partnership” – as it is essential to the maintenance of peace on the Irish continent and safeguarding the single market. Former Conservative Chancellor Phillip Hammond, and ex-Justice Secretary David Gauke, have both spoken out against the government’s potential plans to undermine the Withdrawal Agreement, the former calling it an “incredibly dangerous step” which would “hugely damage our standing on the world stage”. Sir Jonathan Jones, the head of the government’s legal team, resigned in answer to the UK’s position – causing conflict among Conservative MPs.
Individuals close to Joe Biden have also stated that any move to undermine the 1998 Good Friday peace deal would be a “major impediment” to a close relationship between a Biden-led US and the UK. Senior democrats and members of Congress have also stated that if Johnson proceeded with legislation that breached an international treaty it would drastically undermine the UK’s standing in their minds – and undermine plans for a free trade agreement between the two countries.
The situation is looking grim, and a no-deal Brexit more likely. What would a no-deal Brexit (leaving with no decided-upon plans for future relations with the EU) look like? How would it affect an economy already set to be severely damaged by the COVID-19 pandemic? What will this mean for EU citizens coming to work in the UK, and for EU citizens already living in the UK? And what kinds of new customs checks will need to be put in place? Before the pandemic, forecasts of Brexit’s impact on the UK economy and society were already pessimistic; Now, they are dire.
Economic Impact
A lack of a trade agreement with the EU would see the UK-EU relationship revert to one based on international trade regulations, meaning the re-imposition of tariffs on trade between the unions. This will lead to increased costs and burdens, especially in the manufacturing sector. According to one estimate, a no-deal Brexit would cost the car industry £40 billion by 2024, due to a decrease in domestic manufacturing caused by increased tariffs and offshoring of production. This is on top of an already massive £33.5 billion loss brought about by the pandemic, as well as extra costs and delays brought about by increased regulation.
Pharmaceuticals is also an area of concern. Before the pandemic, the UK had decided it would stockpile medicine, of which 73% come from the EU, in order to compensate for increased delays due to new customs checks. However, the pandemic has already raided medicine stockpiles, leaving the industry highly vulnerable to a no-deal Brexit. Further, the NHS uses predominantly generic medicines, 90% of which are imported. A no-deal Brexit would incur a serious rise in costs for an already overstretched NHS.
The UK exported 24.8 billion pounds’ of pharmaceutical products, 11.9 billion (48%) of which went to the EU. It also imported 24.8 billion pounds’ worth of pharmaceuticals, 18.2 billion (73%) of which came from the EU. Source: Parliament.uk, The impact of Brexit on the pharmaceutical sector
Food will also present some issues, as the UK is heavily dependent on imports in all food groups, though most significantly fruits, vegetables, and meat. About 30% of all food imports come from the EU, including 70-80% of fruit and vegetables in the spring and winter. Tariffs would be imposed on 85% of these imports, if a no- deal solution is decided upon. Tariffs on things such as beef are very high, going up to 45%. This will cause food prices to rise, whilst the pound is set to drop in value as negotiations remain at a standstill – ultimately hurting the population.
Source: Department for Environment, Food, and Rural Affairs
Customs Checks
A no-deal break from the EU will result in increased customs checks with their corresponding delays and costs. According to Her Majesty’s Revenue and Customs (HMRC), British businesses may have to spend £15bn extra a year on administrative work in case of a “no deal” Brexit. In fact, reports have claimed that Brexit has already cost the UK more than the £177 billion the UK government had contributed to the EU Commission budget from 1973 to the end of 2019. Bloomberg have estimated costs of Brexit to the UK economy to exceed £200 billion by the end of 2020. This is due to increased administration costs, negative investment patterns, as well as decreased consumer spending due to the already-visible prices increases across the UK.
The government has said it expects long queues at checkpoints, notably between France and the UK, with delays plaguing trade for up to six months as the process gets underway. This would lead to delays in deliveries, putting supplies of above-mentioned goods at risk for consumers.
Industry groups have also recently spoken out about the UK’s lack of preparedness for new customs controls, which risk disrupting UK business and the UK-EU supply chain even further. This has naturally been exacerbated by COVID-19, which has limited businesses’ abilities to prepare for increased bureaucratic work and mitigating for delays. If a no-deal Brexit is in our future, the COVID-19 toilet paper shortages will have simply been a warning of what happens when supply chains get tampered with.
Freedom of Movement
EU citizens who reside in the UK at the time of Brexit can apply for pre-settled or settled status, which will allow them to continue to work, receive social benefits, and eventually apply for citizenship. However, under a no-deal Brexit, EU citizens arriving after Brexit will no longer have the right to work or live in the UK without a visa. A new Australian-style points-based immigration style would be implemented, which would – allegedly – prioritise highly skilled individuals rather than those from a particular region or nationality. This will have an impact on the economy and society, as the UK will no longer be able to depend on “cheap labour” from Europe. The government has instead encouraged a focus on retaining people in jobs, and altering employment to respond to domestic needs.
The threat of a no-deal Brexit, which was thought to have been avoided in December, has resurfaced. COVID-19 has exacerbated many of the issues which analysts had previously pointed to as potential outcomes of such an exit from the EU. This analysis bolsters and illustrates this perspective. The UK government is not in a position to fail to reach an agreement with the EU, especially following their current track record dealing with the pandemic and the oncoming economic crisis. Therefore, they should do all they can to ensure they meet the October 31st deadline – or beg for an extension.