The government has leapt over one hurdle—but a damaging “no deal” Brexit is still possible

On the 7th of December, the House of Lords EU Select Committee, of which I am acting chair, published the latest in its series of over 20 reports on Brexit, entitled “Brexit: deal or no deal.” This report explored the consequences of “no deal”—the failure of the UK and the EU to reach agreement on either withdrawal or future relations.

The overwhelming view of our expert witnesses was that “no deal” would be deeply damaging for the UK. It would not just be economically disruptive, but would bring UK-EU cooperation on issues such as counter-terrorism, nuclear safeguards, data exchange and aviation to a sudden halt. It would necessitate the imposition of controls on the Irish land border, and would also leave open the critical question of citizens’ rights.

Against this backdrop, we concluded that the government’s assertion that “no deal is better than a bad deal” was not helpful. It is difficult to envisage a worse outcome for the United Kingdom than “no deal.”

Twenty-four hours after our report was published, Prime Minister Theresa May and President Jean-Claude Juncker announced that an agreement had been reached on the first stage of Brexit negotiations, on withdrawal. The European Commission can recommend to the European Council that sufficient progress has been made on issues of citizens’ rights, Northern Ireland and Ireland, and the financial settlement, in order to proceed to the second stage: discussion of future UK-EU relations. The prime minister showed her tenacity in securing this agreement: as we know, talks have not been smooth sailing.

Brexit Secretary David Davis has said that, as a result of the deal, “the odds against a World Trade Organisation or no deal outcome have dropped dramatically.” I agree, and last week’s deal is to be welcomed. Yet, as the President of the European Council, Donald Tusk, has said, “the most difficult challenge is still ahead. We all know that breaking up is hard but breaking up and building a new relationship is much harder."

So, notwithstanding the welcome progress of the past week, the risk of no deal has not been eliminated—indeed, the prime minister made it clear to the House of Commons on 11th December that the withdrawal agreement would be “off the table” if there were no agreement on trade. There is some pressure from the EU side to make the agreement so far legally binding, but as things stand there still remains a possibility of the most damaging “no deal” possible—a last-minute, unplanned, acrimonious breakdown of talks, where all the progress made so far is undone.

As we identified in our report, the key factor adding to the risk of “no deal” is time—the Article 50 clock is ticking. The closer the UK and the EU get to the deadline of 29th March 2019, the more damaging a breakdown of negotiations, and a “no deal” outcome, would be. Both sides need to show flexibility, and for the UK to compound the rigidity of Article 50 by enshrining the same deadline in domestic law, as the government has proposed, would not be in the national interest.

The government insists not only that the UK will leave the EU on 29th March 2019, but that both the Article 50 withdrawal agreement and an agreement on future relations will be agreed before this point. This means in practice that the agreements will have to be reached by October 2018, to allow time for the UK parliament and the European Parliament to consider and vote on them.

An early and comprehensive agreement would be the best solution for all sides. But precedent, and the overwhelming weight of evidence we received, suggests that it will not be possible by then, and that negotiations on future relations will need to continue beyond that point.

If this is the case, both sides will need a transition period. On this point we agree with the government. But here’s where we differ. What’s needed is not just an implementation period, since the agreement on future relations will still be under negotiation. Rather, we will need to begin with a “standstill period,” to buy time to finalise that agreement, followed by an implementation or adaptation phase. The government has yet to acknowledge the legal complexity of such a transition period, which may be tested by the Court of Justice of the EU before March 2019.

In particular, there is a question mark on whether Article 50 provides a secure legal basis for the continuing application of EU rules after withdrawal, or for implementation of any yet-to-be-defined agreement on future relations. In addition, while “off-the-shelf” alternatives for transition, such as temporary membership of the EEA or EFTA, may have merit, they too would be subject to risk and uncertainty.

Time is passing, and the government needs now to clarify what it will do if negotiations are still continuing as we pass that October deadline and approach March 2019. Our report noted that Article 50 provides two potential means of securing a limited extension of the UK’s EU membership, not to thwart Brexit, but to buy more time for negotiations—either to extend the Article 50 period (which would require the unanimous agreement of the EU27) or, within the withdrawal agreement, to set a date later than 29th March 2019 for withdrawal to take effect. Either of these options could help the UK achieve its objective of concluding the withdrawal and future relations agreements in tandem.

The overriding UK and EU interest is to secure an orderly and legally certain transition. Both sides must now urgently apply their collective minds to achieving this outcome, to provide necessary certainty for citizens and business in the UK and EU alike.

Lord Jay of Ewelme is Acting Chairman of the House of Lords EU Committee