Politics

What happens if Britain leaves the EU without a deal?

It won't be pretty

March 22, 2017
Brexit Secretary David Davis gives evidence to the Brexit Select Committee in the House of Commons, London © PA/PA Wire/PA Images
Brexit Secretary David Davis gives evidence to the Brexit Select Committee in the House of Commons, London © PA/PA Wire/PA Images

Over the last few weeks, a once-unimaginable scenario has been gathering momentum towards acceptability and even expectation. This scenario is that, far from leaving the European Union with a brand-new trade deal to replace the single market, a deal on customs to enable the free flow of goods, and a framework agreement to cover the vast range of our non-commercial integration, the two-year hourglass of Article 50 will simply run out against a backdrop of chaos and discord. Contrary to what Foreign Secretary Boris Johnson has said, Britain will not be “perfectly OK” in such circumstances; it will be confronting a series of political disasters unparalleled in its recent history.

The crux of the turmoil will spring from our abrupt departure from the single market, which guarantees the free movement of goods and services. As we fall back onto World Trade Organisation rules, tariffs will immediately be placed on goods travelling between Britain and the EU, which amount to 10 per cent for cars and an average of 20 per cent on agricultural products (perhaps over 50 per cent on beef). Both those industries could quickly implode in the UK, with farmers also clobbered by the loss of EU subsidies.

The pharmaceutical industry will also be hurt, and financial services will lose passporting rights to sell products into the EU. In the absence of a new equivalence regime, basic cross-border contracts and transactions could be blocked or delayed. Across these sectors, thousands of jobs will be lost, and in many cases transferred to the EU. So-called non-tariff barriers will also take effect, meaning, for example, that British qualifications may no longer be recognised in the EU, and British airlines can no longer fly routes that do not involve a British airport.

Without any deals on EU citizens in Britain and UK citizens in the EU, this hard Brexit will have a human cost. With their futures in the balance, hundreds of thousands of EU workers and their families may simply decide to leave. Quite beyond the incalculable harm to Britain's reputation, key sectors that depend on these workers—not least the NHS—could be pushed beyond breaking point. British citizens with spouses from the European Economic Area (EEA) could be forced to leave if they do not meet the income requirements that currently apply to Britons with non-EEA spouses. European students, meanwhile, will take their money and intellect elsewhere, further harming a universities and research sector excluded from EU programmes and grants.

The economic shock and investor panic will likely see a further sharp decline of sterling, which, combined with the sudden introduction of tariffs for all EU imports, will involve a soar in prices of petrol, gas and groceries. Inflation, unemployment and austerity are similarly likely to grow. Having fallen out of the EU's trade deals with countries ranging from South Korea to South Africa, the government will moreover be scrabbling to repair dozens of trade deals, before even contemplating the much-vaunted new agreements with Australia and New Zealand.

Ireland will be a heavy loser on Brexit Day in the event of no deal. Even if the Common Travel Area for people continues, a hard border will be required for goods. It will be necessary to check contents and provenance, and collect relevant tariffs—which, in the case of existing dairy supply chains, for instance, will be steep. The EU will enforce rules-of-origin requirements, which dramatically increase administrative costs.

Northern Irish citizens near the border could find themselves paying roaming charges as though they were in the United States or Australia if their phones become linked to Irish networks, a situation which will also greet UK travellers on arrival in France and Spain. (Intra-EU roaming, meanwhile, will have been scrapped altogether.) Travel could in any case be complicated by the absence of a revised Open Skies Agreement, which, incredibly, may ground planes travelling to the EU, US and a number of other countries. This eventuality is unlikely but in the current climate, not impossible.

The frequently neglected area of security will also produce negative consequences for Britain. If no deal is struck with Europol, Britain will be blocked from receiving intelligence and participating in EU operations. It will also have to renegotiate bilateral extradition treaties with the 27 member states to replace the European Arrest Warrant. There will be no formal basis on which to cooperate with the EU in foreign and security matters, including, for example, on EU-led Russian sanctions. Other pieces of shrapnel will hit British businesses and consumers as we instantly fall out of dozens of EU agencies, from the European Food Safety Authority to the Community Plant Variety Office.

The prime minister's own policies have threatened to bring this calamitous scenario to fruition: fundamentally, her steadfast refusal to countenance remaining in the single market. She refused to tweak free movement within EU/EEA rules, and increased the chances of a failed deal with additional arbitrary red lines of leaving the jurisdiction of the European Court of Justice (ECJ), and not extending the negotiating process beyond two years.

Even the best-case scenario may necessitate a cliff-edge under these circumstances. The most Panglossian of Brexiteers generally concede that the proposed (fiendishly complicated) EU trade deal cannot be negotiated and ratified by over 40 parliaments in time for Brexit Day; Theresa May herself acknowledged it by proposing an “implementation phase.” The EU, however, will not permit any such implementation or transition period without the UK accepting the oversight of the ECJ—which could entail the extraordinary position of the UK and EU reaching broad agreement about a future deal, then crashing into new tariffs and non-tariff barriers while it is being finalised.

The prime minister, then, needs to show initiative, goodwill and a spirit of compromise early on. The consequences of British arrogance or intransigence will be grave.