The short-term impact of a no-deal Brexit on Britain’s economy would be “chaotic and severe”, jeopardising jobs and disrupting trade links, warn experts from the thinktank UK in a Changing Europe.
The Brexit secretary, Dominic Raab, has said he believes 80% of the work on completing an exit deal with the EU27 is already done, as negotiations enter their final phase.
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But his cabinet colleague Liam Fox recently suggested a no-deal scenario – which would occur if negotiations broke down, or both sides agreed to disagree – was the most likely outcome.
In a 30-page updated assessment of the impact of no deal, the thinktank said on Monday it would mean “the disappearance without replacement of many of the rules underpinning the UK’s economic and regulatory structure”.
Its analysis claimed that in the short term:
Food supplies could be temporarily disrupted – the beef trade could collapse, for example, as Britain is heavily reliant on EU imports, and would be forced to apply tariffs, in accordance with World Trade Organisation (WTO) rules.
European health insurance cards, which allow British tourists free healthcare in the EU, would be invalid from Brexit day.
There would almost certainly have to be a “hardening of the border” between Northern Ireland and the Irish Republic, including some “physical manifestation”.
The status of legal contracts and commercial arrangements with EU companies would be unclear, as the UK would become a “third country” overnight.
Increased and uncertain processing times for goods at the border would be “nearly certain”, risking queues at Dover and forcing firms to rethink their supply chains.
In the longer term, UK in a Changing Europe’s experts say, the UK would have time to normalise its trading status, and agreements could be struck with the EU27 to tackle many other practical challenges.
“It should not be assumed that the damage, while real, will necessarily be long-lasting,” the report says.
The study plays down the risk of a full-blown financial crisis, saying that while sterling would be likely to decline sharply, and the UK could see its credit rating downgraded, recent experience suggests that would not necessarily prevent the government from borrowing cheaply.
But in the short term, and particularly if talks broke down acrimoniously, making it politically difficult to negotiate measures to mitigate the risks, the disruption would be significant.
Brexiters often suggest the UK could quickly revert to trading under WTO rules, but the report says formalising that status would take time, and meanwhile disruption would be significant.
“The focus on the WTO as a backstop for our ultimate trading arrangements tells us little or nothing about the short-term disruption, both economic and social, from a chaotic no deal,” it says.
The authors also dismiss the hope that EU27 countries could be persuaded to keep their own borders free of customs checks – or, as Brexiters sometimes claim, that WTO rules would oblige them to do so.
“The key provisions of the WTO’s trade facilitation agreement are only exhortatory, not legally binding,” they write. “So there would be absolutely no compulsion on the EU to accommodate the UK in this way, and no reason why they would be likely to do so in the context of an acrimonious, chaotic no deal.”
Whitehall departments last month published the first 24 of more than 80 technical notices, aimed at reassuring firms and consumers about the consequences of no deal.
But the report’s authors say the government appears to be putting too much weight on the idea that the EU27 will leave existing arrangements in place for fear of disrupting their own markets.
“The implicit hope on the part of the UK government – much in evidence in the technical notices – that in practice both sides would agree to allow most things to continue much as now is almost certainly too optimistic,” it says.
Facing customs and other border checks would be severely disruptive, the analysis says, particularly for firms whose supply chains operate across the EU.
