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Blue Bitesize #004: 'No Deal' Brexit

Blue Bitesize is a weekly article written by our members, for our members, and looks to explain complex political concepts from both the left and right wings of our party. This week's bitesize has been written by one of our very own PMO analysts, Connor Jones.

Vince Cable calls it “disastrous”. Andrea Leadsom calls it “manageable”, Anna Soubry calls it “deeply damaging”. But what is the truth behind a no-deal Brexit? Is it really as harmful as MPs and the media make out? Is trading on WTO terms the worst possible outcome for the UK? Connor explore below.

The World Trade Organisation, or WTO, is where countries can negotiate the terms of international trade independent of any free trade agreements (FTAs). There are a total of 164 members of the WTO (the UK being one of them) and if they don’t have an independent FTA, they trade on pre-negotiated ‘WTO rules’; either indefinitely or until a further agreement, or FTA is agreed. As a member of the WTO, every country has a list of tariffs and quotas that they apply to other countries and their goods coming in, called WTO Schedules. The UK Government has already published its WTO Schedule, and claims it will cut tariffs on 87% of imported goods to 0% if the UK leaves the EU without a deal in October.

Key remain MPs have argued that 'No Deal' Brexit is not what Leave voters voted for

It is widely accepted by Brexiteers that no-deal should remain on the table as a deterrent for a bad deal. Nigel Farage says what’s killing business in the UK is not the prospect of ‘no deal’, but the uncertainty around what will happen next October. They can’t plan ahead, or make arrangements, without knowing whether they will be trading on WTO, or if they’re will be some form of pre-agreed deal. All Brexiteers and some Remainers (those who accept the referendum result) agree they would all like to leave with a deal, but where hard-line Brexiteers begin to follow a separate path is their persistence that the UK should not just accept ANY deal. This resonates mostly with conservative Brexiteers most, considering they all stood on a manifesto pledge of “no deal is better than a bad deal”.

In the event of a WTO Brexit, the UK would be able to begin trade negotiations with other countries almost immediately. Our future trade could be re-directed toward areas of more prosperous growth, like India, far-east Asia, and Africa. The UK could also grant all countries in the Commonwealth an FTA, both with each other and the UK – an arrangement that is prohibited by our membership of the European Union. In 2009 the EU estimated future growth markets in emerging countries could be worth 2% extra GDP in the future. The UK could remove the red tape that has wrapped both the UK and the EU markets for 40 years, estimating an additional 6% GDP growth. The UK could take control of its fishing grounds, worth an extra £3bn to the UK.

It is also widely accepted that in the event of a WTO Brexit, the negotiated divorce bill of £39bn is no longer valid, however this is disputed amongst Brexiteers. Whilst Nigel Farage wouldn’t give the EU a penny, other revered Leave figures such as Dominic Raab have argued that the EU would still be entitled to a fraction of that amount, with the rest free to be spent on alleviating any perceived negatives of a WTO departure. On top of the initial savings of £39bn, the UK would no longer be required to send the EU its £10bn per year membership fees.

The UK government has already set out its plans for its tariffs under WTO rules in the event of ‘no deal’, if parliament’s is unable to stop the Government taking the UK out of the EU without a deal in October. The temporary schedule would mean that 87% of UK imports will be free from tariffs. At the moment, 80% of UK imports are tariff free. Despite the government making UK imports even more tariff free than we have at the moment, the UK media concentrates heavily on the 13% of goods which won’t be tariff free.

Car imports is an area in which has been heavily discussed both in the media and online. Under ‘WTO rules’, cars would be taxed at 10% when they cross the new EU-UK border. The impact of this price hike might not be as strong as the media paints however, as in a 12 month period between March 2016 – March 2017, over 86.5% of new private cars were bought by consumers using finance or credit systems, up from 82.7% a year before. Any price increase felt by the consumer, would only be small increases in monthly payments, rather than a huge increase to a one-off transaction, given that only 13.5% of car purchases were bought out-right. The UK government has also stated that EU tariffs for frozen beef could be as a high as 87%, despite the UK being 75% self-sufficient in beef. A total of 81% of beef sold in the UK is stamped as British, and Aldi, Co-op, Lidl, M&S, Morrison’s and Waitrose all use 100% British beef. It is also worth noting, that all tariff are temporary until the EU and UK can agree on a FTA or special arrangements for trade. It might take a small amount of political will on both sides, but would save a lot of hassle, especially on the Northern Irish border.

The Prime Minister and the Chancellor of the Exchequer visiting a car factory in the UK

The Northern Irish backstop has been the biggest political football of 2019. Both the EU and the UK want to avoid a hard border between the Republic of Ireland and Northern Ireland, including no physical checks or infrastructure. The backstop is a ‘last resort’ option to maintain an open border crossing in the event of no-deal being reached. At present, goods and services are traded between the two jurisdictions with few restrictions. The UK and Ireland are currently part of the EU single market and customs union, so products do not need to be inspected for customs and standards.

However, in the event of a WTO Brexit where the two jurisdictions now operate on separate customs arrangements, products might have to be checked when entering the UK, which would mean the re-introduction of a hard border. Both the UK government and the EU have said they don’t want this. The EU have suggested keeping Northern Ireland in a customs union to stop the Backstop coming into play, but this has threatened the integrity of the UK and is too much for DUP and Unionist MPs. Brexiteer MPs have suggested a technological solution, using cameras and online declaration forms – but the EU have ruled out using existing technology. Some Remainer MPS have sided with the EU, declaring that this technology does not yet exist. Despite this, a Dutch customs expert has written in an ERG report, that “no checks at the border” were needed, and that checks would be carried out at local warehouses. Once you’ve made a declaration, customs can come and inspect your goods if needed. He added the system could be developed using existing IT systems and no physical infrastructure would be required. A solution that is already used along the Sweden/Norway border, the EUs longest land border. Either way, the Northern Irish issue is a complicated one, and is made easy by the increasing prospect of a WTO Brexit and the current time constraints facing the UK government.

On top of the Northern Irish backstop, there would be a lack of agreements in several areas. Security and policing would be at risk, as there would be no formal agreement to share information across borders. Rights have not yet been guaranteed for EU citizens in the UK, and UK citizens living in the EU. There are several areas where the lack of a formalised agreement has led to uncertainty about the outcomes of a WTO Brexit. There are many positives and negatives of leaving the EU without a deal on October 31st, it is down to the UK government to decide which option outweighs the other. Neither will be the easy route, and it seems neither will unite the country, the biggest task facing the next Prime Minister.

Connor Jones