How bad would a no-deal Brexit really be? This is now perhaps the most important question in politics, and the one provoking greatest disagreement. The answer will help decide whether parliament allows Brexit to happen, and whether Tory MPs bring down their own government. If they think calamity would follow, patriotic rebels might risk a general election to stop the Tories. But what if it would not be so bad? And is there any way of finding out?
Almost everyone accepts it will cause problems, but views range from manageable to ‘national suicide’. It is difficult to predict complex events without historic precedent, but there are other reasons for the divergent views. The first is that there is not a single ‘no deal’, but a whole spectrum. Leaving the EU with no deal (and no preparation) would indeed be ‘crashing out’. But leaving with no deal in, say, 2022, with government and business having prepared meticulously for three years, would be less dramatic. It is a moving target: given the preparations, no-deal Brexit now would be less damaging than a year ago.
Then there is the ‘millennium bug effect’. Before 2000, computer companies had an incentive to talk up the problem of everyone’s systems crashing when dates moved from 12/12/99 to 1/1/00. No one could tell for sure how bad it would be, the media loved an apocalyptic story and we had warnings of aircraft falling out of the sky. But despite the frenzy about the end of days, nothing happened. With no-deal Brexit, there are groups, including those wanting to block Brexit, who have an incentive to talk up problems and a media hungry for bad news.
The government has given conflicting signals about no deal, with parts of it sounding the alarm. ‘It was definitely deliberate to keep all the no-deal planning invisible,’ one former Brexit minister told me. It means the government is better prepared than is recognised — a source of irritation for the planners, who are never given credit for their success. A frustrated civil servant wrote anonymously in the Daily Telegraph in December: ‘Very detailed plans have been proposed, assessed, analysed to death and … are now being executed.’
So what are the preparations? Last year the French ports of Calais and Boulogne weren’t ready, leading to predictions of the M20 becoming a lorry park, and shortages of food and drugs. But Calais has now stepped up the number of checkpoints, employed 700 customs staff, and bought scanners which check lorries as they drive past. The president of the Port Boulogne Calais has said ‘there will not be any delay’ in a no-deal Brexit. This will disappoint Dutch ports, which have been gearing up to take business from France.
On the UK side, government has rolled out two computer systems to cope with new customs controls. It has set up an inland clearing site for lorries in Milton Keynes, to keep them away from ports. Major supermarkets have reassured ministers they have diversified supplies enough that food will remain on the shelves. Despite the concern about car manufacturing, one of Britain’s best-known car companies has told government it can cope. In an act of belts and braces, NHS stockpiling ensures that even if the border preparations failed, patients still get drugs. Drugs companies tell me they have two years’ of supplies. ‘The scare stories about food and drugs are completely unjustified,’ one planner told me.
When I was chief executive of the British Bankers’ Association, I convened the meetings of industry leaders in the wake of the referendum to decide how to respond. The only responsible position for a major industry is to hope for the best and plan for the worst. We wanted a transition deal, but banks — reluctant to put their fate in the hands of politicians — prepared for no deal. A no-deal Brexit at the time of the referendum would have been a major threat to financial stability, but three years later the international banks have the legal structures, people and capital in place. They can carry on business whether Brexit comes with a deal or without.
It cost banks billions for no immediate benefit, which understandably annoys them, but they are prepared. But they have the cash for such contingency plans: smaller companies don’t and haven’t bothered preparing for no deal. Only about 40 per cent of exporters that need to register for an export number have done so. With more political clarity, that will change quickly.
The EU has been preparing, most noticeably to ensure that haulage, aviation and visa-free tourism can continue. But many preparations have been kept quiet. To be able to export food to the EU, the UK needs recognition as a third-country supplier. The Commission quietly told the UK that in a no-deal Brexit it would immediately give that recognition if the UK stays aligned to EU standards for nine months.
There is then the issue of tariffs with the EU — about 4 per cent on average. They would clearly be bad for trade. But on average they are less than the depreciation of sterling, so exporters would still be more competitive than they were before the referendum. And there are solutions for badly hit sectors. The agricultural sector most potentially affected by Brexit is sheep farming, with 30 per cent of our lamb exported to Europe. But even if the EU imposes 40 per cent tariffs, the government will introduce a compensation scheme to offset it, costing £100 million a year.
That brings us to the £39 billion. No one can agree on how much the UK needs to pay to meet its legal commitments, but it is clearly less than £20 billion. This gives huge fiscal headroom to provide short-term relief. It can also provide a powerful incentive for the EU to agree to tariff-free trade.
The change of leader means the politics of no deal will change. If it’s Boris Johnson, then I suspect (having once advised him) that he’ll press ahead and demand full preparations from the offset. This would strengthen his negotiating position, and reassure voters and MPs, by highlighting how prepared the UK is. Senior civil servants are already planning to switch from Project Fear to Project Reassurance. Mark Sedwill, the Cabinet Secretary, who previously sounded the alarm, said recently the public sector was ‘in pretty good shape’. Business groups should carry on pushing for problems to be tackled, but focus more on helping members prepare.
None of this means that no-deal Brexit will be without turbulence. I supported a deal and still do, but no deal could happen. And if it does?
The preparations show that the former governor of the Bank of England, Lord Mervyn King, was right when he said recently that MPs had ‘lost the plot’ when talking about ‘national suicide’. In an age of uncertainty, that is good to know.
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