While No Deal may not be optimal, it’s a Brexit outcome the Government can manage

While No Deal may not be optimal, it’s a Brexit outcome the Government can manage

Despite being the legal default, the path to No Deal at the end of this month is difficult to see. The Benn Act passed by MPs is a tightly drafted piece of legislation. And the Government’s bold new proposals for a deal are likely to be rejected by the EU – not least because the Benn Act gives them no incentive to agree. An extension is likely, and an election will soon follow.

However, No Deal has not been “taken off the table”. We know from our current experience that extensions merely delay No Deal, rather than preventing it outright. Given the Conservatives’ consistent lead in the polls, there is every chance that a post-extension election could lead to a Tory majority willing to leave by any means necessary. As such, the chances of No Deal on, say, 31st January are under-priced. Government and business must therefore continue to prepare.

To that end, Open Europe has this week produced a new report on No Deal, Manageable but Material: The consequences of No Deal and how the Government should respond. As the title suggests, our judgment is that No Deal is “manageable but material”. Those who pretend it won’t trigger any short-term disruption are kidding themselves – but so are those who claim it will be an unmitigated disaster.

To be clear, the “managed No Deal” we describe is not a temporary standstill arrangement with the EU, or a reference to the fabled “GATT 24” mechanism for a basic tariff-free trade deal. We think the UK should take the EU at its word that this is not going to be on offer. That inevitably means UK goods exports to the EU will face tariffs, which in some sectors are set at very high levels. But export tariffs are not the sum total of what No Deal means. In other areas, the scope for unilateral action by the UK Government is much more promising.

For example, the UK has already pledged to unilaterally protect the rights of EU nationals, and given them until December 2020 to apply for settled status. That means that exit day, even in a No Deal scenario, is not a “cliff edge” for them. However, there is more to be done to reassure people. The fact that EU citizens who are eligible for permanent settled status are being granted temporary status instead is unacceptable, and must be addressed. The Government should also, in our view, consider a more liberal immigration policy than the current trajectory. No Deal is a challenge for many employers, and ensuring they will have continued access to international talent could go a long way to offsetting this challenge.

On trade, it’s true that we can’t prevent the EU from imposing tariffs and third country checks and controls on our goods. But we can at least ensure we get our own approach right. It is welcome that the Government has announced a relatively liberal approach to both tariffs and regulatory checks on EU products, although there is a need to give businesses greater certainty over the long-term approach to both. If the ports work, the hit to imports in a no-deal scenario should be relatively mild (in contrast to exports, which are much more vulnerable).

Indeed, whether or not the ports work could make or break a successful approach to managing No Deal. A lot of preparation has gone in, but more needs to be done. It is vital that goods can flow smoothly into the country – and flow out smoothly too. The importance of the latter point is underappreciated. The Dover-Calais crossing is a closed-loop and, due to the integrated nature of modern supply chains, a queue on the way out would quickly create one on the way in. The Government must prevent this from happening by keeping any non-compliant exporters well away from vulnerable ports, for example by pre-clearing them at regional centres inland.

As always, Northern Ireland is the elephant in the room. Here the picture is somewhat bleaker. The Government’s “no checks” approach to North-South trade is the right one, but it doesn’t entirely solve the problem. Checks may only take place on the southern side of the border, but that will come as little comfort to businesses and farmers in Northern Ireland who rely on exports to the Republic for their livelihoods. Any wider efforts to compensate businesses and communities for losses, therefore, should prioritise Northern Ireland first and foremost. Even here, though, there is some cause for comfort. The Common Travel Area, which allows for cross-border free movement of people, will be protected in No Deal. Lazy rhetoric around a “hard border” misses this fundamental fact, and there is evidence that this has created unnecessary uncertainty for border communities.

The Common Travel Area is a useful example of a wider point: communication is fundamental to managing No Deal. Part of this is ensuring businesses do the necessary preparation, such as registering for customs procedures that will allow them to move goods more easily. But it is also important that the Government provides certainty that disruption to daily life will be minimised, by emphasising where it has already taken action to minimise risks. Otherwise, there is a risk that predictions of disaster become a self-fulfilling prophecy. Exaggerated talk of food shortages, which could lead to unnecessary consumer panic-buying, is a case in point.

Moreover, the Government can also take short-term unilateral measures to counteract any hit to the wider economy – tax cuts, investing in high-yield innovation and infrastructure, targeted deregulation and so on. Ultimately, while No Deal in of itself may be sub-optimal, it is clearly not the only determinant of the UK’s economic fortunes. Ultimately, No Deal is neither a self-determining event nor an end in itself. How the Government responds is just as important.