Time is running out: we need to start preparing for No Deal
In January 2017, Theresa May proposed a new free trade agreement (FTA) with the EU post-Brexit, outside the customs union and single market. In the eight months that have passed since that time, the EU has offered no indication that it is likely to accept that proposal. It has also offered no indication that it is likely not to want a new FTA – an indication which would at least let us know where we stood so that we could make progress on settling the Irish border issue, the financial settlement and the post-Brexit rights of EU citizens (none of which can be resolved until we know the post-Brexit trading arrangements).
Article 50 was triggered in March 2017, so the UK will leave the EU in March 2019. Since a quarter of the entire Article 50 transition period has passed without the EU offering the slightest indication of being interested in a new FTA or indeed interested even in a meaningful resolution of the Irish border, EU citizens and financial settlement issues, we will very soon need to assume that there will be no Brexit deal with the EU, and use the rest of the Article 50 transition period to actively prepare for that scenario. We should wait a few more weeks – perhaps another five or six – after setting a public deadline for the date at which we will start active preparations for a no deal scenario. It’s only reasonable and sensible to tell the EU they’re running out of time if they truly want a deal, and to give them one last chance.
What would such preparations for a no deal scenario include? Here are a few examples.
Commissioning a study, to report quickly, on an ideal schedule of UK tariffs. Announce to businesses what that schedule will be.
Buying land around Dover to establish a waiting area for lorries seeking customs clearance.
Commissioning a new IT system capable of processing the volume of customs clearance applications likely to be sought.
Advertising for new customs processing staff.
Establishing a new pharmacovigilance system to report any adverse reactions to medicines.
Develop contingency plans for the sourcing of medicines at pharmacies when parallel trade is eliminated, perhaps including stockpiling to cover the transition period.
Assuming no grandfathering of current EU deals on trade, air routes, climate change systems, etc. and instead commence negotiations of our own bilateral accords.
Developing our own systems for ex-post enforcement of tariffs, rules of origin and other relevant regulations for goods entering via the Ireland-Northern Ireland border.
Announce and implement a plan for maintaining the Island-of-Ireland Single Energy Market.
Announcing and marketing a new fast-track scheme for EU businesses currently exporting to the UK to invest to establish UK subsidiaries instead.
Planning for fiscal measures in the transition year – e.g. will there be temporary tax cuts or temporary accelerated capital allowances or special subsidies to apply in financial year 2019/20?
Acquire new embassy space or alternative share embassy options where the UK currently operates via the EU system.
Determine and announce which EU sanctions the UK would be minded to continue with and which it would be likely to abandon.
Propose a new bilateral system for extradition to replace the European Arrest Warrant.
Determine and announce the UK treatment of unitary patents once the UK is outside.
Commission studies into new IT protocols that will need to apply for systems that speak with those inside the EU.
Develop and propose a new system for those living in the EU to obtain visas to visit the UK for travel or business purposes.
Identify alternative sources and routes for radioactive materials
These are just a few examples of what will a major undertaking that will be challenging to deliver in 17 months. There will be those that declare it impossible and insist we must extend the Article 50 period into a further transition period. The main merits of Theresa May’s transition proposals were that they allowed a diplomatic figleaf to cover the UK giving the EU extra money and that they allowed some time for the conclusion of trade negotiations with non-EU states that the UK has decided it is unable to sign off until we leave the EU. The “transition” period is not about “allowing business time to adapt”. Adaptation time will expand to fill the period available. If there is 17 months to do everything, everything will be done in 16 months and 28 days. If there is 41 months to do everything, everthing will be done in 40 months and 29 days. Seventeen months is enough time, but we cannot allow things to drag on any longer.
Once the UK starts actively preparing for no deal in this way, we might yet do a deal, but negotiations will start to become a lower priority relative to the political energy that will need to be devoted to planning for no deal, and voters and businesses will adjust emotionally and practically to the no-deal scenario, meaning they are less likely to go back. The sunk costs fallacy will also be important – once the government has spent serious money on no deal, voter will start to regret it if that money were “wasted” by a deal happening. Furthermore, in order to justify spending serious money on no deal, the UK government will have to declare that the EU appears not to have any appetite for a deal, and that process may burn whatever good will remains.
There is still a good chance that the European Commission is simply over-playing its hand and that the member states have not grasped how close we are to the UK needing to enact a no-deal plan. If UK ministers declare a public deadline after which they will need to assume no deal and act accordingly, that could yet trigger a much more constructive response from the EU side. Indeed, I would still believe and hope that the chances of a deal are better than evens.
One final point to bear in mind is that if we are to switch into a no-deal mode, Theresa May may not be the best person to be in charge. It is at least arguable that her serious mishandling of the situation from June to October last year — especially (though not only) the treatment of EU citizens and the talk of lists of foreign workers at last year’s Conservative conference – was the key factor in the EU’s current lack of interest in a deal. Her Brexit strategy, and thence her period as Prime Minister, has about five or six weeks left to produce progress. Otherwise it will be time to let someone else have a go.
