5 Key questions which the Government needs to answer:
- If economic security depends on getting a deal, why is ‘no deal’ acceptable?
- What internal assessment has the Government done on the cost of ‘no deal’?
- Can the Government find a major UK employer who will say that leaving the EU with no deal is a viable option?
- Can the Government demonstrate that trade outside the EU will compensate for a no-deal scenario with the EU?
- Can the Government guarantee that we will become members of the WTO after Brexit and what evidence do they have to support this claim?
- The no-deal scenario risks damaging the UK economy, with a potential for reducing GDP by up to 7.8% by 2030, according to independent analysis by the National Institute of Economic & Social Research
- A no-deal scenario would hit real wages by up to 6.3% and reduce tax receipts by £45bn, narrowing the Government’s options for public spending.
- UK exports to the EU would be massively hit with tariffs being imposed on 90% of UK goods’ exports and UK services losing passporting rights to the single market.
- UK service sectors, which comprise 80% of the UK economy, would be hit as their access to European markets would be severely restricted.
- A no deal scenario would hit UK trade with the rest of the world, affecting trade agreements with 36 countries around the world.
- Non-trade related aspects of UK-EU co-operation would also be impacted, where there is no guarantee whatsoever that the UK would continue to be allowed access to Europol or the European Arrest Warrant – vital for protecting the country’s security.
- The National Institute for Social & Economic Research (NIESR) has suggested no deal would reduce GDP by up to 7.8 per cent by 2030. NIESR have also shown that under the WTO option, real wages would be projected to fall, by between 4.6 per cent and 6.3 per cent.
- As demonstrated by the research by NIESR, all principal independent, expert economic studies have shown that the WTO scenario has the gravest consequences for trade, FDI and GDP.
- In short, the relationship that gives the UK the furthest distance from the single market does the most damage. Investment would be lower and the UK’s manufacturing base would be hit, affecting both earnings and jobs. Anyone who wants to help those ‘just managing’ should rule it out.
- Under the WTO model, the UK would be subject to the EU’s common external tariff when trading with the EU. Tariffs would be imposed on around 90 per cent of the goods the UK exports to the EU, including 15 per cent on food, 10 per cent on cars, and 36 per cent on dairy.
- For example, the UK automotive sector has shown that post-Brexit tariffs on exports to the EU would raise the cost of UK-manufactured cars by £1.8bn and the cost on imports from the EU by £2.7bn, with the latter pushing up car prices by £1,500.
- WTO ‘most favoured nation’ tariff rules mean that, without an FTA in place, the EU would not be able to give the UK preferential tariff rates as these would need to apply to every other WTO member. If the UK unilaterally dropped tariffs on EU trade, the UK would also have to drop tariffs for all countries, with no guarantee of reciprocal action, which would be disastrous for domestic industries. Arch Brexiteer Professor Patrick Minford advocates this and has himself admitted that this would “mostly eliminate manufacturing” in the UK.
- For service sectors, the WTO option means services would have much weaker market access, without the presumed right of commercial establishment - for example no financial services ‘passport’; no mutual recognition of qualifications; no formal equivalence agreement in any sector; no recognition by the EU’s regulatory bodies; and so as a result legal uncertainty about the ability to continue trading.
- In practice this would mean that services providers would have their ability to trade with the EU significantly limited. UK professional service providers like accountants, financiers and architects would not be able to operate freely across the EU as they can at present. For example, the Chief Financial Officer of Ryanair has warned that failure to reach an agreement would lead to flights between the UK and the EU27 being suspended and international broadcasters based in London would also need to relocate to the EU27 if they wanted to continue to transmit into the EU.
EU Free Trade Agreements (FTAs)
- Moving on to WTO rules would mean losing preferential access to the EU’s FTAs with 36 countries which give the UK preferential access to over 50 markets around the world. In theory the UK, EU and third party countries could amend these FTAs to note the UK's new status and continue on current terms, but this could only be possible if the UK's trade arrangements remain constant, ie within the single market, which the Government has already rejected. The UK would have to seek to renegotiate these as bilateral deals but with far more restricted access to the EU.
No deal impact on non-trade issues
- The WTO option would not cover matters relating to co-operation on policing, criminal justice, counter-terrorism or security and in foreign policy, so if the UK were to leave with no deal in place this would also mean that it would have no co-operation on issues such as Europol or the European Arrest Warrant.
- The no-deal approach runs counter to the approach to security taken by Theresa May in her article 50 letter to Donald Tusk, where she specifically states that “the Government of the United Kingdom wants to agree a deep and special partnership between the UK and the EU, taking in both economic and security cooperation.”
Moving on to the WTO and setting a new tariff regime
- It is unclear whether the UK would even be able to move on to the WTO if we left with no deal as we would have not yet set our own goods and service schedules. The only practical course would be to submit to the WTO national schedules that replicate the EU’s current tariff and GATS access schedules. The UK’s schedule can only be adopted if none of the WTO’s 163 members object, but this is not guaranteed and will take time to agree. Agriculture, for example, is one area which presents particular challenges and where other WTO members may seek concessions from the UK. The key point is that this complex process would have to be completed before we could trade even on WTO terms and certainly before any third party would consider signing an FTA with the UK.
 House of Commons Library, ‘The economic impact of EU membership on the UK’, September 2013,http://researchbriefings.files.parliament.uk/documents/SN06730/SN06730.pdf