Sunday, October 15, 2017
The grim reality of a no-deal Brexit
With speculation growing that extremists in the Tory Government are actively considering leaving the EU without a deal in place, it is worth reflecting on how disastrous that will be for the UK. The Observer sets out some of the consequences.
They say that if there is no UK-EU deal before March 2019, the consequences would be huge and immediate:
The return of customs checks would mean a return to the hard border between Northern Ireland and the republic. For trade, the UK would default to WTO rules, meaning tariffs would be imposed on goods leaving the UK for the EU and on those sold into the UK market by the remaining 27 member states. The government has said it wants the continuation of “frictionless” trade with EU countries. But a WTO regime would, by contrast, mean tariffs of between 2% and 3% on many industrial goods. They would be far higher in others sectors: 10% for cars and 20% to 40% for many agricultural products. The British Chambers of Commerce and other business groups are warning that some British companies will consider moving abroad and that investment in the UK could suffer.
Hammond said last week that there was also a prospect of flights between UK and EU airports being grounded as the UK would no longer fall inside the EU’s aviation regulatory regime. The right of EU nationals to stay in the UK could also disappear, as would those of UK citizens living in EU countries.
As the paper points out the hard-Brexit supporting right wing of the Tory party was arguing only a year ago that Brexit would be relatively smooth and simple. It has proved to be anything but, and the Brexiteers are starting to look for somebody to blame.
They blame the EU and the Remainers for blocking the way to the kind of future they sold to the British people as possible and desirable before the Brexit referendum last year. But the reality is that they campaigned on lies they could not deliver and, as the paper says it is the British people who will suffer:
Tens of thousands of jobs are linked to seamless trade with the European Union. Multinational firms fly staff to Ireland, France, Germany and the low countries without interference from border control officials. Then there is the example of the crankshaft used in the BMW Mini, which crosses the Channel three times in a 2,000-mile journey before the finished car rolls off the production line. It is one of the classic trips made by hundreds of car parts that would be stopped at the border in the event of a no-deal Brexit. Northern Ireland would be one of the worst-affected regions, as food manufacturers use ingredients from south of the border and sell the final product in the republic too.
The CBI gives the example of a Northern Irish bread-maker that buys flour from Ireland, makes the product in the north, and then transports bread to Dublin. Even if the UK continues to recognise the EU HGV licence used by the Polish driver (for example) and the EU food standards that determine the bread’s shelf life, after Brexit the loaf could be inedible by the time it has reached its destination or so expensive that local bakeries quickly step in and win the day.
Nissan is among the carmakers to say that they have already started getting their parts from the UK to offset the effects of a hard Brexit that involves restrictions on immigrant labour and tight border controls. But its scenario-planning cannot cope without a deal of some sort.
Banks were among the first to plan for a hard Brexit that might deny them the “passporting” rights that allow money transfers and derivatives transactions to happen seamlessly across borders.
The last year has seen a succession of UK banks and insurers set up offshoots in what will remain of the EU, allowing them to bypass Britain if they need to. Foreign banks that have based their European HQs in London have done likewise.
This level of contingency planning means that it is most likely that British travellers will be able to withdraw funds abroad and transfer money the day after Brexit, whatever the outcome. But a last-minute decision to crash out of the EU is likely to send the pound tumbling, meaning that Brits abroad will find the ATM gives them a fraction of what they expected. And there could be extra charges to compensate for the higher administration costs faced by banks.
Other service industries are unlikely to be quite as prepared, even though they collectively account for 40% of EU trade, up from 23% in 1999. And to show its importance to UK firms, this rise of almost a quarter compares with a 6% increase in non-EU trade over the same time period.
The CBI says: “Exports of business services, such as design, advertising and architecture, together with financial services, account for over half of the UK’s overall growth in services exports.And these sectors may be particularly vulnerable to a sudden re-emergence of trade barriers with the EU.”
In addition there will be the threat to flights to and from the UK as well as an inevitable increase in the price of day to day goods and services. Those advocating a hard Brexit do not speak for us. They will plunge the UK economy into crisis. The question is, do they care?
They say that if there is no UK-EU deal before March 2019, the consequences would be huge and immediate:
The return of customs checks would mean a return to the hard border between Northern Ireland and the republic. For trade, the UK would default to WTO rules, meaning tariffs would be imposed on goods leaving the UK for the EU and on those sold into the UK market by the remaining 27 member states. The government has said it wants the continuation of “frictionless” trade with EU countries. But a WTO regime would, by contrast, mean tariffs of between 2% and 3% on many industrial goods. They would be far higher in others sectors: 10% for cars and 20% to 40% for many agricultural products. The British Chambers of Commerce and other business groups are warning that some British companies will consider moving abroad and that investment in the UK could suffer.
Hammond said last week that there was also a prospect of flights between UK and EU airports being grounded as the UK would no longer fall inside the EU’s aviation regulatory regime. The right of EU nationals to stay in the UK could also disappear, as would those of UK citizens living in EU countries.
As the paper points out the hard-Brexit supporting right wing of the Tory party was arguing only a year ago that Brexit would be relatively smooth and simple. It has proved to be anything but, and the Brexiteers are starting to look for somebody to blame.
They blame the EU and the Remainers for blocking the way to the kind of future they sold to the British people as possible and desirable before the Brexit referendum last year. But the reality is that they campaigned on lies they could not deliver and, as the paper says it is the British people who will suffer:
Tens of thousands of jobs are linked to seamless trade with the European Union. Multinational firms fly staff to Ireland, France, Germany and the low countries without interference from border control officials. Then there is the example of the crankshaft used in the BMW Mini, which crosses the Channel three times in a 2,000-mile journey before the finished car rolls off the production line. It is one of the classic trips made by hundreds of car parts that would be stopped at the border in the event of a no-deal Brexit. Northern Ireland would be one of the worst-affected regions, as food manufacturers use ingredients from south of the border and sell the final product in the republic too.
The CBI gives the example of a Northern Irish bread-maker that buys flour from Ireland, makes the product in the north, and then transports bread to Dublin. Even if the UK continues to recognise the EU HGV licence used by the Polish driver (for example) and the EU food standards that determine the bread’s shelf life, after Brexit the loaf could be inedible by the time it has reached its destination or so expensive that local bakeries quickly step in and win the day.
Nissan is among the carmakers to say that they have already started getting their parts from the UK to offset the effects of a hard Brexit that involves restrictions on immigrant labour and tight border controls. But its scenario-planning cannot cope without a deal of some sort.
Banks were among the first to plan for a hard Brexit that might deny them the “passporting” rights that allow money transfers and derivatives transactions to happen seamlessly across borders.
The last year has seen a succession of UK banks and insurers set up offshoots in what will remain of the EU, allowing them to bypass Britain if they need to. Foreign banks that have based their European HQs in London have done likewise.
This level of contingency planning means that it is most likely that British travellers will be able to withdraw funds abroad and transfer money the day after Brexit, whatever the outcome. But a last-minute decision to crash out of the EU is likely to send the pound tumbling, meaning that Brits abroad will find the ATM gives them a fraction of what they expected. And there could be extra charges to compensate for the higher administration costs faced by banks.
Other service industries are unlikely to be quite as prepared, even though they collectively account for 40% of EU trade, up from 23% in 1999. And to show its importance to UK firms, this rise of almost a quarter compares with a 6% increase in non-EU trade over the same time period.
The CBI says: “Exports of business services, such as design, advertising and architecture, together with financial services, account for over half of the UK’s overall growth in services exports.And these sectors may be particularly vulnerable to a sudden re-emergence of trade barriers with the EU.”
In addition there will be the threat to flights to and from the UK as well as an inevitable increase in the price of day to day goods and services. Those advocating a hard Brexit do not speak for us. They will plunge the UK economy into crisis. The question is, do they care?
