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The Progressive Policy Think Tank

No-Deal Brexit: 10 questions that need answering

As the race to become the next Conservative leader and Prime Minister gears up, the fundamental question facing the candidates is how to handle the seemingly intractable Brexit impasse. There appears to be little room for manoeuvre among the leading candidates. Theresa May’s withdrawal agreement has failed repeatedly to secure enough support in Parliament. Renegotiation of the withdrawal agreement has been categorically ruled out by the EU. Further delay beyond the current deadline of October 31 is regarded with deep wariness among the candidates, given the previous delay led to the fall of the Prime Minister and the collapse of the Conservatives at the European elections. And the idea of reversing the Brexit decision altogether is anathema to both Tory MPs and the wider membership.

Faced with this range of politically unattractive options, the lead candidates have increasingly talked up the prospects of a ‘no deal’ Brexit, in which the UK exits the EU by October 31 without a withdrawal agreement in place. Some candidates have openly embraced the possibility of a ‘no deal’ as a positive outcome, while others have suggested that it would be a risky option but might ultimately be necessary if no further renegotiation with the EU is on offer. In either case, these candidates seem ready and willing to embark on a ‘no deal’ exit as Prime Minister, even if this directly conflicts with the will of Parliament.

Yet despite all the detailed analysis of the UK-EU Withdrawal Agreement, of the merits of a second referendum, and of the scope for renegotiation with the EU, there has been far less scrutiny of those in favour of pursuing a ‘no deal’. This is perhaps in part because on the face of it a ‘no deal’ appears straightforward: after all, by definition it requires no negotiation with the EU and so apparently entails no need for compromise. In fact, a ‘no deal’ exit raises a number of deep-seated, complex, and persistent challenges. While the difficulties extend far beyond this briefing to mention, we have identified some of the most pressing questions that any proponent of a ‘no deal’ should be expected to answer.

  1. How would the rights of UK citizens living in the EU be protected in the event of a no-deal Brexit?

There are approximately 800,000 UK citizens living in other parts of the EU (excluding Ireland). The UK-EU Withdrawal Agreement guarantees the rights of UK citizens currently living in the EU and EU citizens currently living in the UK. These include basic residency and work rights, as well as the right to bring family members, to access healthcare and social security, and to secure permanent residence. If the UK exits the EU without a withdrawal agreement, it follows that these guarantees will not be in place. For the UK’s part, it can protect the rights of EU citizens through domestic legislation, and indeed has already committed to doing so through the Home Office’s ‘settled status’ scheme. But the UK cannot require the EU to protect the rights of its nationals living in other member states.

The EU has passed some limited legislation to protect the social security rights of UK citizens currently living in EU member states. Moreover, individual member states have put in place a number of unilateral provisions for UK citizens in the event of a no-deal exit, in order to prevent them from losing core rights. However, these provisions are piecemeal, temporary and not as extensive as the protections guaranteed in the withdrawal agreement. A no-deal exit therefore risks the current rights and freedoms of UK citizens living across the EU27.

  1. How would a no-deal Brexit avoid the need for new infrastructure, in particular Border Inspection Posts, at the Irish border?

In general, consignments of animals or animal products entering the territory of the EU from third countries must be checked at an EU-approved Border Inspection Post (BIP). These inspections are aimed at safeguarding animal welfare and public health and involve documentary, identity and physical checks.

The government has said that if the UK leaves the EU without a deal then it will temporarily ensure there are no new additional checks or controls at the Irish border. Animal products from EU countries will not need to enter Northern Ireland through a BIP. However, this applies only to goods entering Northern Ireland from the Republic of Ireland. Under EU law, animal products entering the Republic of Ireland from Northern Ireland will be required to go through checks at BIPs. The Irish government has established a BIP at Rosslare Europort to inspect goods coming from Great Britain and the possibility has been raised of new BIPs at the Irish border in the event of a no deal Brexit. If new BIPs are introduced at or near the Irish border, then this will contravene the commitment to avoid a hard border on the island of Ireland. A no-deal Brexit therefore risks imperilling the Good Friday Agreement and the UK’s commitment to a soft Irish border.

  1. How would the UK catch criminals now living in EU countries under a no-deal Brexit?

As a member of the EU, the UK participates in the European Arrest Warrant mechanism. This ensures that people who are wanted in connection with serious crimes in the UK but who live in another member state can be arrested and transferred to the UK. European Arrest Warrants can be communicated through the Schengen Information System (SIS II), a central database of real-time alerts on individuals and objects relevant to law enforcement authorities. In 2018, SIS II was checked by the UK policing authorities more than 500 million times.

Under a no-deal, the UK will no longer participate in the European Arrest Warrant and will no longer have access to SIS II. The UK will have to fall back on other ways of requesting extradition. This will require going through diplomatic channels, where EU countries will have greater flexibility to reject extradition requests and to delay extradition. Moreover, without access to SIS II, border officials will lose access to information on potentially dangerous criminals entering the UK. This increases the risk of individuals who pose a serious threat to the UK being able to pass through the border unconstrained.

  1. How would the government ensure that businesses are prepared to trade with the EU ahead of a no-deal Brexit?

Once the UK leaves the EU, it will be treated as a ‘third country’ and UK-based businesses will need to comply with new rules to trade into and out of the EU. For instance, businesses will need to get an Economic Operator Registration and Identification (EORI) number to trade goods with the EU; they will need to arrange for customs declarations for imports and exports; and they will need to register for transitional simplified procedures in order to simplify customs processes when importing goods from the EU.

Yet the current evidence suggests that businesses are not yet ready for a no-deal Brexit. Figures from HMRC show that, by May, only 69,000 out of an estimated 240,000 firms that need to register for EORI numbers had done so. Moreover, less than 10 per cent of these 240,000 firms had applied for transitional simplified procedures. According to an Institute of Directors survey of 1000 firms in April, only 23 per cent had activated their no-deal Brexit contingency plans. The Department for Exiting the EU has itself warned that businesses are not sufficiently preparing for Brexit. If a new Prime Minister wants to take the UK out of the EU without a deal at the end of October, they will need to find a way to ensure businesses are sufficiently prepared to avoid serious disruption for industry and for consumers.

  1. How would the UK protect Gibraltar under a no-deal Brexit?

Gibraltar is an overseas territory of the UK on the Iberian Peninsula and has long been the centre of a territorial dispute between the UK and Spanish governments. The Gibraltarian and Spanish economies are deeply intertwined: in particular, Gibraltar’s service industries rely on approximately 10,000 cross-border workers who enter the territory daily from Spain. The Withdrawal Agreement currently protects the rights of these ‘frontier workers’ and explicitly applies to the territory of Gibraltar. Yet Gibraltar has been a key source of tension in the Brexit talks. Before the finalisation of the Withdrawal Agreement, the Spanish government required additional assurances over Spain’s role in how the future UK-EU relationship would pertain to Gibraltar, and raised the possibility of talks on “joint sovereignty” over the territory.

In the event of a no-deal Brexit, the Spanish government has proposed unilateral measures to maintain the economic relationship between Spain and Gibraltar, but these are temporary and revocable. An acrimonious split raises the possibility of a hardening of the Spain-Gibraltar border, leading to delays and disruption for the Gibraltarian economy. Gibraltar’s main Brexit negotiator has warned that Spanish border guards have a tendency to slow down traffic at the border during periods of tension. Without an international agreement in place, it is hard to see how the UK can take steps to plausibly guarantee the flow of people and services between Gibraltar and Spain.

  1. How can we be sure that there will be no disruption to medicine supply in the event of a no deal Brexit?

Most medicines currently used in the UK are imported from or through the EU. For certain medicines such as insulin, the UK relies almost entirely on supply from EU countries. Currently the free movement of goods within the EU facilitates the smooth trade of medicine products between the UK and other European countries.

In the event of a no deal, there is a risk of delays and disruption at the Channel ports. This could have implications for the supply of a range of goods – including, perhaps most seriously, the supply of life-saving medicines and medical products. In recognition of this risk, the government has taken a number of preventative measures, including securing new freight capacity, asking the industry to build up buffer stocks, and buying up warehouse space for additional stockpiling. But concerns are still widespread about the effectiveness and long-term sustainability of these measures, with health professionals warning the government that they will not work for all patients. There are particular concerns about drugs that need to be stored along a ‘cold chain’ (i.e. a temperature-controlled supply chain) and those with limited shelf lives such as medical radioisotopes. Moreover, the government has been unable to guarantee that a no-deal Brexit will not cause disruption to drug supply for patients.

  1. In the event of a no-deal, how would the UK ensure that chemicals placed on the market are safe for consumers?

As a member of the EU, the UK has participated in REACH, the EU’s system for registering, evaluating, authorising and restricting chemical substances. The European Chemicals Agency (ECHA) plays a critical role in implementing REACH. Companies manufacturing or importing chemical substances into the EU must register their substance with ECHA, which in turn evaluates registrations and lists substances of very high concern. The European Commission, with the advice of ECHA committees, makes decisions on whether substances should be restricted on the basis that they pose an unacceptable risk to human health or the environment.

A ‘no-deal’ exit would see the UK exit REACH immediately upon Brexit. This means that UK businesses which currently have registrations with ECHA would have their registrations removed from the database and would need to seek new arrangements to import their products into the EU. But aside from the trade implications, a ‘no deal’ exit means that the UK would no longer have access to EU structures to regulate its own chemicals industry. To remedy this, the government has developed legislation to replace the current system with a ‘UK REACH’ on exit day. This ‘UK REACH’ is meant to replicate as far as possible the functions of REACH, with the UK Health and Safety Executive taking over the role of ECHA.

However, this proposal faces serious challenges. It is unclear whether the Health and Safety Executive has the resources, expertise and personnel to take over the full range of functions of REACH. In addition, after a no deal Brexit the UK loses access to ECHA’s database of chemical substances. This means that the UK government will have to undergo a complex process of data recovery in order to build up the knowledge to effectively regulate the industry. Leading toxicology experts have warned that, due to limited expertise and funding, an independent UK chemicals agency would face “serious constraints that would be difficult, if not impossible, to overcome in the short term”. There is therefore a significant risk that a no-deal Brexit will leave the UK in a worse position to effectively regulate its chemicals industry.

  1.  How would the UK seek to smoothly trade fish in the event of a no-deal Brexit?

The UK’s fishing industry depends heavily on trade with the EU. Most fish caught by the UK are exported, and these exports largely go to EU countries. Fish product exports to the EU are valued at a total of £1.3 billion while fish product imports are valued at £1.1 billion. The Withdrawal Agreement would maintain the current trading relationship for the transition period, with a view to negotiating subsequent arrangements on fisheries as part of the future economic partnership.

A no-deal Brexit, however, would necessitate new barriers to trade in fish products. As well as facing tariffs, future exports of consignments of fish to the EU would require the submission of catch certificates, potentially alongside a raft of further documentation such as export health certificates, prior notification forms, pre-landing declarations, storage documents and processing statements. Catch certificates would need to be issued through a new UK IT system and would need to include details of the catching vessel, the amount and weight of the fish, the details of where and when the fish were caught, and the method of transport. Exports would also need to enter the EU through Border Inspection Posts. The British Ports Association has warned that the number of catch certificates issued per year is expected to rise from around 300 to 300,000 under a no-deal, which could place serious strains on trade and contribute to delays. While new trade barriers are expected to affect a range of exported products, for trade in perishable goods such as fish, delays could be ruinous for the industry.

  1. How would a no-deal Brexit maintain reliable electricity flows across interconnectors between the UK and continental Europe?

The UK currently gets approximately 6 to 9 per cent of its electricity supply from other parts of Europe. Large volumes of electricity are traded between Great Britain, the island of Ireland and continental Europe through interconnectors. Energy markets are closely integrated through trading arrangements known as ‘market coupling’. The Republic of Ireland and Northern Ireland also participate in an all-island wholesale electricity market (the Integrated Single Electricity Market).

In the event of a no deal, the UK will exit the EU’s internal energy market and cease to participate in market coupling arrangements. While electricity will still flow between interconnectors, they will no longer do so on a reliable, coordinated basis. This risks significant market disruption. On the island of Ireland, while the Northern Ireland Utility Regulator has said that it expects the Single Electricity Market to continue to operate, it is likely to become less efficient given the reliance on interconnectors with Great Britain. Moreover, the UK government has warned of a risk of a breakdown in the all-Ireland electricity market, with implications for consumers. While the UK has said that, if faced with a no deal, it would seek a resolution with the EU, it is hard to see how a permanent solution could be found without an overarching withdrawal agreement.

  1. How would the UK negotiate trade arrangements with third countries without an agreement with the EU?

The EU currently has approximately 50 trade agreements in place (or partly in place) with countries and trade blocs around the world. If the UK leaves the EU without a deal, it will no longer be subject to these trade agreements. The UK has tried to negotiate with these countries to ‘roll over’ the EU’s trade agreements so that they continue to apply in a no-deal Brexit. However, so far it has only succeeded in signing 12 replacement trade agreements and even these do not precisely replicate the agreements currently under force with the EU. The government will also need to pass the Trade Bill in order to implement these agreements into UK law.

Beyond rolling over existing trade deals, the UK is likely to find it challenging to secure new agreements with non-EU countries in a no-deal scenario. Many non-EU countries interested in seeking new trade deals with the UK are waiting to find out the outcome of the UK’s Brexit talks with the EU before opening negotiations. A no-deal exit would likely appear an unstable and short-term position. Only once the UK’s relationship with the EU is settled can third countries meaningfully determine their trading relationship with the UK, given the interconnectedness of UK-EU trade.

Moreover, if the UK chooses to leave the EU with no deal, this would indicate a reluctance to pay the previously agreed financial settlement – i.e. to settle its accounts with the EU upon exit – and to uphold the Good Friday Agreement. This could jeopardise its reputation as a trustworthy and credible trade partner. It is therefore implausible that many non-EU countries would enter into new and ambitious agreements with the UK until its longer-term relationship with the EU was clarified.

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This list of ten questions illustrates the sheer range and complexity of the potential challenges facing the UK in the event of a no-deal Brexit. For each of the candidates standing for Prime Minister, there is a critical need for careful scrutiny of their Brexit plans. At a minimum, any advocate of a no-deal should be expected to respond to the above ten questions with credible and persuasive answers. As the Brexit deadline once again closes in, it is no longer tenable for ’no deal’ to be considered simply as a piece of political rhetoric: it must now be judged as a practical policy outcome with widespread implications for individuals, businesses and communities.