A no-deal Brexit won’t result in a siege. The EU will be more clinical than that
One of the most striking features of the ongoing Brexit shambles is the consistent failure of Britain’s political class to correctly assess the consequences of their decisions or the likely response from EU member states or institutions. So it is with the prospect of a no-deal Brexit.
With every passing week, new heights of hysteria are reached about the impact of crashing out of the bloc. Politicians and the media have embraced the aesthetic of the disaster movie, outlining all the most vivid ways in which our economy and society will fall to pieces after exit day in an imagined dystopia.
The government amplifies rather than dampens the threat in the hope that fear will bring MPs from both main parties into acquiescing to the prime minister’s Brexit deal. And the EU, keen to assist the government in getting the deal through parliament, does little to lower the temperature. But almost all of the fear-mongering is wrong.
In truth, the short-term impact of a no-deal Brexit would be not nearly as bad as predicted, but the long-term impact will be much worse than feared. Why? Because the British political class still fails to understand how the EU will respond to the crisis.
In a no-deal Brexit, the EU will not place the UK under some medieval siege; there won’t be trucks filled with rotting food in Calais or shortages of medicines in pharmacies. Planes will continue to fly, though British travellers would face longer queues at borders (yet still enjoy visa-free travel). A thin agreement – covering areas from aviation to contract continuity – would be quickly concluded.
Most households would feel the impact not through shortages but through rising prices, the result of a rapid weakening in sterling driving up the cost of imports. Living standards that have barely improved for more than a decade would get noticeably worse. But 3,500 troops are not going to be deployed to the streets.
Instead, the EU’s response to a no deal will be strategic: opening up advantage, sector by sector, calmly and patiently dismantling the UK’s leading industries over the course of a decade. They will eat the elephant one bite at a time. The problem with abandoning the rules of the international order is that you no longer enjoy their protection.
A no-deal Brexit would hand the EU enormous power: it would decide how and when to introduce new frictions between the UK and the single market, giving sufficient time for firms like Airbus, Nissan or AstraZeneca to relocate production. As recent decisions have demonstrated, even seemingly fixed capital investment is more mobile than many Brexiters imagine.
The EU would set out a timeline over which it would introduce compliance and rules of origin checks on the UK’s most competitive exporting sectors. It is not hard to imagine checks on automotive parts from 2021, pharmaceuticals from 2022 and aerospace from 2023, alongside constantly shifting sands of equivalence for financial services. This would allow firms an orderly departure from the UK to the single market. It will be a steady drift away from the UK, not an avalanche. Moreover, the absence of any agreement would mean lasting uncertainty that would deter future investment. The UK is particularly exposed in this regard: our serious lack of competitiveness is demonstrated by persistently large trade deficits. This means the UK is heavily reliant on foreign investment – the “kindness of strangers” – which would likely collapse. It is not hard to imagine a future government going cap in hand to the IMF for a bailout.
The Brexit fantasists’ riposte is that the Europeans have as much to lose since the UK is an important export market and we run a large trade deficit with the single market. But one of the legacies of Thatcher’s deindustrialisation is that the UK lacks the industrial base to switch from foreign to domestic production. It simply no longer exists, thanks to the 1980s shock therapy of the very same disaster capitalists that now champion no-deal.
Those same Brexiters who have marched from failure to failure with no loss of enthusiasm still bizarrely believe that the UK could pocket the £39bn divorce bill while pursuing trade deals around the world. Yet the EU would, calmly and rationally, place tariffs on UK trade until it had collected what it is owed. And the damage to trade with the single market could not be replaced by new trade deals – in addition to the EU27, the UK has the benefits of trade deals with 40 other countries through the EU, all of which would evaporate overnight in no deal. That requires 67 deals to be signed just to stand still.
Yet it is for these reasons that no deal remains the least likely outcome, its probability in the single digits. What began as a political hoax is now affecting real investment decisions in the economy, as Nissan’s recent decision has shown. The hysteria needs to stop and the sobering reality of the scale of the stakes for the UK’s future prosperity must be better understood. It is a damning indictment and a severe dereliction of duty that such a calamity as a no-deal Brexit is a possibility, no matter how unlikely. It’s time to rule out no deal, once and for all.
• Tom Kibasi is director of the Institute for Public Policy Research, and founder and chair of the IPPR Commission on Economic Justice
The hysteria needs to stop and the sobering reality of the scale of the stakes for the future must be better understood