No deal Brexit will be overwhelmingly negative for the UK, new academic report finds.

The Brexit secretary, Dominic Raab, has said he believes 80% of the work on completing an exit deal with the EU27 is already done, as negotiations enter their final phase. But his cabinet colleague Liam Fox recently suggested a no-deal scenario – which would occur if negotiations broke down, or both sides agreed to disagree – was the most likely outcome.

The UK in a Changing Europe - an economic thinktank - in their latest report - "Cost of No Deal Revisited"-  finds that a chaotic Brexit – where the UK fails to sign a withdrawal agreement – would generate short-term uncertainties including the disappearance, without replacement, of many of the rules underpinning the UK’s economic and regulatory structures. The impacts would be felt significantly in agriculture, financial services, air transport, drugs and on EU citizens in the UK and British citizens living elsewhere in Europe.

Its analysis claims that in the short term:

  • Food: Food supplies could be temporarily disrupted – the beef trade could collapse, for example, as Britain is heavily reliant on EU imports, and would be forced to apply tariffs, in accordance with World Trade Organisation (WTO) rules.

  • Health: European health insurance cards, which allow British tourists free healthcare in the EU, would be invalid from Brexit day.

  • Customs: Increased and uncertain processing times for goods at the border would be “nearly certain”, risking queues at Dover and forcing firms to rethink their supply chains and there would almost certainly have to be a “hardening of the border” between Northern Ireland and the Irish Republic, including some “physical manifestation”.

  • Legal: The status of legal contracts and commercial arrangements with EU companies would be unclear, as the UK would become a “third country” overnight.

Professor Anand Menon, director of The UK in a Changing Europe, said:

“Make no mistake, the impact of a no deal Brexit will be severe. In the short term at least, considerable uncertainty and disruption will result. While it is wise to plan for no deal, and indeed attempt to mitigate against the worst aspects of a chaotic Brexit, it makes far more sense to avoid such an outcome altogether.”

Whitehall departments last month published the first 24 of more than 80 technical notices (see Insights: August 22, 2018), aimed at reassuring firms and consumers about the consequences of no deal. But the report’s authors say the government appears to be putting too much weight on the idea that the EU27 will leave existing arrangements in place for fear of disrupting their own markets. It says:

“The implicit hope on the part of the UK government – much in evidence in the technical notices – that in practice both sides would agree to allow most things to continue much as now is almost certainly too optimistic."

Labour MP Stephen Doughty, supporter of the People’s Vote campaign, said the report underlined ‘how a chaotic no deal Brexit would be disastrous for our country in almost every way imaginable’. He said:

"No-one voted for a bad Brexit deal or for no deal, but that’s currently where we’re heading."

The report acknowledges that neither side is aiming at a no-deal outcome, but adds: “Politics can, as we know, sometimes produce profoundly suboptimal outcomes.”

Brexit Partners Opinion

Planning for a 'no deal' is good business practice at this stage. Comments like civil unrest within two weeks of Brexit are not particularly helpful and are inconsistent with current public and investor sentiment.

A 'no deal' is still being portrayed by some as a doomsday scenario. It is true, there may be major social and business issues which need to be addressed especially if firms, state agencies and other organisations fail to plan.

However, a 'no deal' is likely to result in an uncoordinated approach over an unspecified period of time to normalising processes and relationships. Priority is likely to be given to those areas of greatest immediate pain. Likewise neither the U.K. or EU are likely to exacerbate issues if they can be avoided. In other words... a 'no deal' will translate into a gradual series of formal deals with additional complexity and uncertain timing .

Contact us to discuss your exposures to Brexit and discover how we can help you identify, quantify and plan for the impact of a 'no-deal' outcome on your business .