No Deal Scenario for Brexit - increasingly likely

The European Union (Withdrawal) Act 2018 requires House of Commons approval for the withdrawal agreement between the UK Government and the EU negotiated by Prime Minister May (the Withdrawal Agreement) but approval has proved elusive.  There is a real prospect of a no deal scenario for Brexit and ‘material economic disruption’ according to the Bank of England. The Project Yellowhammer report leaked to the press, indicates the UK Government has identified twelve areas of risk from a no deal Brexit, including movement of goods and people across EU/UK borders, transport, food and water supplies and healthcare.

In a no deal scenario, the UK would require to negotiate a trade agreement with the EU as a ‘third country’, which would be time-consuming, and more demanding than negotiations under Article 50 because of the need for unanimous approval by all EU countries, rather than qualified majority approval that was required, and secured under Article 50 for the Withdrawal Agreement.

In addition the EU would continue to require agreement on key areas of disagreement, notably treatment of EU nationals in the UK and border arrangements, before future trading arrangements could be agreed.

UK business - brace for impact

Global Trading – If the UK leaves the EU without agreement with the EU; the UK will lose its current trading access to the EU, and elsewhere under 36 trade agreements between the EU and other countries.  Although not formally in place yet, continuation terms apparently have been negotiated for 13 of these agreements. Time is short to negotiate terms of the remaining 23 EU trade agreements (Canada, Turkey and Japan have refused to do so publicly).

UK businesses exporting into the EU will face the EU’s Most Favoured Nation (MFN) tariffs, and tariffs levied by other countries where the UK has no trade agreement.  For imports, the UK Government has published details of a temporary tariff regime, applying for the first 12 months of a no deal scenario.  Businesses also will face non-tariff barriers such as the paperwork which not at present, on account of UK membership of the EU Single Market and Customs Union.

Border and trading issues - without free trade agreements, additional border checks will be needed for importing and exporting goods. That is one of the concerns which led the Withdrawal Agreement to include the Northern Ireland ‘Backstop’ arrangements.  Delays in transporting key items such as medicines have raised particular concerns and disruption is expected to drive up prices, notably for perishable consumer goods.

Regulations - the EU has published No-Deal Preparedness notices which indicate how some EU regulations will apply to UK businesses, but there is uncertainty about what regulatory standards will apply in many areas.

People, the Services Sector and Business - Brexit is a serious concern for many in the service sector.  The Withdrawal Agreement did not expressly protect the UK services sector, but it did provide for EU citizens to continue living in the UK, so providing some assurance in relation to EU nationals as part of the UK access, a key business concern. 

Citizens’ Rights - The Withdrawal Agreement provided a right for EU citizens living in the UK to stay (with a reciprocal right for UK citizens in the EU), and rights for their children and those of partners in existing “durable relationships”. A no deal scenario would offer no such clarity, raising legal and wider social concerns.  [we may want to expand on this re other issues such as re family law]

Co-operation and Funding - UK organisations participate in hundreds of EU programmes and joint initiatives, including the exchange of policing and security information and university and medical research projects.  Agreement would be needed as to how each of these might continue, with uncertainty until the position is known.

What to do?

Brexit, especially in a no deal scenario, creates risk for many businesses in relation to customers, the supply chain and staffing.  Most businesses have scaled back where possible on risk areas, or continue to wait and see what may happen.  Contingency planning may well be costly and difficult to fund in the ordinary course.  Difficult as it may be, however, it will be important to continue keeping a close eye on events and updates from the UK and Scottish Governments, as well as the EU, as the 31 October deadline approaches.

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