The pandemic led to a severe recession, followed by a strong recovery. This briefing examines different aspects of the economic impact of the pandemic to date and outlines the key issues for the economic outlook.
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What if there's no Brexit deal? (3 MB , PDF)
How no deal might happen
Article 50 of the Treaty on European Union provides for an EU Member State to leave the EU with or without a withdrawal agreement or ‘deal’.
No deal could be the result of various scenarios:
- The EU and UK do not agree on the terms of a withdrawal agreement (WA) and/or a framework for future relations because of lack of time and/or because there are intractable disagreements and no willingness to compromise – the talks break down.
- There is agreement in principle on the substance of a withdrawal agreement but more time is needed and the other EU Member States refuse to extend negotiations.
- There is agreement in principle on the substance of a withdrawal agreement but more time is needed for certain details.
- The UK Parliament rejects the negotiated withdrawal agreement and framework for future relations in the vote under Section 13 of the EU (Withdrawal) Act.
- The European Parliament rejects the negotiated withdrawal agreement and framework for future relations.
- The Council does not endorse the WA by an enhanced qualified majority (20 of the 27 Member States, representing 65% of the EU population).
- A withdrawal agreement is concluded and enters into force, but at the end of the implementation/transition period there is no agreement on future EU-UK relations; or there is an agreement, but it has not been implemented in the UK because the bill to implement it has not been passed, or it has not been ratified in the EU Member States and has not entered into force provisionally.
Agreement is reached in November 2018
The EU and UK aimed to reach agreement by October 2018 on the UK’s terms of withdrawal and on the framework for future relations. Avoiding a hard border between Ireland and Northern Ireland proved the most difficult issue to resolve. The negotiators reached political agreement and published the text of the negotiated Withdrawal Agreement on 14 November. The solution to the Irish border issue was a temporary ‘backstop’ arrangement that would enter into force only if a future relations agreement was not available at the end of the transition/implementation period. The November agreement was endorsed by all EU Member States with one significant amendment on 25 November 2018.
The Government seeks Parliamentary approval
Parliament is unlikely to approve the Agreement
The November 2018 text of the Withdrawal Agreement and the Political Declaration on the framework for future EU-UK relations did not appear to have sufficient UK parliamentary support from MPs to pass the ‘meaningful vote’ in December 2018, and the Prime Minister therefore postponed the vote until January 2019. The EU insisted it would not renegotiate the Withdrawal Agreement, creating an impasse and a greater possibility of there being no deal.
The EU offers the UK assurances on the backstop
On 14 January 2019 the Prime Minister sought and received assurances from the EU on the intention of the negotiators that the backstop, if implemented, should be temporary and a solution of last resort.
The UK Parliament rejects the Withdrawal Agreement
But these assurances did not sway enough MPs, and in the re-scheduled ‘meaningful vote’ on 15 January 2019, the Government was defeated by a majority of 230, with MPs voting 432 to 202 against the negotiated deal. The Prime Minister made a statement in accordance with the European Union (Withdrawal) Act on how the Government would proceed and survived a motion of no confidence in the Government. Theresa May called on MPs across Parliament to talk to the Government about how to resolve the impasse. She continued to rule out extending Article 50 or holding another referendum. The EU continued to refuse to amend the provisions on the backstop.
Prime Minister seeks legally binding alternatives to ‘backstop’
After a vote on 29 January in which an amendment tabled by Sir Graham Brady was passed, the Prime Minister returned to the EU to seek negotiations on legally-binding alternatives to the backstop. To date there has been no agreement on any alternatives.
The Government does not want to extend Article 50
The Government has said on several occasions that it does not want to extend the Brexit negotiations to give it more time to achieve Parliamentary approval. The EU has indicated that a short extension would be acceptable as long as it was in the interests of the EU.
If there is no UK request or no EU agreement to extend the negotiations, or if either the UK Parliament or the European Parliament or the other 27 EU Member States do not endorse the negotiated Withdrawal Agreement or any negotiated amendments to it, the EU Treaties will cease to apply to the UK from 30 March 2019.
Neither side want a no-deal outcome
Both sides in the negotiations agree that ‘no deal’ is not what they want, but some Brexit supporters would prefer it to a ‘soft’ Brexit which does not end free movement, payments to the EU, membership of the Single Market and customs union, continued adherence to EU rules and the jurisdiction of the Court of Justice of the EU.
EU preparations for no deal
In the absence of what the European Commission described as “functional solutions” to the Irish border issue, the EU stepped up preparations for a no-deal scenario in March 2019. These are ongoing, and the Commission has been drafting amendments to EU legislation to take account of the UK’s exit in many areas, including shipping, tariff obligations, energy, customs, aviation, health and safety, transport and citizenship.
Most EU Member States are making contingency plans for a no-deal Brexit.
UK preparations for no deal
The UK Government has insisted that preparations for no deal are part of its overall Brexit preparation strategy. The Prime Minister’s Statement on the Cabinet away day at Chequers in July 2018 included a pledge to step up preparedness for all possible outcomes to the negotiations, including no deal, and the Prime Minister has assured Parliament that it was preparing for ‘no deal’ as well as for other scenarios.
European Union (Withdrawal) Act
Secondary legislation is being laid under the European Union (Withdrawal) Act 2018 that will preserve EU law in domestic law or convert it into UK law on exit day. If the UK leaves the EU without a deal, most EU law will still apply in the UK as domestic law (‘retained EU law’ or EU-based UK law). But there will be no automatic reciprocity with EU Member States. As of early February 2019 around 400 Brexit-related SIs had been laid under the EU (Withdrawal) Act out of an estimated total of around 600.
The Commons European Statutory Instruments Committee and the Lords Secondary Legislation Scrutiny Committee sift proposed negative instruments and may recommend that a proposed negative should be upgraded to the affirmative procedure.
Government guidance on preparing for no deal
The Government believes a no-deal scenario could be managed in an “orderly” fashion (although this view is not necessarily shared by other stakeholders). After the postponement of the ‘meaningful vote’ on the negotiated Withdrawal Agreement, the Government said in December 2018 that it would implement plans for a no-deal Brexit in full and tell businesses and citizens to prepare for the risk of leaving the EU without an agreement. The Government continues to publish ‘no deal’ guidance in a range of policy areas on the Department for Exiting the EU website.
No deal in practice
What would ‘no deal’ look like in practice? ‘No deal’ would mean no transition (implementation) period and no framework for future relations – let alone a full future relationship agreement. Bilateral agreements between the UK and EU Member States will mitigate the effects of no deal in some areas.
The impact is still unknown overall, but in some areas it is easier to estimate the practical consequences and costs than in others. Below are some examples.
It is difficult to pinpoint the economic impact of ‘no deal’ with certainty. Many economists expect the pound to fall in value in the event of ‘no deal’. This would mean the price of imports would rise, pushing up inflation. However, in such a scenario, UK exports would become cheaper internationally, potentially mitigating some of the disruptive effects on trading with the EU. It is difficult to accurately assess the potential economic costs and benefits.
Trade and customs
With no withdrawal agreement or framework for future relations, trade between the two economies would be conducted under the terms of the World Trade Organisation. Tariffs on UK exports to the EU and vice versa are expected to be low, averaging around 3%, but for some goods they would be higher. Tariffs would be low, averaging around 3%, but for some goods they would be higher.
At the moment of leaving the EU customs union without a deal, the border between the UK and the EU would become a customs border. This is likely to mean more customs controls and probably increased costs and delays for business. It has been estimated, for example, that delays caused by customs checks of trucks from the EU could cause a 17-mile queue at the port of Dover.
A hard border between Ireland and Northern Ireland
The EU and the UK Government share a commitment to avoiding a hard border between Ireland and Northern Ireland, but they have yet to work out how best to avoid checks and physical infrastructure at the border. Technology, ongoing regulatory alignment and a customs agreement were all suggested as possible solutions. The November agreement contains the ‘backstop’ arrangement, whereby if there is no workable solution to the hard border situation, Northern Ireland would stay in the customs union and much of the Single Market on a temporary basis, pending a suitable long-term solution.
There are some concerns that infrastructure on the border to enable checks on goods, would become a target for dissident republicans. However, some commentators believe that border checks would not inspire a new wave of dissident activity, and that any infrastructure and checks can be done away from the border, which would lessen their impact. The majority of people in Northern Ireland are opposed to any form of North-South border checks.
Free movement of people rights, whereby any EU national can work in, live in or provide services in any EU Member State providing they meet certain conditions, is a key citizens’ right that will be affected by a no-deal Brexit.
The Government intends to implement a ‘settled status’ regime for EU nationals in the UK, whether there is a withdrawal agreement or not, and has said the EU Settlement Scheme will open fully by 30 March 2019. EU citizens with ‘settled status’ or ‘pre-settled status’ to stay in the UK will be able to access healthcare, pensions and other benefits and services in the UK.
The Government published its immigration White Paper, The UK’s future skills-based immigration system, on 19 December. The Immigration and Social Security Co-ordination (EU Withdrawal) Bill 2017-19 had its second reading in the House of Commons on 28 January: see Commons Library Briefing paper 8473, The Immigration and Social Security Co-ordination (EU Withdrawal) Bill 2017-18, 25 January 2019.
Half of the UK’s food and drink supply comes from within the UK, with 30% from the EU and 20% from the rest of the world. Potential disruption to food supplies immediately after a no-deal Brexit has been given regular media coverage. The retail sector is concerned about the practicalities of stockpiling food although the Government has issued reassurances there will be adequate food supply.
Agriculture and fisheries
Trading arrangements – tariffs and standards – would be the main issue. With no alternative arrangement, the UK as a third country would be subject to tariffs, checks, registrations, certifications etc for commodities, food and feed, plant and animal-based products.
Agriculture could also be impacted by the ‘no deal’ effects of other policies such as immigration (for seasonal, agri-food workers and vets).
Brexit means the UK will become an independent coastal state with responsibility for managing fisheries in the UK’s Exclusive Economic Zone of 200 miles. It will not be bound by the Common Fisheries Policy and could deny access to EU Member States’ vessels (and vice versa). But under international law States are required to minimise economic dislocation to other States whose nationals have habitually fished in a zone.
The UK and EU energy sectors are integrated through trade, legislation and inter-connection of energy supply, although EU Member States are ultimately responsible for their domestic energy supply to citizens. Aspects of the UK energy sector, such as Euratom and the Internal Energy Market (IEM), will probably be affected similarly by a deal or no-deal Brexit. The UK will leave Euratom when it leaves the EU; the Government is open to leaving the IEM and has begun preparations for leaving, but the future relations White Paper suggested a preference for future energy integration. ‘No deal’ could mean a less integrated relationship than the UK would like and not enough time to prepare for alternatives.
The UK currently participates in around 40 EU measures that support and enhance internal security and police and judicial cooperation in criminal matters.
Both the UK and the EU have emphasised the importance of maintaining cooperation in the field of security, law enforcement and criminal justice, but the Home Secretary said security should not be linked to the other aspects of the negotiations, and that the UK’s proposals are unconditional.
Government guidance states that the main EU measures in this area – Brussels IIa and the Maintenance Regulations – are covered by various Hague Conventions to which the UK is already party. Where this is the case, the EU rules would be repealed and the relevant Hague Convention would apply. In some areas there is no relevant Hague Convention to fall back on. Regarding divorce jurisdiction, the Brussels IIa rules would be repealed, but the different bases for divorce jurisdiction in Article 3 of Brussels IIa would be replicated in domestic law in England, Scotland and Wales. An alternative basis of sole domicile of either party would also be available for determining jurisdiction. In child maintenance cases, the Government intends to revert to the position that applied before the EU Maintenance Regulation. The jurisdiction grounds would depend on the type of maintenance sought and in which part of the UK the case was brought.
For the International Air Transport Association (IATA), the aviation deadline is earlier than the Brexit deadline of 29 March 2019. The Government believed it might be possible to agree a ‘bare bones’ aviation agreement in the event of a no-deal scenario and the EU has agreed two regulations that will facilitate on a temporary basis continued flights between the EU and UK if there is no deal.
Research and higher education
The UK currently does disproportionately well in securing EU research funding and UK Universities are the top performers in receiving EU funds based on scientific excellence. The higher education sector and research bodies are concerned about the impact of a no-deal Brexit on access to EU research funding and collaboration in EU projects, recruitment and retention of EU staff, access to the Erasmus+ programme and the possible consequences for EU students coming to study in the UK.
Documents to download
What if there's no Brexit deal? (3 MB , PDF)
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