What a “chaotic Brexit” could mean for Britain

Brexit Secretary David Davis (L) and the EU’s chief Brexit negotiator, Michel Barnier © Getty Images
Brexit Secretary David Davis (left) and the EU’s chief Brexit negotiator, Michel Barnier

There’s been a lot of speculation in the press in the past few days about the idea of a transition period after Britain leaves the EU in March 2019. Indeed, reports have suggested that the government has informally agreed this period could last for up to three years, something that the chancellor, Philip Hammond, essentially confirmed on Friday.

But what exactly does this mean, and what are the consequences if we don’t have such an agreement? Professor Anand Menon of Kings College London (KCL) has released a report for the UK In A Changing Europe, a research centre that is part of KCL. In it he looks at the consequences of both a “chaotic” and “cliff-edge” Brexit.

Menon thinks that there are essentially four types of Brexit. A “smooth Brexit” would involve both finalising the terms of any divorce and agreeing a comprehensive trade deal. Until the end of last week, this was still the government’s official position, as the PM still insists that both can be settled by 2019. However, in reality this is “very unlikely” as there are “a lot of details to be worked out”. Probably the best that can be achieved is a “degree of fudgery”, where the UK and EU agree in principle to keep post-Brexit trade as open as possible, but leave the exact details to be worked out during a transition period.

This leads us onto the second scenario. In this case, Britain and the EU would finalise the divorce, but there would be a transition period during which Britain would have to obey EU rules and make continued contributions while it worked on a long-term trade deal. At the moment “everyone seems to be converging on three years”, since this would enable the government to sort everything out by the time of the next election. It would also give the government more time to hold informal trade talks with non-EU countries, though it can’t agree anything until it leaves the EU.

However, there is a “huge amount of ambiguity” since the government seems to be divided between the exact rules that would be in force during the transition period, especially over immigration. For example, Home Office minister Brandon Lewis recently stated that Britain could restrict EU immigration during this period. Menon agrees that it’s possible that Europe may be willing to make concessions on freedom of movement, and accepts that “there’s no harm in asking”. However, he warns that trying to negotiate “via the Today programme” could be counterproductive, as governments in Europe “have to be seen to defend the interests of their citizens living in the UK”.

Menon also warns that agreeing a transition period doesn’t guarantee that a trade deal will be reached, especially since “the EU won’t necessarily say yes to anything we propose”. Instead, it merely buys more time, in effect, “postponing the exit from the single market, rather than stopping it”. Indeed, if it looks like a long-term trade agreement won’t be reached, or the agreement will only grant limited access to the single market, it could end up make it easier for firms to draw up plans for a possible move away from the UK.

If there isn’t a transitional deal we could end up with a “cliff edge Brexit”, where we agree to a divorce agreement, but leave on World Trade Organization (WTO) terms, which would entail significant tariff barriers. While it is “impossible to know for sure” what would happen, most economists estimate that trade would fall by up to 40%, with a 3% permanent hit to GDP. Because of geography and the extent to which the single market has cut barriers to trade in services, any bilateral trade deals are unlikely to fully compensate. For example it’s been calculated a trade agreement between the UK and US would only boost UK GDP by 0.2%.

The final scenario is a “chaotic Brexit”. This is where Britain and the EU are unable to negotiate either a divorce agreement, or a transitional period, by March 2019. This could happen either if the clock runs down, or if British negotiators end up walking out of the talks. In this scenario the British economy would not only be hit by the effects of a sudden reversion to WTO terms, but it would find itself in a legal battle with Brussels over the division of any obligations and assets. Individuals could end up suing Westminister, for example in the case of a university researcher employed as part of EU funded projects.

If Britain did decide to unilaterally leave the EU, it could take up to a decade for both sides to even agree a forum for hearing any cases. Professor Menon worries that the “difficult” nature of the exit talks means that the chances of such a negative outcome are a lot higher than people think. Indeed, he puts them as high as 30%.

  • Cynic_Rick

    “What we have often characterised as incompetence, therefore, may be more sinister. There is money to be made out of a hard Brexit.

    “Currently making something of an impact in the Brexit debate is an operation calling itself the Legatum Institute, based in fashionable W1 with the address of 11 Charles Street.

    “This is a business style which has been described as “disaster capitalism”, which would benefit significantly from a hard Brexit. Here, a comparison could be made with Hong Kong, where a similar situation might arise in a UK under the stress of a hard Brexit, where many traditional firms have run for cover, or relocated in the EU, leaving many assets under-priced.”

    “In this, the Legatum Institute seems to be paving the way for its “parent undertakings”, engineering a “disruptive transition” for Brexit, then to reap the profits from chaos. Its task is assisted by useful fools and fellow travellers on the Tory right.

    “What we have often characterised as incompetence, therefore, may be more sinister. There is money to be made out of a hard Brexit.”

    Source:
    http://eureferendum.com/blogview.aspx?blogno=86556#disqus_thread

    • Cynic_Rick

      “There was never any good reason why Brexit should be a disaster. Leaving the EU was always going to be complicated, but it never was impossible – until the Tory “Ultras” set their stall out to make it so.

      “We should not be surprised either that the chaos vultures are hovering over the site of the soon-to-be train wreck. There have always been businesses that thrive on chaos, so one should expect them to see in Brexit major opportunities.

      “There is no need to get hung up on the use of the term “disaster capitalism”. With the amount of money potentially involved, one might expect some enterprising capitalists (and that is what they are) to give the politics a nudge in the “right” direction to ensure (for them) a favourable outcome. And £4 million a year to buy the Tory right is cheap at the price – chump change for a multi-billionaire.”

      Source:
      http://eureferendum.com/blogview.aspx?blogno=86557

  • Aztec

    If you click through to the link provided you will go to the organisation that wrote the report. They have written other articles and one in particular on food prices. It states that as so much food we buy in the UK comes from the EU prices will go up when we leave because of tariffs. There is no counter argument about buying from elsewhere such meat from South America, citrus fruits from South Africa or Israel, vegetables from Kenya, and of course access to our own fish.

    Then of course there is the USA. Regardless what you read, the produce is excellent and the farms are very clean and well run.

    Food prices are likely to fall not increase as we buy from the rest of the world and not the EU where prices are kept high to suit French farmers.

    • Cynic_Rick

      “There is thus a very simple equation here. If we want a trade deal that opens our market to the US, we can kiss goodbye to our poultry industry. The same goes for the egg industry, red meat and dairy products. Fruit and some vegetable growers would also be hit. And we also lose much of our export trade.

      “But it doesn’t stop there. Not only do the ancillary, supporting industries go, the feed industry is badly damaged. Only about a third of the 15 million ton annual wheat harvest is used for milling (bread and biscuit-making). The bulk of the rest is soft wheat, sold for animal feed. There are few alternative uses, if you take away this arable production, you’ve made a sizeable dent in UK farming. In short, a US trade deal which opened up our industry to transatlantic competition would mean the end of UK farming as we know it.

      “Farming itself produces more than food. A major externality is scenery, which underpins rural tourism, itself a major industry in its own right. There is the ecosystem supported by farming and much of the rural economy. The damage would be incalculable.

      “Rightly or wrongly, therefore, chlorinated chickens have become the touchstone for Brexit, not so much a Trojan horse as Trojan chickens. Give the “Ultras” their victory and there won’t be a United Kingdom worth having.”

      Source:
      http://eureferendum.com/blogview.aspx?blogno=86551