The author of this article – first published in “Briefings for Brexit” – is Robert Lee, former Chief Economist, Board of Executors (South Africa), now an economic consultant in the UK and a private investor. Part I of this essay was published yesterday in INDEPENDENCE Daily.
Managing a ‘no deal’
The default legal position is the most powerful motor behind a WTO Brexit, but it is not the only one. Largely unnoticed in the Brexit drama, preparations for leaving without a deal are reported to be advancing fast. According to The Spectator’s Fraser Nelson, one Cabinet member says that “the civil service might yet turn out to be the heroes of Brexit …. the preparations are amazing. I really think we can handle this. Last month, I didn’t”. One Downing Street official thinks it would be “more Millenium Bug than World War Three”. Businesses, civil servants, local authorities, and regional organisations are not interested in political grandstanding, but in making things work on the ground.
The Cabinet is now meeting regularly to discuss no deal preparations. Some Ministers are focusing on a “managed no deal”. The term “managed” applies in two senses. Firstly there would be a series of “mini-deals”, some bilateral, on issues such as airline landing rights, supply of medicines, continuity of financial contracts etc. The UK has just won agreement to stay in the Common Transit Convention, ensuring simplified cross border trade for UK exporters. The EU’s “no deal” preparations largely mirror ours, so agreement can be swift and mutually beneficial (some Remainers paint a grim picture of “no deal” by arguing that the EU would withhold vital supplies – in violation of international AND EU law – in order to punish the UK. How they reconcile this brutalist view of the EU with their desire to stay in is beyond me). Secondly, “no deal” could be further managed by agreeing a transition period in which the UK pays the EU our existing annual fee (about 10bn pounds net) giving both parties more time to prepare for WTO trading. In either case the UK would unilaterally guarantee EU citizen’s rights as per the draft Withdrawal Agreement.
This has dramatic implications for the future course of Brexit. A rising flow of positive news about WTO Brexit preparations should increase public support (already much greater than for The Deal) and diminish Parliamentary resistance. Even with the best preparation there will be some disruption as the economy and business adjust to new trading systems and arrangements. However these adjustment costs will be one off or temporary. Shifting to a new supply chain, paying higher tariffs (on average about 4%, much less than Sterling’s post-referendum 15% depreciation), or adding to stockpiles only adds to business costs once – while the many advantages to be gained are long term and permanent.
Though we would still have to pay some money to the EU, the bulk of the 39bn pounds agreed in The Deal could instead be used to offset any short term hit to the economy, by cutting taxes or supporting those sectors most affected. If no transition period is agreed we will raise more tariff revenue from the EU than we pay – given our large trade deficit with the EU – and these funds can further support the economy. Some tariffs could be abolished or reduced immediately. We will be free to negotiate free trade agreements, including of course in time with the EU itself – a negotiation in which our leverage will be greater than now. We will be free to set our own rules and regulations, and thus protect our world leading growth industries – bio-tech, renewable energy, digital, aerospace, fin-tech, and others – from restrictive future EU legislation.
We could boost selected coastal cities and towns by setting up free ports (not possible while in the EU). We will be immediately out of the Common Fisheries Policy and Common Agricultural Policy, with the growth opportunities provided by that freedom. An immigration policy designed for the needs of our economy and society can be introduced. Much of the Brexit uncertainty which has been holding back business investment, and souring our politics, will have gone. Conversely, The Deal merely prolongs the uncertainty into the indefinite future. We will also be out of the EU before the next and possibly terminal Eurozone crisis erupts – judging by recent economic data it has already begun.
The next few months will be stormy, but calmer waters may lie ahead as time, and the democratic legal process push us to a Clean and Global Brexit. As economist Ruth Lea puts it: “This would be a Liberation, not a crisis”.