Tuesday, December 18, 2018

UK government plans for no-deal Brexit

There seems to be no model put forward by any economist that shows Britain will be better off after Brexit. Indeed every forecast, whilst numbers vary, show Britain will be poorer under every type of Brexit compared with staying in the EU.

Yet Theresa May continues on her course to deliver Brexit, saying that not to do so would be a betrayal of the people. And with her deal secured with the EU all but dead it appears she is planning for a no-deal Brexit.

Last month both the the Chancellor of the Exchequer Philip Hammond and the Bank of England's Mark Carney both warned on the catastrophic risks of a no-deal Brexit. But much of the media and quite a number of politicians seem to be dismissing such predictions as a re-run of so-called 'project fear'.

According to the Chancellor of the Exchequer Philip Hammond all forms of Brexit would make the UK worse off but Theresa May's plan was the least damaging option.

Analysis of the prime minister's Brexit deal shows the economy will be "slightly smaller", he told BBC Radio 4's Today programme on Wednesday 28th November 2018.

But it was not just about the economy, he argued, and her plan would deliver "political benefits" as well.

His comments came as the government was due to publish its economic analysis on the long-term effects of Brexit on the UK.

The Treasury was to set out various scenarios - with the Daily Telegraph saying it would predict £150bn in lost output over 15 years under no deal, with Theresa May's plan costing £40bn [BBC / Sky News / City AM].

Speaking on another radio station the chancellor said, "Remaining in the EU leaves the economy slightly larger."

David Henig, Director of the UK Trade Policy Project and a leading expert on the development of UK Trade Policy post Brexit, speaking on LBC radio said government forecasts concerning the UK economy, should it accept Theresa May's deal, amounted to mere "aspirations" since the deal was only a divorce agreement and no trade deals have yet to be negotiated and signed.

Indeed even the so-called transition period that the Withdrawal Agreement allows would be unlikely to give the UK enough time to strike enough required trade deals to mitigate a significant economic decline.

There will throughout the transition period be yet more uncertainty during which more business may well leave the UK.

A no deal scenario could however be much, much worse. Echoing what Hammond had said earlier in the day the Bank of England's Mark Carney later held a press conference which painted a very bleak picture should the UK crash out.

A no deal Brexit could send the pound plunging and trigger a worse recession than the financial crisis, the Bank of England warned.

It said the UK economy could shrink by 8% in the immediate aftermath if there was no transition period, while house prices could fall by almost a third.

The Bank of England also warned the pound could fall by a quarter [BBCSky News / Metro].

The warnings came only days before parliament was due to vote on the Withdrawal Agreement secured with the EU27. But only hours before that vote Theresa May cancelled the vote sending the pound to its lowest level in more than 18 months [Guardian].

As well as creating economic uncertainty the move angered many MPs. Labour's Jeremy Corbyn, who accused Mrs May of "losing control of events" and "disregarding" MPs, was granted an emergency debate in the Commons on Tuesday while Commons Speaker John Bercow said the government's handling of the issue had been "regrettable" [BBC]. 

Having failed to obtain any changes to her deal from the EU Theresa May then faced a confidence vote after the 1922 committee received the required 48 letters. May survived as nearly two thirds of her party backed her. But May's battles are far from over.

There still essentially remain only three options. Theresa May's 'deal', no-deal or no Brexit.

But with May continually dismissing a People's Vote or the rescinding of Article 50 only her 'deal' or a cliff-edge no-deal Brexit seems to be the only options on the table.

The situation ramped up further a week after May cancelled the meaningful vote as she gathered together cabinet members to discuss plans for a no-deal Brexit [BBC].

The official position from the government is that a no-deal Brexit was not preferable to May's 'deal', but that it would "be irresponsible" not to plan for such an eventuality.

"The government's priority is to secure a deal," the Brexit secretary Stephen Barclay told Sky News. But, he added, there were plans being made for a no-deal.

With 14 weeks to go the Brexit secretary Stephen Barclay said businesses needed to prepare for a no-deal and read the preparedness notices the government had published.

Andrea Leadsom reiterated his comments saying a no-deal was a distinct possibility. Asked if a no-deal might happen she responded by saying, "it certainly is, if all else fails."

But not everyone is happy with the contingency plans. David Gauke has reportedly described a managed no-deal as a "unicorn that needs to be slaughtered" [Sky News]. It has already been reported that the justice secretary could resign from his cabinet position if Theresa May's government seeks a no-deal [FT]. Others too have been outspoken about a no-deal option. Amber Rudd has made it clear she won't accept a no-deal, telling Cabinet, "Just because you put a seat belt on, it doesn't mean you should crash the car"

The cost of preparing for a no-deal is reportedly around £2 billion [Business Insider].

But the real cost to the UK economy, 'managed' or otherwise could be far more costly. And with no help form the EU, a no-deal Brexit will be far from managed [Bloomberg].

The contingency plans being made may be too little too late to mitigate the disaster that would happen should Britain crash out. There will more than 750 treaties currently signed with the EU that will cease to apply which cover everything from trade to rules on medicines and flights. Fourteen weeks is simply not enough time to rework, negotiate and sign such a large amount of treaties, many of which are not covered by WTO rules.

Theresa May could be attempting a game of bluff, essentially blackmailing MPs to sign up to her 'deal' under the threat that the only alternative would be a no-deal Brexit.

Given the damage that a no-deal Brexit could do, many MPs might feel obliged to sign up to May's deal. But there are many MP's who could play the same game and force May into calling a people's vote should her deal fail to pass.

As the cabinet gathered today there were only 101 days until Brexit day.  The Prime Minister has announced that it will instead be held in the week beginning on the 14th January. That will leave only 74 days before Britain would be due to leave the EU.

All signs are that May's deal is set to fail. And with only 10 weeks to go there would be little time to have a second referendum or people's vote unless the EU offered an extension to Article 50.

In such circumstances it is possible and even likely that Britain will crash out. And while the government says they are preparing for such an eventuality, no-one is truly prepared for the chaos that will ensue.

There will be those who will say the predicted chaos is merely scaremongering. But this seems to completely ignore a huge number of preparedness notices issued by both the EU and Britain.

tvnewswatch, London, UK

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