Cliff Taylor: The threat of no-deal Brexit must lead to action

The deal reached before Christmas to allow the talks between Britain and the European Union to progress have led to speculation that we might be heading for a softer version of Brexit. And with former Ukip leader Nigel Farage this week saying he might favour a second referendum, the situation is clearly very fluid.

However, it is no contradiction to say it is also time to push on with preparations for a no-deal Brexit. Britain could still crash out in March 2019 with no deal done with the EU. As it could be well into this year before this is all clarified, we need to be as ready as we can be.

Work is under way on this at official level, but it will soon need to be tackled politically. There are specific things we will need to do and every economic decision made in the months ahead needs to be sense-checked against a risk of the Brexit negotiations collapsing. Some political messaging will be needed to make clear that there is a plan A and a plan B here.

This week it emerged that the European Commission has already warned UK businesses about the consequences of a no-deal Brexit and pointed out that if this happens they would be dealt with like businesses from any other EU non-member after the UK left in March 2019.

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Potential disruption

The commission’s advice, issued to about 15 UK industries, outlines the potential disruption of a no-deal Brexit. In medicines, for example, products exported from the UK to the EU would need to be retested, as the oversight of the European Medicines Agency would lapse in the UK. UK aviation companies would need an EU base to fly routes within the union. UK hauliers would not be able to rely on their UK certification to operate across the EU. And on and on.

As the EU member most exposed to all this, Ireland needs to advance its own preparations. When he took over as Taoiseach, the message from Leo Varadkar to State agencies such as the Revenue Commissioners was to stop preparations in relation to one key aspect of Brexit – the risk of a hard border on the island of Ireland. The political message was that it was up to London to propose solutions.

As the talks restart – first looking at a transition deal after the UK’s exit – a complete breakdown is by no means the most likely option. But it most certainly cannot be ruled out.

Like the EU – and London – Dublin is starting to prepare for the unthinkable. In reply to a recent parliamentary question , Tánaiste and Minister for Foreign Affairs Simon Coveney confirmed that work was under way on the worst-case scenario. All departments and agencies were asked to identify the risks and what might be done. A full list of possible responses has recently been sought and the Government is likely to consider shortly what needs to happen next.

The Irish side will also feed into the EU group preparing for a no-deal Brexit – in fact, some Irish measures, such as those to help specific companies affected, would need EU clearance. Already applications have been made for some special schemes to help companies in trouble and speed new investment.

So what do we need to look out for in a no-deal scenario? The first thing would be a hit to UK growth and thus to growth here. No one is sure, but it would be reasonable to assume that the impact on economic growth expected from Brexit would be a bit harder and would happen more quickly in the event of a no-deal exit.

No Brexit deal means, more than likely, a trade border between North and South

We need some recognition of this risk in our planning for Budget 2019, for example. It’s not an argument to stay stuck in the headlights, or to put off tackling problems, but just to be realistic that growth and the public finances would be affected for a few years by a no-deal exit and the uncertainty it would create.

Tariffs

Beyond that, there are specific exposed areas of the economy. A no-deal exit would lead to tariffs being imposed on trade between the UK and EU and other barriers to trade, such as customs and regulatory checks. In terms of Irish goods being sold to the UK, the biggest threat would be to food exports that are particularly reliant on the UK market and where high tariffs apply.

Beef and dairy products are exposed – particularly some areas of the beef sector and cheddar cheese. Current tariff rates, as set down by the World Trade Organisation, would effectively price these products out of the UK market. Other sectors would face lesser, though in some cases still significant, threats.

Then there are the wider impacts. There would be uncertainty about what delays might result as Irish goods move through the UK to EU markets – a vital channel for Irish firms. Many business supply chains would be disrupted, not least companies importing goods here. The supply of products from UK companies to Ireland could be affected, either due to tariffs or regulatory questions and in some cases prices could rise. The Central Bank has warned of potential disruption in the financial sector.

And of course there is the Border issue, the subject of the December deal which the Government argues contains a commitment to avoid a “hard border” which should hold no matter what happens in the talks. Realistically, however, this deal looks unlikely to survive a collapse in negotiations. No deal thus also means, more than likely, a trade border.

We must hope that it will not happen. But a no-deal exit is not off the table yet – not by a long shot.