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The question that no-deal Brexiteers must answer

31 May 2019

3:57 PM

31 May 2019

3:57 PM

The fact that the Confederation of British Industry is directly intervening in the Conservative Party leadership contest – to warn against a no-deal Brexit – should be remarkable, not least for what it says about how some business leaders now doubt the Conservative party’s instincts and sympathies.

The fact that this isn’t bigger news says a lot about recent politics, including how little force such warnings have for many people. The concept of ‘Project Fear’ is powerful and convinces many to discount warnings like today’s as mere scaremongering and shroud-waving. To a lot of people, no deal holds no fear and should be positively embraced. A lot of those people have a vote on who becomes our next Prime Minister.

I am very much not relaxed about no deal. I think it would be a grave economic error. But what if I am wrong? What if an awful lot of economists, bankers, executives, officials and politicians are all wrong? It’s always good to consider the contrary case, after all. So let’s say that Britain, inspired by Prime Minister Boris or Raab, leaves the EU this year with no exit agreement in place. No backstop, no £39bn, no restraint on UK trade talks with other counties.

And let’s say that the economic impact is not as disastrous as all those gloomy economists and experts say. Let’s say that the UK and the EU agree a month-long technical extension to allow some contingency arrangements to be be put in place to keep some trade flowing. Planes do not fall from the sky, there is no plague of locusts and life goes on mostly unchanged for many Brits. The economy takes a wee hit for a year or two, but nothing truly grievous.

Let’s say that all comes to pass. Would that mean the No Dealers were vindicated? Sadly not. Not one bit.

Because the bad bit of no deal, the real trouble, comes next. And this is the real problem with the UK political debate about no deal: it’s not nearly negative enough, because it’s largely focused on Part 1 of the problem: the short and medium-term economic impact. Part 2 barely gets talked about.

Part 2 is simply the question of what happens next to UK trade relations with the EU, aka our biggest trading partner. Because leaving with no deal doesn’t remove the need to agree terms with the EU (unless you favour unilateral free trade and the removal of all tariffs. Which is an option, but good luck explaining the end of UK farming and manufacturing to voters.)

Now, as far as I understand it, those No Dealers in the Conservative Party who have engaged with this fact are of the view that being outside the EU with no deal in place will put Britain in a stronger position to negotiate a favourable free trade agreement with the EU than it was in as a member of the union.

That, I politely suggest, is an optimistic view, and one that seems to ignore several facts. One fact is that the EU would have no reason to rush into those talks. Leaving aside the politics of being seen to accede to the wishes of a country that had just scorned a negotiated exit, simple negotiating tactics would encourage the EU to wait: any economic disruption experienced by the UK would build up, meaning the UK government of the day would increasingly need to come to the table and negotiate a deal on the EU’s terms.

And what would those terms be? It seems likely that, as EU leaders have repeatedly said, there would be three starting principles: fair treatment of EU nationals in the UK; the settling of UK financial obligations to the EU; and respect for Ireland and the Good Friday Agreement, meaning no hard border.

The first of those shouldn’t be a problem. But the second and third? They mean £39bn and something that could well look a lot like the backstop, or could mean Northern Ireland being largely ‘in’ the EU when the rest of the UK is out.

In other words, any lasting deal that the UK would seek to agree with the EU after leaving on no-deal terms would start looking quite a lot like Theresa May’s Withdrawal Agreement. And that would just be the start of the ordeal. If you unhappily think that the UK was negotiating from a position of weakness as a member state, you’re going to love the experience of being a third country talking to one of the world’s three trade superpowers.

The no-deal debate in the UK is like the Brexit conversation as a whole, plagued by short-term analysis. Even sensible politicians talk about ‘getting Brexit done’ so we can ‘move on’ to other issues. That overlooks the fact that even if we could agree a withdrawal deal, we’d still face years of negotiating our future relationship.

And few of those telling comforting stories about the glories of no deal have confronted the sheer scale of the timetable Britain faces. Even if a no-deal exit didn’t inflict a major shock on the UK economy, it would badly weaken our position in the trade negotiations that will define and dominate British public and economic life for a decade and more.

So here’s the question that all those No Dealers should have to answer: even if you’re right and no deal doesn’t wreck the UK economy and break your government, what happens next?

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