2.1 UK Government preparations
The return of “no deal is better than a bad deal”
In her Lancaster House speech in January 2017 the Prime Minister, Theresa May, was “clear that no deal for Britain is better than a bad deal for Britain”. By the time of her Florence speech in September 2017, she firmly supported a negotiated withdrawal and the option of walking away from a bad deal was not mentioned. Both sides in the negotiations agreed that an orderly, negotiated withdrawal was preferable and in both their interests. Agreement on phase one of the negotiations in December 2017 appeared to enhance prospects for a mutually acceptable negotiated withdrawal. The mutual benefits of a good Brexit deal were reiterated in the Prime Minister’s Chequers Statement in July 2018 and the ensuing White Paper on future relations.21 As of February 2019, both sides remain clear that a deal is preferable while there is an increasing acknowledgment that ‘no deal’ is, in the absence of a deal, the default position.22
But then the prospect of a no-deal outcome to the negotiations returned to the Brexit rhetoric in both the UK and the EU, with each side accusing the other of being inflexible and contributing to the possibility of a breakdown in the negotiations and a no-deal scenario. Theresa May said in her statement on the Chequers agreement on 9 July 2018 that unless the EU changed its negotiating position, there was a “serious risk it could lead to no deal” and this would be a “disorderly no deal”. Michael Gove said on the Andrew Marr Show on 8 July that the UK was being “generous”, and that if the EU did not reciprocate, “we may have to come to the conclusion that we need to walk away without a deal” and “be in a position to walk away in March 2019”. The new Foreign Secretary, Jeremy Hunt, warned that without a “change in approach from the EU negotiators”, there is now a “very real risk of a Brexit no deal by accident”.23
The Prime Minister stood by her Lancaster House evaluation; she told the Liaison Committee on 18 July:
You ask me about the fact that I have said that no deal is better than a bad deal. I stand by that. I think that that is right. I think a bad deal—for example, some have suggested that we would be prepared to pay “any price” for something—would not be a good deal for the United Kingdom.
Michel Barnier insisted the EU is prepared to be flexible if the UK Government gives way on its ‘red lines’.24
21 For information on the Government’s Brexit future relations White Paper, see Commons Briefing Paper 8387, The Brexit White Paper on future relations and alternative proposals, 28 August 2018.
22 BBC News, No-deal Brexit: Can Parliament stop it?, 9 January 2019
23 BBC News, Brexit: Jeremy Hunt warns EU of ‘no deal by accident’, 23 July 2018
24 Michel Barnier: speech 23 April 2018; speech, Institute of International and European Affairs, 6 July 2018
“We are preparing for a range of outcomes, in terms of our future relationship with the European Union, including, at one extreme, no deal and a non-co-operative environment”.
Philip Hammond, evidence to Treasury Committee, 11 October 2017
The former Brexit Secretary Dominic Raab was reported to be “insouciant” about a no-deal Brexit.25 He maintained there would be “opportunities” from a no-deal outcome (including immediate regulatory freedom, independent trade and immigration policies, and “a swifter end” to payments into the EU budget).26 Brexit supporter Jacob Rees-Mogg MP was reported to have said that no deal would be preferable to the Government’s Chequers proposal.27 But Business Secretary Greg Clark told the French newspaper Le Figaro on 24 July that no deal “would be bad for all countries and all citizens of the European Union. And that would impoverish everyone”.
Opposition leader Jeremy Corbyn said that “No deal is a bad deal and would represent a historic failure”.28 The Liberal Democrat leader Vince Cable said a no-deal Brexit could be “potentially catastrophic”.29
‘No deal’ became a distinct possibility when it became clear that the UK Parliament did not support the Withdrawal Agreement agreed in November 2018. The backstop provision to prevent a hard border returning to the island of Ireland was the main objection. Theresa May, defending the negotiated Withdrawal Agreement before the Commons on 26 November, said “There is no deal that comes without a backstop, and without a backstop there is no deal”.
On 4 December she said:
Do not let anyone here think there is a better deal to be won by shouting louder. Do not imagine that, if we vote this down, a different deal is going to miraculously appear. The alternative is uncertainty and risk—the risk that Brexit could be stopped; the risk we could crash out with no deal.30
Nevertheless, after the amendment by Sir Graham Brady, Chair of the 1922 Committee was passed on 29 January, the Prime Minister agreed to return to the EU to seek to replace the backstop with “alternative arrangements” (see section 3.1 for further detail on this). At the time of writing, it is not clear what these arrangements might be or whether the EU will agree to them.
In its report published on 12 March 2017 on Article 50 negotiations: Implications of ‘no deal’31 the Commons Foreign Affairs Committee recommended:
The Government should require each Department to produce a ‘no deal’ plan, outlining the likely consequences in their areas of remit and setting out proposals to mitigate potential risks. Such preparation would strengthen the Government’s negotiating hand by
25 Politico, UK Cabinet chaos triggers countdown to Brexit explosion, 9 July 2018
26 Dominic Raab, speech on Brexit no deal planning, 23 August 2018
27 See The Times, Jacob Rees‑Mogg says Chequers Brexit deal may be worse than no deal, 7 July 2018.
28 Politico, 5 July 2018
29 The Guardian, ‘Catastrophic’ no-deal Brexit a real possibility, says Vince Cable, 11 June 2018
30 HC Deb, 4 December 2018, c764
31 Ninth Report of Session 2016-17
”If you are asking me whether we are going to say to people here and now, “If there is no deal, you will not be able to do A, B and C,” I would say that preparedness for no deal is about making sure that Government, business and those who have to take actions to prepare for no deal are able to do that and to do so in a timely way, because some of these actions may take time to put in place”.
Prime Minister to Liaison Committee, 18 July 2018
providing credibility to its position that it would be prepared to walk away from a bad deal.
In June 2018 an Institute for Government (IfG) report summarised what preparations the Government would need to make for different Brexit scenarios:
Some areas are not dependent on future negotiations, such as the settlement scheme to provide status to EU nationals after Brexit, meaning officials do not have to cope with multiple scenarios. But these are the exception. For others the uncertainty means that departments have to work on multiple plans in parallel. HM Revenue and Customs (HMRC), for example, needs to be ready for post-Brexit customs if there’s no deal in March 2019 or if talks end in failure come December 2020, as well as having plans for the Government’s two options for a possible future relationship. Each of the four plans, with their different constraints and requirements, would be, at best, extremely ambitious if they were the only scenario the department was working to.32
Has the Government implemented “multiple plans in parallel” to prepare for all kinds of Brexit? Philip Rycroft, DExEU Permanent Secretary, told the Exiting the EU Committee on 4 September 2018 that Brexit planning, including for no deal, had been taking place across Departments for two years.
New Cabinet sub-committee
Damian Green, then First Secretary of State and Minister for the Cabinet Office, announced in October 2017 the creation of a new Brexit-focused Cabinet sub-Committee – the European Union Exit and Trade sub-Committee (Domestic Preparedness, Legislation and Devolution) to oversee domestic policy preparations and implementation of Brexit; and changes to the existing EU Exit and Trade (Strategy and Negotiations) sub-Committee (an extension of the EU Exit and Trade (Negotiations) sub-Committee), to oversee the Brexit and future relations negotiations. The new sub-committees would “sit alongside” the EU Exit and Trade Committee and the EU Exit and Trade (International Trade) sub-Committee which would continue as before.
On 30 April 2018 in a letter to Meg Hillier, Chair of the Public Accounts Committee, DExEU published Departmental summaries of EU Exit workstreams, setting out the areas of work being undertaken (“policy areas requiring particular focus, the current number of workstreams for which each department is responsible, and some specific examples”). The National Audit Office, which has been reporting on the Government’s Brexit delivery, noted that DExEU’s “delivery plan guidance required departments to formulate delivery plans to support a preferred negotiation (or ‘day one deal’) or a ‘no deal’ outcome for each EU Exit work stream”.33 The DExEU
32 IfG, Preparing Brexit. How ready is Whitehall? Summary. Joe Owen, Lewis Lloyd and Jill Rutter, 10 June 2018
33 NAO, Implementing the UK’s exit from the European Union. The Department for International Trade, HC 713 Session 2017–2019, 25 January 2018
summaries do not specifically indicate any no-deal planning, but this could be read into the “contingency outcomes” referred to in five instances.
Philip Rycroft assured the Exiting the EU Committee on 4 September that political divisions in the Government were not holding up any Brexit planning workstreams.
Machinery of government changes
On 24 July the Prime Minister announced changes to the machinery of Government in the light of Brexit. DExEU would continue to lead on domestic preparations “in both a deal and a no deal scenario, all of the necessary legislation, and preparations for the negotiations to implement the detail of the Future Framework”. DExEU would recruit new staff and Cabinet Office officials coordinating work on preparedness would move to DExEU, “while maintaining close ties with both departments”. Theresa May herself would lead the negotiations with the EU, with the Exiting the EU Secretary deputising and supported by the Cabinet Office, whose Europe Unit, headed by Oliver Robbins, would “have overall responsibility for the preparation and conduct of the negotiations”. Philip Rycroft told the Exiting the EU Committee on 4 September that the changes would enable DExEU to focus on what comes after Brexit.
Former Brexit Secretary Dominic Raab said in his speech on 23 August 2018 that the Government was increasing staffing inside and outside Whitehall: “The UK government now has 7,000 people working on Brexit preparations and funding is in place for another 9,000”, and “in relation to frontline services, such as the UK’s Border Force, we are currently recruiting an extra 300 staff in time for our exit, with plans in the pipeline to recruit 1,000 more staff, so they are ready to deal with any increase in work”.
Philip Rycroft said DExEU was under no budget restraints with regard to staffing and resources for Brexit planning.34
‘No deal’ funding
Chancellor Phillip Hammond had set out the Government’s ‘no deal’ funding strategy in evidence to the Treasury Committee on 11 October 2017:
[…] we do have planning for all scenarios, including a no-deal scenario. I am committed to funding Departments for the work they need to do in preparation, and we have already allocated £250 million to Departments from the reserve. But there will be points of decision where it will be necessary to make go or no go decisions around future programme spending to be ready on day one. I am clear that we have to be prepared for a no-deal scenario, unless and until we have clear evidence that that is not where we will end up. At the moment, although we of course hope for a different outcome, we cannot be certain of it.
I am not proposing to allocate funds to Departments in advance of the need to spend. We should look in each area at the last point at which spending can begin to ensure that we are ready for day one of a no-deal scenario. That is when we should start spending hard-
34 Commons Exiting the EU Committee, Oral evidence, 4 September 2018
earned taxpayers’ money. Every pound we spend on contingent preparations for a hard customs border is a pound that we can’t spend on the NHS, social care, education or deficit reduction. I don’t believe that we should be in the business of making potentially nugatory expenditure until the very last moment, when we need to do so. We will be ready—we will spend the money in a timely fashion to ensure that we are ready—but we will not spend it earlier than necessary just to make some demonstration point.
Asked whether the Treasury had “done a broader assessment of how much it would have to spend in the event of a no-deal scenario, and how much money could not be spent on other things”, and whether the Treasury was “expecting to have to reopen the 2015 Departmental spending reviews”, Mr Hammond replied:
On the last point, no, because the money that is required to be expended against the contingency of a no-deal scenario will come from the reserve, so we will not reopen departmental spending settlements. In terms of quantum, it is a moveable feast. Obviously, one can plan for the most extreme scenario. Let me give you an example: it is theoretically conceivable that, in a no-deal scenario, no air traffic will move between the UK and the European Union on 29 March 2019 (postponed to 31 January 2020, with a transitional period to effective withdrawal on 31 December 2020). However, I don’t think anybody seriously believes that that is where we will get to.
There are a range of outcomes, and at a point in time we will need to determine what a realistic worst-case scenario that we need to plan and invest for is. On that specific point, it is very clear that mutual self-interest means that, even if talks break down and there is no deal, there will be a strong compulsion on both sides to reach agreement on an air traffic services arrangement.
In the November 2017 budget the Chancellor also made an additional £3 billion of funding available for departments and the devolved administrations over the next two years to implement plans for various exit scenarios, including ‘no deal’. There was a subsequent increase by £0.5bn in the 2018 Budget.
The Prime Minister summarised funding for a deal or no-deal Brexit in evidence to the Liaison Committee on 18 July 2018:
The Treasury set aside, over a period of two years, the sum of £3 billion for preparatory work. That was allocated at the spring statement. My right hon. Friend the Chancellor of the Exchequer explained the allocation for 2018-19 among Departments. As you might imagine, DEFRA is the Department that has £310 million allocated to it for that year. HM Revenue and Customs has £260 million, the Home Office has £395 million. The other big amounts include £185 to BEIS, and then, obviously, other Departments have some allocated. Those sums are for work they are doing in preparing for the outcomes, and of course those outcomes are a deal or no deal.
New IT systems will be needed to replace databases currently shared with the EU. Many of them are in the Department for Environment, Food and Rural Affairs (DEFRA), HM Revenues and Customs (HMRC), the Department for Business, Energy and Industrial Strategy (BEIS), Department for International Trade (DIT) and the Home Office. The UK will also be disconnected from various IT systems that cannot be replicated domestically because of their inherent cross-border basis, such as the
VAT Information Exchange System (VIES), which is a core component of the system that allows goods to move within the EU without VAT liability being checked at the border.35
The technical publication The Register commented on DEFRA systems that could be at risk:
Key programmes at risk of delays or failure were the department’s import controls systems, the database replacement for the Registration, Evaluation, Authorisation and Restriction of Chemicals, the export health certificates, catch certificate for marine caught fish for human consumption, and the system for veterinary medicines.36
The Government is also relying on future technology-based solutions to the Irish border customs issues, despite these having been declared a partial solution at best by the EU.
In a report published in April 201837 the Public Accounts Committee (PAC) was critical of the Brexit preparations of the Department for Business, Energy and Industrial Strategy (BEIS) and was particularly concerned about the lack of IT procurement that would be necessary in the event of no deal:
We doubt the realism of the Department’s plans to deliver the numerous IT systems required to support the implementation of its Brexit work streams, especially when it has yet to start procurement. The Department needs to build upwards of 12 new digital systems, such as a database to register trademarks. We took evidence in January 2018, before publication of the Draft Withdrawal Agreement proposing a transition period to December 2020. Extraordinarily, the Department had not yet started to procure any of these systems despite them being required by March 2019 in the event of a no deal scenario. They may still be required if negotiations should break down. The Department said it hoped to begin procurement in the next few months and that it was confident that it could acquire and test the systems by March 2019. Given the government’s generally poor track record in delivering IT projects, we are extremely sceptical that the Department will be able to deliver these systems in time.
In its response in May 2018 to the Foreign Affairs Committee report on the implications of no deal, the Government said it was continuing “to implement plans to ensure that we are ready for the UK’s exit from the EU, including procuring new systems, recruiting new staff and committing financial resources where necessary”.38
35 Developing new databases can be a lengthy process; an internal Cabinet Office report in 2015 leaked to Computer Weekly found that “the average time for a new digital service to reach public use – either fully live or in beta – was two years. The completed exemplars ranged from 1.2 years to three years in duration. ”ComputerWeekly.com, So you want new IT systems for Brexit? Leaked GDS report shows it’s already too late, 15 August 2017
36 The Register, Defra to MPs: There’s no way Brexit IT can be as crap as rural payments, 8 March 2018
37 PAC, Exiting the European Union: The Department for Business, Energy and Industrial Strategy, 34th Report of Session 2017–19, 18 April 2018
38 Government response to Foreign Affairs Committee 9th Report, 23 May 2018.
But some reports suggested civil servants were preparing ‘manual workarounds’ in case the technology failed or was not available. The Commons Science and Technology Committee launched an inquiry into the state of the digital government strategy, which included consideration of the post-Brexit digital skills that would be needed; see for example, written evidence submitted by GlobalData Public Sector in October 2018, and Deloitte, September 2018.
The Government steps up ‘no deal’ preparations
Boris Johnson, in his resignation letter on 9 July 2018, said the Government had “postponed crucial decisions – including the preparations for no deal” in favour of pursuing what he called a “semi-Brexit”. Others in the EU,39 the UK Government,40 opposition politicians41 and industry42 thought more preparations were necessary. The Financial Times (20 July) reported on no-deal preparations by businesses across the UK, stating that “[a]s part of the preparations, some 250,000 small businesses will be asked to start making customs declarations, in a dry run for a hard Brexit”, and:
UK businesses are already spending heavily on their preparations. Adam Marshall, head of the British Chambers of Commerce, said companies have been thinking through the potential impact of changes to cross-border trade, staffing, contracts, VAT and intellectual property.
Overall, the Government said it was being “responsible” about contingency planning.43 For example, in his response to the European Scrutiny Committee special report (14 June) David Davis said the Government was “on course to deliver a functioning border in a ‘no deal’ scenario that enables trade to flow, the Government to collect revenues, and the UK to have a secure border”. DExEU Minister Lord Callanan insisted (23 July) the Government was preparing for a range of Brexit scenarios, from ‘orderly’ withdrawal to ‘no deal’ – but not by recommending the stockpiling of processed food, as reported in The Sun on 10 July and several other newspapers.44 DExEU Minister Chris Heaton-Harris told the Commons on 19 July:
Departments’ plans are well developed and designed to respond to all scenarios, including the unlikely possibility that we leave the EU without a deal. Some contingency plans have already become evident and more will become public over the coming weeks.
39 See BBC News, Brexit: What do the EU’s ‘no deal’ preparations say? 19 July 2018.
40 The statement on the Chequers agreement on 6 July said: “It remains our firm view that it is in the best interests of both sides to reach agreement on a good and sustainable future relationship. But we also concluded that it was responsible to continue preparations for a range of potential outcomes, including the possibility of ‘no deal’. Given the short period remaining before the necessary conclusion of negotiations this autumn, we agreed preparations should be stepped up”.
41 See Commons debate, Withdrawal Agreement: Legislation, 24 July 2018.
42 See, for example, CBI, CBI survey: How businesses are preparing for Brexit, 2018.
43 See Government response, 14 June 2018, to European Scrutiny Committee report of 20 March 2018, 19th Report of Session 2017–19, EU Withdrawal: Transitional provisions and dispute resolution (HC 763).
44 See also Financial Times, British food stores ridicule Brexit stockpiling plans, 26 July 2018.
He also said 300 extra staff had already been recruited to police UK borders and that there was “an ongoing programme to recruit a whole load more”.
Dominic Raab said after his first meeting with the EU negotiator Michel Barnier on 26 July that the UK Government, like any “responsible government”, was planning for no-deal, but conceded it needed to step up its plans.45 He also told the Committee on Exiting the EU on 24 July (Q2472) that in the event of no deal, although there would be “uncertainty” in the short term, the UK would “still be able to thrive” in the long term.
Philip Rycroft outlined staff numbers to the Exiting the EU Committee on 4 September, saying DExEU had high quality staff with a “diverse range of experience and talent”.
In a speech on 23 August on planning for the “unlikely event” of no agreement, Mr Raab said he would seek discussions with the EU over coordinated action to mitigate the effects of a no-deal Brexit (the Bank of England and European Central Bank are currently in talks). He also dismissed media rumours of stockpiling, shortages and a vindictive EU:
So let me reassure you all that, contrary to one of the wilder claims, you will still be able to enjoy a BLT after Brexit.
And there are no plans to deploy the army to maintain food supplies.
I think it’s also worth saying that most of the worst case scenarios, being bandied around, imply that the EU would resist all and any mutual cooperation with the UK.
In reality, I find it difficult to imagine that our EU partners would not want to cooperate with us even in that scenario in key areas like this, given the obvious mutual benefits involved.
The Commons is updated on negotiations and no-deal preparations
Agreement is reached in most areas
On 4 September 2018 Dominic Raab updated the Commons on the progress of Brexit negotiations and the Government’s ‘no deal’ contingency planning. He said the negotiators had “injected some additional pace and intensity into the negotiations, as we reach the final phases” and that the “vast majority of the Withdrawal Agreement” had been agreed. Progress had been made on the outstanding issues to do with the protection of data and information, the treatment of ongoing police and judicial cooperation in criminal matters, and ongoing EU judicial and administrative procedures after exit.
Northern Ireland issues still unresolved
Northern Ireland was still a major sticking point. They had continued to “work to complete a backstop” but he reiterated that the EU proposals were “unacceptable, because they would create a customs border down the Irish Sea”. He was determined to avoid a hard border but would “not permit a customs border down the Irish Sea, which would put at risk the
45 EUObserver, UK Brexit minister warns of ‘no-deal’ preparations, 23 July 2018
constitutional and economic integrity of the United Kingdom, and of course, this can be done without compromising the EU’s core principles”.
Mr Raab outlined the 60 or more bilateral meetings ministers had had with their EU counterparts since the publication of the Brexit future relations White Paper on 12 July, saying the proposals had “received a wide range of positive and constructive feedback” and:
Equally, just as we have presented our proposals in a spirit of compromise, so too they have proved challenging in some respects for some in the EU.
But, our friends across Europe are engaging seriously with our proposals on the substance.
He acknowledged that there were “some risks to a ‘no deal’ scenario” but said the Government’s approach demonstrated that it was “taking the action to avoid, to minimise and to mitigate these potential risks so we are equipped to manage any short-term disruption”.
‘Opportunities’ provided by a no-deal Brexit
Mr Raab again pointed to “some countervailing opportunities” that a no-deal scenario would bring”.
- The UK could lower tariffs and negotiate and bring into effect new free trade deals straight away;
- The “immediate recovery of full legislative and regulatory control, including over immigration policy”;
- A “swifter end to our financial contributions to the EU”, while being “mindful” of legal obligations.
‘Technical notices’ on no deal preparations
On 18 July 2018 the Prime Minister told the Liaison Committee that over the course of the summer the Government would be releasing around 70 ‘technical notices’ for British businesses and citizens – “those that need to know that information” – setting out how the public and business could prepare for the consequences of a no-deal Brexit.
The Committee Chair, Dr Sarah Wollaston, tried to press the Prime Minister on the extent of advanced preparations for these possible consequences:
Q93 Chair: […] there is still that growing possibility, I feel, that we could end up with a no-deal scenario; and my question was will you be laying out for the public what the consequences of that will be, very clearly?
The Prime Minister: If we are in a no-deal scenario then we will lay out the consequences for the public.
Q94 Chair: You won’t do it in advance.
The Prime Minister: What we are doing at the moment is working for a deal, and that is the basis on which the Chequers agreement was made; it is the basis on which the White Paper is made; it is the basis on which we started discussions with the European Union. At this point what we are doing is saying we will ensure, as we step up our no-deal preparations, that those technical notices are issued over
August and September so that those who need to have that information have that information. Chair: You have made that clear.
The Prime Minister: With due respect, I think what you are asking me to do is to do something else, which is to set out the argument for no deal versus the argument for a deal, rather than actually saying we are working for a deal, and we will make sure that those who know—
Q95 Chair: Prime Minister, with respect, I am asking you to set out for the public—because I think sometimes the public don’t realise the scale of the issues that we would be facing, and the costs and the absolute necessity that we start planning now, because time is getting so short. So I guess my request to you is will you agree to publish this so that the public can see what the consequences are, and what you are planning for?
The Prime Minister: What we will be doing is ensuring that more information is available on the preparations the Government are making for no deal, that we publish the technical notices so that those who need to make the preparations for no deal are able to do so.
Q96 Chair: You have made that clear, Prime Minister. My concern was for the wider public understanding of what the consequences are.
The first public information alerts – or ‘technical notices’ or ‘guidance’ – were published on 23 August on the DExEU website. Their publication was interpreted by many as a sign that the Government was taking no-deal preparation more seriously, by others as an indication that the Government was panicking as the deadline for agreeing a deal approached. Philip Rycroft told the Exiting the EU Committee on 4 September that the Notices were drawn up by individual departments but managed by DExEU, and that there had been close consultation with the devolved administrations. He would not answer a question from Hilary Benn about when the Government would notify businesses about the likelihood of a deal not being reached or whether DExEU had given any consideration to possible litigation or judicial review concerning the impact on commercial operations of not knowing about ‘no deal’ in advance of it actually happening.
The Exiting the European Union Committee’s Chair, Hilary Benn MP, commented on the Government’s no deal plans on the Committee website:
Ministers have left their No Deal planning very late in the day. A lot of questions remain to be answered, and they seem to be relying on continued co-operation with the EU without any indication of what would happen if this was not forthcoming.
A failure to reach agreement with the EU will also mean no transition period so all this uncertainty could be just seven months away.
These papers tell us three things. First, they confirm that No Deal – far from being better than a bad deal – would be very damaging economically. Businesses that export to the EU would face the cost and bureaucracy of customs, safety and security and rules of origin declarations for the first time, and in certain sectors, tariffs.
Secondly, there is no guarantee for British citizens living in other EU countries about the future of their pension payments.
Thirdly, there is still no clarity on how the return of a hard border in Northern Ireland will be avoided, and ministers have simply told businesses to seek advice from the Irish Government. This is an extraordinary abdication of responsibility.
Having wasted two years, these papers show exactly why No Deal is unacceptable and why ministers must now ensure that an agreement is reached with the EU which provides a transition period and protects jobs, trade and investment.
In January 2019 there were 94 guidance notices on the DExEU website.
‘No deal’ preparations are accelerated
In mid-December 2018 the Government said it would implement its no-deal plans “in full”. The Cabinet had agreed that the point had now been reached “where we need to ramp up these preparations” and the rest of the no deal plans would be set in motion. In its latest guidance notes, the Government said that for two years it had been “implementing a significant programme of work to ensure that the UK is prepared to leave the EU on March 29 2019”,46 adding:
It has always been the case that as we get nearer to that date, preparations for a no deal scenario would have to be accelerated. We must ensure plans are in place should they need to be relied upon.
There would be an extra £2bn of spending on planning for a no-deal Brexit.47 On 18 December the Chief Secretary to the Treasury, Elizabeth Truss, set out funding allocated to Government Departments for financial year 2019-20. This included £480m of preparation funding for the Home Office, £410m for DEFRA, £375m for HMRC, £190m for the Department for Business, Innovation and Skills, and £128m for the Department for International Trade.
On 21 December the Government updated its overview of government preparations for a ‘no deal’ scenario, summarising the funding as follows:
The government has taken its responsibilities to prepare the UK for all scenarios very seriously. The Budget 2018 confirmed an additional £500 million of funding for 2019/20, meaning the Government will have invested over £4 billion in preparing for EU exit since 2016.
Troops on standby
On 18 December Defence Secretary Gavin Williamson told the Commons (c 665) the Government would “ensure that 3,500 service personnel, including regulars and reserves, are held in readiness to support any Department with contingency needs” (in the event of a no-deal Brexit).
46 Guidance, Producing and labelling food if there’s no Brexit deal, updated 19 December 2018
47 BBC News, Brexit: Cabinet ‘ramps up’ no-deal planning, 18 December 2018
32 What if there’s no Brexit deal?
Information for businesses
The Government called on businesses to implement ‘no deal’ action plans, said it would send 80,000 emails to businesses and business groups advising on contingency planning48 and letters to 140,000 firms updating them on what they should do.49 But the Business, Energy and Industrial Strategy Committee noted in its report published on 10 December 2018:
Businesses emphasised that although they can prepare in crisis management terms for a no deal exit, they cannot mitigate against all the risks.90 They have been forward buying, stockpiling and duplicating licenses, but warned that over the last year it has become clear that a no deal Brexit would be far more complex than they had anticipated – as some problems are solved, new ones are discovered.91 The overarching message was that it is difficult to quantify just how damaging it would be, but that this scenario would seriously undermine these sectors’ ability to provide competitively for their consumers and to use the UK as a base for serving European and global markets.50
Brexit Secretary Stephen Barclay said that securing a deal was still an “overall priority” but that preparing for ‘no deal’ would be “an operational priority within government”.51
The updated preparations overview (21 December 2018) summarised the Government’s actions as follows:
Since the publication of technical notices, we have taken further steps to ensure people and firms are ready, including:
- Publishing more than 100 pages of guidance for businesses on processes and procedures at the border in a no deal scenario.
- Contacting 145,000 businesses who trade with the EU, telling them to start getting ready for no deal customs procedures.
- Advising hundreds of ports, traders, pharmaceutical firms and other organisations that use the border about potential disruption so they can get their supply chains ready.
- Publishing a paper on citizens’ rights, giving people clarity on their future.
It also outlined other ‘no deal’ preparations, including staffing, infrastructure and policy; the Government had:
- Ensured there are more than 10,000 civil servants working on Brexit and a further 5,000 in the pipeline, which will allow us to accelerate our preparation as necessary
- Some departments, such as Defra, which are responsible for a sizeable proportion of the Government’s EU exit work, have rapidly increased their
48 Financial Times, British business slams government plans for no-deal Brexit, 19 December 2018
49 BBC News op cit
50 Business, Energy and Industrial Strategy Committee, 16th Report – The response from business to the Withdrawal Agreement and Political Declaration, Chapter 4A no-deal Brexit
51 BBC News, ibid
capacity to meet the challenge,
recruiting 1300 members of staff in 2017 to 18 to work on exit. Border Force is recruiting 600 frontline officers to provide resilience and readiness ahead of EU exit and is separately recruiting up to a further 1000 staff to ensure flexibility for all scenarios and sufficient resources for existing operations. • Confirmed that existing organisations will grow and take on new responsibilities. For instance, the Competition and Markets Authority will
take on an additional role as the UK’s state aid regulator and the Information Commissioner’s Office will support businesses on new data sharing arrangements.
- Procured or developed a number of new systems to build everything from a new market surveillance system to improving the capabilities of our Export Health Certificates system.
- Signed international safeguards agreements with the International Atomic Energy Agency, as well as bilateral Nuclear Co-operation Agreements, and Air Services Agreements. We will continue to work with third countries and international partners to seek continuity of the effects of international agreements which the Government participates in as a result of, or relevant to, its membership of the EU
- Set out our approach to bringing EU financial services legislation into domestic law in time for exit on 29 March 2019 (postponed to 31 January 2020, with a transitional period to effective withdrawal on 31 December 2020).
- Guaranteed certain EU-funded projects in a no deal scenario, including the full 2014-20 Multiannual Financial Framework allocation for structural and investment funds; the payment of awards where UK organisations successfully bid directly to the European Commission on a competitive basis until the end of 2020; any Rural Development Programme projects contracted before the end of 2020 for their full lifetime.
In reply to a question about local government planning for ‘no deal’, Secretary of State for Housing, Communities and Local Government James Brokenshire said on 21 December 2018 his Department was “working closely with the 38 Local Resilience Forums, and with councils in England to ensure they are fully prepared”. He added that the EU Exit Local Government Delivery Board, which he chaired, provided “an opportunity for national and local government to discuss Brexit preparations, review transition and implementation progress, address any issues or concerns that councils may have and discuss opportunities arising from Brexit”.
The Government’s reply to the Foreign Affairs Committee report referred to the European Union (Withdrawal) Bill then going through Parliament and to other Brexit-related legislation “to prepare for all exit scenarios” (the Nuclear Safeguards Act, Sanctions and Anti-Money Laundering Act, Haulage Permits and Trailer Registration Act, Taxation (Cross-border Trade) Act and bills on immigration, agriculture, fisheries, Healthcare, Financial Services, Environmental Principles and Governance, and Animal Welfare).
The European Union (Withdrawal) Act (EUWA) received Royal Assent on 26 June 2018.52 Several hundred SIs will be made under the EUWA by February 201953 to provide for a temporary continuation of EU provisions in the UK,
52 For information on the EU (Withdrawal) Bill, see Parliament’s Brexit: research and analysis website, Brexit: legislation.
53 Philip Rycroft, oral evidence to Exiting the EU Committee, 4 September 2018
with or without a withdrawal agreement. The aim is to ensure there are no (or few) sudden shocks or holes in the statute book on Brexit day.
Under the Act a European Statutory Instruments Committee (ESIC) has been set up in the Commons to check whether the choice of procedure to adopt certain Brexit-related SIs is appropriate. The degree of Parliament’s involvement depends on the type of procedure used. The proposed negative instruments can be found on the Government’s EU Withdrawal Act 2018 statutory instruments website, together with Explanatory Notes on each draft SI.
The Commons European Scrutiny Committee published a report on EU’s no deal preparations: Brexit: EU contingency planning in a ‘no deal’ scenario, 23 January 2019. The Committee concluded:
4.32 Despite the fact that the senior figures in the Government, not least the Prime Minister herself, have stated repeatedly that “no deal” with the EU would be better than a “bad deal”, it has been clear for some time that the necessary preparations to avoid the disruption of the abrupt departure from the Single Market and Customs Union, to the extent that it could ever be fully avoided, are unlikely to be fully in place. The Government only recently contracted three ferry companies to compensate for “severe congestion” at Dover and the Channel Tunnel leading to a “significant reduction in capacity at ports on the short straits”, which without intervention would “cause delivery of critical goods to be delayed and cause significant wider disruption to the UK economy”.34 The National Audit Office has also warned crucial ‘no deal’ preparations are unlikely to be finalised in time by the Department for Transport, HM Revenue and Customs, and the Department for Environment, Food and Rural Affairs.
4.33 The crux of the matter is, however, that many elements of the likely disruption could never be avoided unilaterally by the UK. Where they concern cross-border trade, transport or cooperation, this is by definition not within the gift of the Government.
4.34 The European Commission’s recent Communications on the EU’s preparations for a ‘no deal’ Brexit are therefore a stark reminder of the consequences, especially at ports, on 30 March. Despite the UK’s requests, and in some cases unilateral action, in many areas the EU is planning no contingency measures at all to avoid trade and transport disruption. Instead the UK will abruptly go from ‘EU member’ to ‘third country’, without anything resembling the transition period and separation provisions contained in the draft Withdrawal Agreement.35 The EU has said it intends to impose tariffs, import VAT and excise duty, as well as regulatory controls, at the border from ‘day one’. Although to what extent it will force Ireland to do so at the land border remains unclear, the French, Dutch and Belgian Governments have all said they will be required to enforce EU ‘third country’ rules against UK goods from 30 March 2019 if there is no transition. […]
4.36The consequences of ‘no deal’ for British food and drink exports, particularly meat products, could be especially serious. The EU has not yet listed the UK as a safe ‘country of origin’ for such products, without which a trade ban would automatically take effect on 30 March (although the Commission has committed to doing so). In any event, these exports will face some of the highest tariffs the EU still maintains, and the imposition of border controls for sanitary checks will reduce the competitiveness of those products further (as well as potentially affecting the viability of some exports where freshness of the goods could be jeopardised by delays at the border).
36 4.37 The Government’s continued and persistent failure to provide timely and comprehensive analysis to Parliament of the EU’s approach to ‘no deal’ is extremely worrying. It is an approach that was exemplified by the inadequate sectoral ‘impact assessments’ published at the behest of the Exiting the EU Committee in late 2017; the lack of any public communication on the implications of ‘no deal’ until August 2018; and again by the Department’s Explanatory Memorandum on the European Commission’s previous ‘no deal’ Communication of 13 November 2018, which was shorn of any substantive analysis of the implications of the EU’s ‘no deal’ preparation as described in that document.
37 The latest Government Memorandum, received on 17 January 2019, constitutes somewhat of an improvement but still glosses over many of the practical realities of the EU’s contingency measures being proposed: the clear deterioration in trading arrangements for UK businesses dealing with EU customers or suppliers; the new ‘cliff edge’ they contingency measures create when they expire or are withdrawn early; and the unilateral demand the UK continue adhering to EU law in the fields of aviation, road transport and competition.
4.38 Moreover, the Government’s lack of candour about its Brexit preparations and the areas where unilateral action will be insufficient is disappointing. A number of crucial Bills have not received Royal Assent, and many of the Statutory Instruments that need to be made under the 2018 Withdrawal Act are yet to make it onto the Statute Book. It is noteworthy in this respect that even at this late stage, the Government’s Explanatory Memorandum can only offer assurances that Departments are working to “make sure that the preparations for exit from, […] the EU are on track”. This falls far short of a guarantee that such preparations, where the UK can make them unilaterally, will be completed by the end of March.
4.39 The clear difficulty the Government has had in preparing properly for a ‘no deal’ exit is important not only because it affects how Parliament views the different options open to it as the deadline of 29 March 2019 (postponed to 31 January 2020, with a transitional period to effective withdrawal on 31 December 2020) approaches. The issues identified in the ‘no deal’ notices issued by both the Government and the European Commission will not disappear the day after the UK leaves the EU. Geographic proximity and the volume of trade flows practically dictate that new treaties will at some stage be needed to give form to the UK’s post-Brexit cooperation with the European Union. Our assessment of the Commission’s contingency measures, narrow in scope and limited in duration, merely reinforce the point that there would be a vast range of long-term issues that would remain unresolved in a ‘no deal’ scenario. As we have pointed out in many of our Reports since June 2016, these include arrangements on customs and trade, VAT and excise, cross-border transport, food safety and animal health, ‘equivalence’ in financial services, data protection, home affairs and security, and of course the Northern Irish border.
4.40 We repeat in this regard that the disruption of a ‘no deal’ Brexit would obviously not fall solely on the UK side. EU businesses would also be affected across a range of economic sectors, and as we have noted the budget of the European Union would face a significant shortfall (given that it is unclear how the Government would approach the financial commitments vis-à-vis the budget that it has recognised in the absence of the formalised financial settlement contained in Part Five of the Withdrawal Agreement). As such, both sides would have an interest in returning to the negotiating table sooner rather than later to develop a joint approach to the UK’s withdrawal from the EU. We consider it likely that, even in a ‘no deal’ scenario, the EU reiterate its key demands in the negotiations so far: a legally-agreed way of keeping the Irish border open (whatever actions are or are not taken at the border in the immediate aftermath of ‘no deal’), the resolution of the UK’s financial obligations to the EU budget for expenditure agreed during its membership, and the status of EU and UK citizens resident in each other’s territories.
The constitutional implications of a no-deal Brexit are discussed in detail in section 3 below.
2.2 European Union preparations
According to Michel Barnier in July 201854 there was agreement on 80% of the UK’s withdrawal terms. Matters still to be agreed included the protection of ‘geographical indications’, solutions for UK territories (e.g. the UK’s Sovereign Bases in Cyprus, and Gibraltar, on which bilateral negotiations between the UK and Spain are ongoing) and the border between Ireland and Northern Ireland. According to one estimate, only 5-6% more text had been agreed since March, when 80% agreement was first announced.55 In the absence of what the European Commission described as “functional solutions” to the Irish border issue in particular, the EU stepped up emergency ‘parachute’ planning for the UK leaving the EU without a withdrawal agreement on 29 March 2019 (postponed to 31 January 2020, with a transitional period to effective withdrawal on 31 December 2020). The Commission, the EU Presidency (Austria) and other Member States also considered how the UK exit date could be extended if more time was needed to prepare.56 The Financial Times commented that any EU unilateral contingency provisions “would be tailored to the bloc’s interests and would remain in force only until the EU develops the infrastructure to enforce rules for a no-deal Brexit that could last for years”.57
From 15 November 2018 Council Working Party (Article 50) preparedness seminars for the EU27 discussed preparations in different policy areas. At the time of writing, there had been 12 of these.
On 19 December 2018 the European Commission adopted a package of 14 short-term contingency measures which aim to mitigate the worst effects of a no-deal Brexit. The package included measures on flying rights, air safety certificates, derivatives contracts, time-limits for customs declarations and hydrofluorocarbon quotas. As the Financial Times noted (19 December 2018), “No special contingency measures are outlined for medicines, data flows, veterinary checks, fisheries or non-financial services,
54 On 10 July and on 2 August
55 EUObserver, ‘Dealbreaker’ issues multiply in Brexit talks, 30 August 2018
56 See Independent, Brexit talks should be extended if no deal agreed, EU Council chair says, 5 July 2018.
57 Financial Times, Brussels steps up emergency planning for no-deal Brexit, 28 June 2018
“The ‘no deal’ is not our objective. By the way, you do not need a negotiator for no deal. We are negotiating to avoid the ‘no deal’, but it still cannot be excluded”.
Michel Barnier, speech at European American Chamber of Commerce, 10 July 2018
even though these will ultimately probably need to be addressed by the union in a hard-exit scenario”.
European Parliament report
In May 2018 the EP’s Constitutional Affairs Committee published an in-depth analysis of the institutional, budgetary and policy implications of a ‘hard Brexit’ for the EU (The Institutional Consequences of a ‘Hard Brexit’). The study looked at how UK withdrawal without a withdrawal agreement, transition arrangements or framework for future relations would affect each EU institution, the EU budget for the current Multiannual Financial Framework and EU policies in the areas of trade, security and justice. It provided “guidelines for the EU to be prepared in case such scenario were to materialise”.
Commission Brexit Preparedness Group
At the end of 2017 the Commission established a Brexit Preparedness Group composed of around a dozen civil servants and headed by Pascal Leardini. On the Brexit Preparedness website the Group posts ‘preparedness notices’, legislative initiatives and other relevant activities. The notices “aim at preparing citizens and stakeholders for the withdrawal of the United Kingdom” and “set out the consequences in a range of policy areas”. At the time of writing there were 84 preparedness notices. The website provides further information on EU preparedness for no deal:
In addition, EU decentralised agencies have published information in relation to the UK’s withdrawal from the EU, for example the Community Plant Variety Office, the European Chemicals Agency, the European Medicines Agency and the European Union Intellectual Property Office. Furthermore, the three European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) and the Single Supervisory Mechanism have issued opinions and guidance.
Amending EU legislation to take account of Brexit
The Commission has been drafting amendments to EU legislation to take account of the UK’s exit in areas such as shipping, tariff obligations, energy, customs, aviation, health and safety, transport, citizenship58 and the “adaptation of hundreds of databases and IT systems managed by the Commission and national capitals”.59
On 12 June Commission Secretary-General Martin Selmayr presented the EP’s Brexit Steering Group with a list of amendments to laws and regulations in a document entitled Pending and planned legislative proposals for the purposes of Brexit preparedness (as of 12 June 2018).
Commission official Pascal Leardini told the EP Committee on Constitutional Affairs (AFCO) on 2 July that the Commission would soon complete its identification of the legal acts needing adaptation. The acts would be “either preparedness acts, that serve to fill gaps in the legislation, or contingency measures to remedy negative impacts in the cliff-edge
58 MLex, 2 July 2018
59 Politico, 3 July 2018
situation”. They would take effect in the event of a no-deal scenario, “including the unwanted but still possible cliff edge”. Politico reported:
In addition to the practical contingency planning, Leardini said that officials are racing to develop legislation to close potential legal gaps. Some matters, he said, will require legislative acts and others like customs changes can be achieved via so-called delegated acts (legally binding acts that enable the Commission to supplement or amend nonessential parts of EU legislative acts).
Leardini said his group has also issued 66 preparatory notes to private stakeholders, urging them to be ready for a potentially disorderly Brexit. These, he argued, are “purely informative and not speculative.”
But Leardini said the Commission had “not done an overall impact assessment of what happens if there’s no deal because there are too many variables”.60
Brexit impact assessment
On 19 July 2018 the Commission published a Communication (COM(2018) 556 final), Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019, in which it set out the main consequences of a no-deal outcome:
Box 1: Commission position on main consequences of UK withdrawal on 30 March 2019 without a withdrawal agreement
- The United Kingdom will be a third country and Union law ceases to apply to and in the United Kingdom.
- Citizens: There would be no specific arrangement in place for EU citizens in the United Kingdom, or for UK citizens in the European Union.
- Border issues: The European Union must apply its regulation and tariffs at borders with the United Kingdom as a third country, including checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms. Transport between the United Kingdom and the European Union would be severely impacted. Customs, sanitary and phytosanitary controls at borders could cause significant delays, e.g. in road transport, and difficulties for ports.
- Trade and regulatory issues: The United Kingdom becomes a third country whose relations with the European Union would be governed by general international public law, including rules of the World Trade Organisation. In particular, in heavily regulated sectors, this would represent a significant drawback compared to the current level of market integration.
- Negotiations with the United Kingdom: Depending on the circumstances leading to the withdrawal without an agreement, the EU may wish to enter into negotiations with the United Kingdom as a third country.
- EU funding: UK entities would cease to be eligible as Union entities for the purpose of receiving EU grants and participating in EU procurement procedures. Unless otherwise provided for by the legal provisions in force, candidates or tenderers from the United Kingdom could be rejected.
The Financial Times reported on 1 August that the EU was willing to “offer Britain a vague blueprint for future ties with the bloc — if it helps Theresa May avoid a “no deal” outcome and win parliamentary backing for a withdrawal treaty”. On 29 August Michel Barnier said the EU was “prepared
60 Adam Fleming Tweet, 2 July 2018
to offer Britain a partnership such as there never has been with any other third country”.
The Commission asked the other 27 EU Member States (the EU27) to accelerate their contingency planning for a no-deal Brexit, “warning of queues of freight at ports as well as implications for the pharmaceutical, financial services and aviation sectors”.62
Several other EU States have been preparing contingency measures. A summary of EU27 planning is outlined in the Appendix to this paper.
European Commission steps up no-deal planning
On 19 December 2018 the Commission published proposals for a “managed no-deal” exit, with 14 legislative contingency proposals to avoid the worst effects of a cliff-edge Brexit. But it does not offer the UK any side- or mini-deals that some thought would be available. By 29 January 2019 there were 23 proposed measures on the Commission’s Brexit preparedness website, which it describes as “specific, limited and targeted at remedying the negative impact of a disorderly withdrawal or at enabling the necessary adaptation of the legislation”.
61 Politico, Michel Barnier: EU will offer UK unprecedented deal, 29 August 2018
62 The Times (Ireland), 14 July 2018
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