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COMMENTARY

UK still staring down barrel of a no-deal Brexit

MPs are making final preparations for forthcoming votes on whether to accept Theresa May's Brexit withdrawal deal, or extend the talks process beyond March 29. Unless one of these paths is chosen, or Article 50 is revoked, the United Kingdom is heading for the uncharted territory of a no-deal exit which could upend Westminster politics, again, and tip the economy into recession.

Ironically, there is probably a majority in the House of Commons against a no-deal. In January, for instance, a non-binding amendment sponsored by Conservative MP Caroline Spelman and Labour MP Jack Dromey was approved which "rejects the United Kingdom leaving the EU without a withdrawal agreement and future framework for the future relationship".

However, the big problem facing those many MPs who want to avoid a no-deal is that they can't just show there is a majority in the House of Commons against no deal. They need to prove there is also a majority in favour of an alternative outcome which has proven elusive so far.

With the stakes in play growing by the day, and a thick Brexit fog still over Parliament, there is only one current certainty with the UK's exit. Enshrined in the UK's EU Withdrawal Act, the default position legally is that the nation will depart the Brussels-based club on March 29 whether a withdrawal deal is agreed or not.

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Throughout much of 2017 and 2018, the prospects of crashing out of the EU with no-deal were widely dismissed, including by the UK government itself. However, to the horror of many MPs, this scenario remains a significant possibility and last week, the May team published analysis of what this would mean for the nation.

This document forecasts that the economy would be 6-9 per cent smaller over the next 15 years than it would otherwise be under EU membership. As the document asserted, whatever these longer term impacts might be, it is the short-term term challenge that could be particularly intense, hence why the Bank of England has asserted that the nation could tip into recession.

NEGATIVE IMPACT

Part of the reason why the short-term impacts could be so severe is that, while it will ultimately be viable for the United Kingdom to trade as a third country with the EU and rest of the world under WTO rules (and other international agreements), this will not happen straight away. Firstly, the negotiation of those new trade schedules will be neither automatic nor straightforward. Secondly, many economists think that trading on WTO terms will have a negative impact for the United Kingdom compared to the status quo, at least to begin with.

While the impact of no deal would probably not be favourable for any part of the United Kingdom, it could have significant differential impacts for competing sectors of the economy and countries. The government document, for instance, asserts that it is Northern Ireland and the North-east of England that could be worst hit, economically, by a no deal.

The term "no deal" is, even now, widely misunderstood by much of the UK public, let alone international audiences. It would mean that London will automatically leave the EU without many of the rules that regulate the UK's relationships with the EU.

And, also, many economic relationships with the rest of the world too will be undermined as these are underpinned by trade treaties that the Brussels-based club has agreed with key nations from Canada to Japan. With March 29 approaching fast, less than a quarter of 40 planned post-Brexit trade agreements have so far been signed.

A common error held by some is that there is only one no-deal outcome, when there are in fact plausibly multiple no-deal scenarios. At the extreme end of the spectrum is a chaotic no deal Brexit whereby negotiations between Brussels and London break down acrimoniously.

A version of this chaotic option, even now, seems unlikely, but cannot be completely dismissed. What the UK government sought to emphasise in its document last week therefore is the range of measures it has underway to try to cushion the blow of a no-deal.

MAINTAINING CONTINUITY

This includes unilateral UK action to maintain as much continuity as possible, including granting road hauliers from the EU-27 the ability to use their licences in the UK after March 29. The government is also working to bring into force a number of agreements in critical areas, such as aviation and civil nuclear cooperation and safeguarding, that would otherwise fall away with a no deal exit.

It remains unclear, if a no deal exit does come to pass, what the full scope of measures might be from the EU side to cushion the blow. Given the massive political time and capital put in by both sides into trying to reach a withdrawal agreement within the Article 50 timeframe, a no deal outcome will generate significant acrimony and there will be a lot of posturing and finger pointing over which side is to blame which could lead to a breakdown in trust.

If Mrs May's withdrawal deal is voted down again on or before March 12, the best way for MPs to head off the prospects of a no deal in the immediate term will be to vote that same week to extend the Article 50 period beyond March 29. There are growing signs that this could happen, including the significant support last Wednesday for an amendment to ensure that Mrs May's commitment to the mid-March vote to potentially extend the March 29 leave date. However, if Parliament ultimately does not back Article 50 extension, and Mrs May's deal cannot be passed either, the political consequences of no deal could be very significant for what is already a febrile UK political landscape. This includes for the governing Conservative Party given that some cabinet ministers have threatened in this scenario to leave the government, and other backbench Conservative MPs leave the party which increases the prospects of a general election or further referendum.

Taken overall, next week's votes could prove to be the last chance saloon to prevent a no-deal Brexit. The big challenge facing those many MPs who want to avoid this scenario is cultivating a majority in favour of an alternative outcome which has proven elusive so far in the long-running EU exit saga.

  • The writer is an associate at LSE IDEAS at the London School of Economics.