14. ‘No deal’

• ‘No deal’ would have meant no UK-EU agreement beyond the Withdrawal Agreement
• Government found impact of ‘no deal’ would have been significant (even without effects of Covid-19)
  • Yellowhammer planning assumptions
• UK and EU trade with tariffs on exports to EU and imports to UK (the main differences with the TCA)
• As with TCA, ‘no deal’ would have meant a major increase in non-tariff barriers to EU-UK trade: 
  • No bilateral UK-EU agreements e.g. fisheries, agriculture
  • EU imposes its standard ‘third-country’ tariffs on UK goods exports to EU
  • EU does not grant UK regulatory equivalence for financial services nor adequacy for data
  • New border procedures and regulatory certification for UK exports to EU: confusion and queues at borders
  • New non-tariff barriers damage UK-EU services trade
  • Price rises and shortages in shops: notably food
  • UK citizens lose rights to freedom of movement in EEA: work, education, travel
  • UK benefits from ‘rolled-over’ trade agreements with other countries
• Immediate and long-run economic damage for UK on top of Covid-19 effects
  • Long-run cost to GDP estimated at 6% (TCA costs 4%)
• No agreement on the future UK-EU partnership in critical policy areas
  • Defence and security: no basis for future UK participation with EU27 systems and agencies critical for UK security
  • Science and education:
    • Loss of Horizon 2020 and Erasmus participation
    • Reduced opportunities and mobility of talent
    • Reduced participation in international science programmes, loss of funding etc.
• Longer-term, ‘no deal’ would have meant:
  • Years of post-Brexit negotiations with EU and others
  • Worst long-term economic impact of all Brexit options
  • UK negotiating position would have been weak

Click here for summary of Brexit FactBase.

Overview

This section aims to provide a useful record of what was expected in 2020 with ‘no deal’. It begins with this overview of what ‘no deal’ would have meant. In many areas the effect of ‘no deal’ would have been similar to the basic EU-UK Trade and Cooperation Agreement.  This summary section covers:

• ‘No deal’ defined
• Brief history of ‘no deal’
• Areas affected
• Compare ‘no deal’ with FTA

The detailed section then goes on to cover:

• Non-trade impacts
• Trade impacts
• Preparation and readiness
• Yellowhammer

For the economic impact of ‘no deal’, please see the section on impact assessment. The main differences between ‘no deal’ and the TCA relate to:

• Tariffs and quotas
• Limited TCA agreements in other areas
• An institutional framework to operate and potentially modify the TCA
• Ongoing dialogue

’No deal’ defined

‘No deal’ meant the failure by the EU and the UK to conclude a UK-EU partnership agreement by 11pm GMT on 31 December 2020. The principal differences between ‘no deal’ and a basic Free Trade Agreement (FTA) relate to tariffs and quotas. Many other areas change in the same way under both scenarios, for example: border checks, security, data, aviation, health and food supply (see Figure 14.1).

‘No deal’ would have created the highest barriers and frictions affecting trade, travel, energy, etc. It would also have had serious political implications for the UK’s ongoing relationship with the EU, put the Good Friday Agreement at risk and imperilled the union of the UK (which is still at risk with an FTA).

The Withdrawal Agreement (WA), signed in late 2019, would have still applied (see Appendix F for details). It is a legally-binding international treaty covering the financial settlement, citizens’ rights, and Northern Ireland. It also deals with a range of issues to ensure an orderly separation. The Political Declaration includes proposals for the future partnership, but it is not legally binding. UK-EU trade would have been on WTO terms from 1 January 2021. This would cause major short-term economic harm on top of the damage from Covid-19. Even with a basic FTA, the Brexit economic harm will be significant (see below). Forecasters expect ‘no deal’ would have shrunk the economy by two percentage points more than an FTA.

The government liked to call a WTO Brexit an ‘Australian deal’. This was misleading because Australia has several agreements with the EU that the UK would not have. Moreover, Australia is negotiating a Canada-style FTA with the EU, because it wants a better deal than WTO terms with enhancements! In fact, WTO terms for the UK would be worse than the those that developing countries like Afghanistan and Somalia enjoy. Their exports to the EU are tariff free under Everything but Arms (EBA), whereas UK exports to the EU would suffer tariffs.

Note on Australia terms: According to the EU treaty database, Australia’s has 20 trade-related agreements with the EU. These include: a Mutual Recognition Agreement that reduces the costs of trade in several products by recognising each others testing, inspection and certification procedures (covers pharmaceutical, automotive products and telecoms equipment among others); agreements relating to trade in specific products such as wine, air services, lamb, mutton and goat meat.)

Brief history of ‘no deal’

In 2016, ‘no deal’ meant no Withdrawal Agreement as well as no trade deal.  The government refused to provide evidence of the implications to the House of Commons Foreign Affairs Committee (HCFAC). The HCFAC responded by requesting the Bar Council and Professor Kenneth Armstrong of Cambridge University to provide evidence on the main issues. The Commons Committee concluded in March 2017:

57.The consequences of such a failure are far from “an exercise in guesswork”. They are, in scope if not in detail, largely predictable – and, in the evidence we commissioned, have been predicted.

58….. It is clear from our evidence, however, that a complete breakdown in negotiations represents a very destructive outcome leading to mutually assured damage for the EU and the UK. Both sides would suffer economic losses and harm to their international reputations. Individuals and businesses in both the UK and EU could be subject to considerable personal uncertainty and legal confusion. It is a key national and European Union interest that such a situation is avoided.

Despite the report, Theresa May and several of her ministers kept saying that ‘no deal was better than a bad deal’.  After taking further evidence from a wide variety of sources and witnesses, the EU Select Committee of the House of Lords published “Brexit: deal or no deal” in December 2017. This report concluded:

“The overwhelming view of witnesses was that ‘no deal’ would be deeply damaging for the UK. It would not just be economically disruptive, but would bring UK- EU cooperation on issues such as counter-terrorism, nuclear safeguards, data exchange and aviation to a sudden halt. It would necessitate the imposition of controls on the Irish land border, and would also leave open the critical question of citizens’ rights.”

“It is difficult to envisage a worse outcome for the United Kingdom than ‘no deal’.”

The government’s 2017 position was that a trade deal would be agreed before Brexit. However the Lords were concerned that the Article 50 deadline of March 2019 did not give enough time to agree a WA and a future partnership (as opposed to its principles, which was the EU position). The Lords made several recommendations to the government in January 2018, for example to agree a transition period, but the government said that it rejected them.

In the summer of 2018, the government ramped up its no-deal preparations. These involved several thousand civil servants working across departments. The preparations focused on exit on 29 March 2019, after which, the teams of civil servants were disbanded. Separately, the Civil Contingencies Secretariat (CCS) in the Cabinet Office drove Operation Yellowhammer – the government’s contingency planning for the most severe no-deal disruption (see below). The CCS is the co-ordinating body that manages the UK government’s response to all major incidents.

Government departments spent at least £4.4 billion on EU Exit preparations between June 2016 and 31 January 2020, according to the National Audit Office. The main areas of spend were:

• £1.9 billion on EU Exit staffing, with more than 22,000 staff at the peak in October 2019.
• At least £1.5 billion on activities such as building new systems, advertising and other services.
• At least £288 million on expertise and external advice since June 2016.
• Local government organisations received £104 million in funding to prepare for EU Exit.

Covid-19 limited the capacity of government and businesses to prepare for Brexit. For example, the government moved staff from Brexit preparations to its Covid-19 response. This included members of the transition task-force in the Cabinet Office (both those involved in the EU negotiations and preparations for the end of the transition period). Staff moves involved 352 officials in HMRC and 160 in BEIS. Many of these officials did not return until September 2020.

Sources:
NAO, Exiting the European Union: the cost of EU Exit preparations, 6 March 2020
UK in a Changing Europe, “What would no deal mean?”, September 2020

Areas affected

‘No deal’ and an FTA Brexit both have wide-ranging impacts as Figure 14.1 shows. In this section we discuss the red items. An FTA addresses trade tariffs and quotas but not much else. If you would like to know more about the blue areas, please see, “What would no deal mean?” by UK in a Changing Europe (September 2020). Another good source is the European Commission publication: Getting ready for changes – Communication on readiness at the end of the transition period between the European Union and the United Kingdom.

Compare ‘no deal’ with FTA

There are important differences between an FTA and no deal. Table 14.1 illustrates some of them. The Table is based on an explainer from the Institute for Government.

Source: Institute for Government, UK–EU future relationship: what difference would a Brexit deal make?

Non-trade impacts

Future negotiations

‘No deal’ would not have ended negotiations between the UK and the EU on 31 December 2020. A future relationship would still have needed to be resolved (both trade and non-trade). Inevitably, the political fallout from ‘no deal’ would have soured the atmosphere and the UK would have been in a much weaker position than before.

The fallout would have extended beyond the EU. If there had been ‘no deal’, the credibility of the UK as a partner for future trade deals with other countries would have been badly damaged. In addition, Joe Biden’s election means the US administration is much more alert to threats to peace in Northern Ireland than it was under Donald Trump.

Figure 14.2 summarised over 100 areas of work for that government and business would have needed to address to prepare for ‘no deal’. Most relate to trade, but many do not. The table shows the wide scope of Brexit.  (The chart is from the Institute of Government in 2018, would have still applied.)

Figure 14.2: What government and businesses needed to do prepare for no deal (2018 view)

Source: Institute for Government, No deal Brexit preparations, October 2018

Citizens

With ‘no deal’ the WA would have guaranteed most of the rights of UK citizens resident in the EU before the end of the transition period – provided they had completed the relevant documentation.  The individuals affected had faced uncertainty on their residency rights, access to employment, ability to claim pensions and other social security benefits, and access to healthcare. The European Parliament Research Service provided a helpful summary of the current status for each member state’s position. At the time, the Commission proved further details but these are no longer readily available.

However, with ‘no deal’, UK citizens would have had to comply with the immigration requirements for nationals of third countries, such as visas for brief business visits. UK citizens resident in the EU who cross borders frequently (for example, those who live in one EU27 country but work or conduct business in others) faced complex issues. Longer-term arrangements for economic rights, such as healthcare, pensions and social security entitlements are likely to take years to resolve, particularly when built up across member states,

Many countries offered a temporary grace period. For example, in Spain this was for 21 months after 31 January 2020. However, from 1 January 2021, for travel across member states, UK citizens resident in Spain had to carry their passports and temporary residence permits. Those without a temporary residence permit have had to apply for one. UK citizens may then apply for permanent residence in Spain, if resident for more than five years. In the event of ‘no deal’, many member states, including Spain, made their contingency plans dependent on reciprocity, The rights for UK citizens resident in, for example Spain, would have depended on rights given by the UK  to Spanish citizens resident in the UK.

For the EU as a whole, under ‘no deal’, as with the TCA, UK visitors would no longer have been entitled to:

• European Health Insurance Cards, which permit unplanned access to emergency healthcare on the same basis as local residents. This means travellers would need to take out additional insurance;
• EU caps on mobile phone roaming charges. This was likely to mean additional costs;
• Compensation for flight delays (although the UK may have decided to maintain the rules on compensation);
• Use a UK driving licence in the EU27. This means obtaining an international driving permits and green cards to drive or take a car to the EU;
• Take a pet to the EU (assuming the EU does not list the UK).

The WA means that the rights of EU citizens resident in the UK were mainly guaranteed provided they have applied successfully under the government’s settlement scheme. The scheme applies to EU citizens, citizens from other EEA countries and Switzerland. There are two types of status: ‘settled’ and ‘ pre-settled’. Pre-settled status requires re-application after five years. Under the WA, those arriving immediately after 31 January 2020, but before 31 December 2020 were able to apply to remain permanently.

From 1 January 2021, either with ‘no deal’ or a deal, the UK applies its points-based system to new arrivals from the EU, other EEA countries and Switzerland. This is a major change compared to freedom of movement within the EU. Also, there is a distinction between EU citizens who arrived before Brexit and whose applications had been processed, and those who arrived later. Before then it was difficult to differentiate the rights of EU, other EEA and Swiss nationals arriving after 31 January 2020 from those already here. For example, it was unclear what employers, landlords and public services were supposed to do.

An inevitable consequence of Brexit has been to discourage EU citizens from coming to work in the UK. See Brexit FactBase section on immigration for recent UK migration trends which show a fall in EU migration and a rise in non-EU migration.

Security

‘No deal’ would have delivered a serious blow to the UK’s counter-terrorism and crime operations which depend on networks of intelligence and data sharing with the EU27. Suddenly, the life for global criminals and fraudsters would have become easier as, by the effect of EU law, UK police, border force and security services would have lost access to EU-wide systems such as:

• Europol, the EU’s law enforcement agency, employing over 900 people – an invaluable tool both for intelligence sharing and at the operational level;
• Passenger Name Records – EU rules oblige airlines to hand over passenger records to the UK to prevent terrorism and serious crime, including trafficking in drugs, people or weapons;
• European Arrest Warrant – making extradition of criminal suspects (averaging 10,000 a year across the EU) from the EU27 more difficult;
• Schengen Information System (SIS) – weakening checks on the security risk of arrivals into the country through, for example, DNA and fingerprint records. UK police accessed this system in 2017 over 500 million times.

In addition, ‘no deal’ would have led to the immediate suspension of EU assistance to UK operations, including ongoing operations. International law provides restricted alternatives for a third country but they are less effective. The UK’s participation in most EU Justice and Home Affairs agencies would have stopped. Many other EU agencies indirectly shape the field of internal security – such as the EU Agency for Cybersecurity and the EU Intellectual Property Office. These agencies serve as co-operation platforms that help member states co-ordinate their counter-terrorism and counter-criminality efforts by sharing expertise and resources. With ‘no deal’, the UK would have been excluded or would have had diminished access until new arrangements were negotiated and agreed. For further information on the UK’s position as an EU member, please see Brexit FactBase section on defence and security.

Trade impacts

Introduction

Most of the impacts on trade of leaving the EU are the same under ‘no deal’ as with an FTA. The big difference is that an FTA removes most tariffs and quotas. However the non-tariff barriers are pretty much the same.  You can find complementary details in the section on the EU-UK Trade and Cooperation Agreement.

• Overview
• Non-tariff barriers
• Tariffs

See the Brexit FactBase section on trade for details of member-state arrangements, other Brexit trade options. UK Global Tariff and trade statistics.

Overview

With Brexit, trade between the UK and the EU is falling because it has become more expensive and more difficult.  New non-tariff barriers (NTBs) affect trade in goods and services, raising costs and causing delays. Many of the new NTBs that apply with the TCA (see Table 14.1 above), would have applied with ‘no deal’. The UK has avoided the immediate economic shock of ‘no deal’.

The long-run impacts on UK-EU trade will be significant for the UK, but the overall impact on the EU is expected to be small. However, the impact will be greater for Ireland and certain regions that rely on trade with the UK. In addition, Brexit has knock-on effects to UK trade with other countries, such as exports to the US and China that depend on EU imports. It will also affect UK businesses that do not trade with the EU but depend on those that do (for example, by supplying them with goods and services).

The effects of Brexit on UK trade under ‘no deal’ and an FTA include:

• New non-tariff barriers to trade will apply to UK-EU trade (for most sectors, NTBs are usually more costly than tariffs).
  • These include new customs checks. The UK is phasing in its new checks between January and July 2021.
• EU now treats the UK as a ‘third country’ (a non-member state):
  • EU now checks imports from the UK as it would imports from any other non-member, putting major burdens on businesses.
  • UK has lost the benefit of any preferential EU trade agreements (FTAs etc.) with other countries (apart from roll-overs).
  • UK’s participation in EU bilateral agreements lapses (for example, with the US and China, which account for 20% of UK trade), apart from roll-overs.
• Great Britain’s border with Northern Ireland is treated as a border with the EU.
• UK is able to negotiate its own trade agreements with other countries.
  • UK has ‘rolled over’ about 20 out of 38 EU trade agreements, including with Switzerland, Canada, Chile and Israel.

Under ‘no deal’, the UK’s Global Tariff applies to imports from the EU and the EU’s Common External Tariff applies to exports from the UK. Under ‘no deal’ and an FTA, tariffs apply to:

• UK exports to countries with which the UK has no free trade deal.
• UK imports from any country with which the UK does not have a trade deal.
  • Tariffs will be applied according to the UK’s tariff schedule lodged with the WTO (UK calls it ‘UK Global Tariff’ or UKGT).
  • UK tariffs are similar to the EU’s Common External Tariff but with slight reductions.

Some Brexiters argued that leaving with ‘no deal’ should have preceded negotiation of an FTA with the EU. This was nonsense. As Sir Ivan Rogers, the former UK Permanent Representative at the EU, said at UCL on 22 January 2019:

“You obviously gain nothing by tumbling completely out to WTO rules, and then having to try and scramble your way back up the hill to a preferential deal, under huge time pressure.You just hand the perfect negotiating hand to the other side.”

Some also argued that, under Article 24 of GATT, UK-EU trade would continue on current terms for up to ten years as an ‘interim agreement’. This was incorrect. The government confirmed that Article 24 did not apply in a ‘no deal’ scenario (see paragraph 14 of its 26 February 2019 paper). Article 24 relates to the phasing in of an agreed trade agreement to reduce trade barriers. It also requires a detailed implementation plan, so would not have applied to a ‘no deal’ Brexit. The Article 24 fallacy was part of the ‘Malthouse Compromise’ proposed by Kit Malthouse, Nicky Morgan and others.

Sources:
UK Trade Forum, Why claims about a ‘WTO Article 24’ interim agreement are a red herring, Peter Ungphakorn, January 2019
Sir Ivan Rogers, Where did Brexit come from and where is it going to take the UK?, January 2019
‘No deal’ and WTO rules, Richard Barfield, February 2019

Non-tariff barriers

New non-tariff barriers (NTBs) have come into effect. Most NTBs that apply with an FTA would have applied with ‘no deal’. However, the TCA means that it may be possible for the UK and EU to agree ways to reduce the impact of some NTBs. NTBs have a much bigger impact than tariffs for UK exports to the EU (see Figure 14.3). The tariff cost equivalents of NTBs are about 10% for goods and and 11% for services (based on government and House of Commons figures). Note that estimates for the tariff cost equivalent of NTBs, particularly for services, are uncertain (i.e. there is a range around the central estimates shown in Figure 14.3).

Some key implications of NTBs are:

• Small and medium-sized businesses suffer more than larger companies which are better able to handle extra-EU trade.
• Finely-tuned, just-in-time modern logistics means that delays of a few minutes for border checks lead to queues and need for large buffer stocks.
• Long tail-backs and hold-ups at airports and ports (and reluctance of EU hauliers to come to the UK).
• Major bottlenecks at Dover and Immingham, the main transfer points for goods in and out of the UK with the EU.
• Perishable products like fish and fresh vegetables are vulnerable.

New customs formalities for British businesses trading with the EU are expected to cost firms £7 billion per year. They also require an estimated 50,000 private sector customs agents and an extra 215 million customs import and export declarations per year. The Chemical Industries Association has said that, unless a deal is agreed with the EU to share data held in the EU’s REACH database, the chemicals industry faces more than £1 billion in costs just to duplicate existing EU registrations in a new UK system.

Sources for Figure 14.3:
The chart uses government sources: principally initial estimates by sector from Cross-Whitehall briefing, January 2018.
Those with a * from HMG, EU Exit Long-term economic analysis November 2018.
The ‘all goods’ and ‘all services’ figures are from the House of Commons, Trade in services and Brexit, June 2019.

NTBs that affect goods include:

• Import licences and quotas
• Certificates of origin
• Technical standards and norms
• Evidence of meeting environmental standards
• New requirements for labelling and packaging
• Evidence of compliance with health and safety requirements etc.
  • For example, the EU’s Vehicle Certification Agency allows automotive companies to sell their vehicles across the European Union. In the event of no deal, simultaneous licensing would disappear.
• Sanitary and phytosanitary rules for agricultural, livestock, meat and food products

NTBs that affect services include:

• No mutual recognition of certain professional qualifications, making it mored difficult for lawyers, architects, medical staff etc to work across borders. Individual member states will decide their own positions on professional qualifications.
• Visa-free travel only for short-term business visits of certain types between the UK and the EU. For longer duration trips and UK business has to navigate the range of visa requirements and associated fees required by each member state. This will affect services such as management consultancy, and project-based industries such as IT and engineering.
• UK citizens are only allowed to spend 90 days in any 180-day period within the Schengen area.
• It is now more difficult for UK services firms to establish operations in the EU, due to increased regulatory clearances and associated costs.
  • Restrictions include regulations on the nationality or residency of directors and/or limits on the amount of equity held in the UK  (or another third country).
  • Rules vary from country to country, which requires country-specific plans, not a single EU approach.

Some sectors are hard hit, for example:

• For financial services, the EU has not yet granted equivalence to the UK regulatory regime. If the financial services sector loses passporting rights, it means that UK-based businesses could no longer serve customers through EU branches. Instead, new subsidiaries have to be set up in the EU with the costs of additional, capital, liquidity and regulatory compliance (many have already been established).
• In aviation services, the UK would be outside of EU agreements which support aviation services between the UK and the EU27, and other countries. However, the UK has replaced many of those with third countries.

Sources:
UK Trade Policy Observatory, Expert witness evidence on protocol on Ireland/Northern Ireland, 2019
Financial Times, British business faces £7 billion red tape bill under Brexit border plan, 14 July 2020
Financial Times, UK chemical industry warns of £1 billion cost to duplicate EU regime, 3 August 2020

Tariffs under ‘no deal’

Under ‘no deal’, the UK would have applied the ‘UK Global Tariff’ (UKGT) to EU imports. Under WTO rules, imports from different countries are subject to identical tariffs unless a preferential trade agreement applies. For more details on the UKGT, please see Brexit impact in the Trade section. The effects on imports and exports are not symmetrical:

• For 57% of imports by value, the tariffs would be zero. (Currently, as an EU member state, 87% of UK imports by value receive no import duty – see Trade section).
• “The UK would face tariffs on 90% of our EU goods exports by value” (according to the CBI).

While tariffs on UK exports to the EU would on average have been low at around 2%, in some sectors they would have been high enough to inflict serious damage. For example, imports and exports of finished cars would have 10% tariffs – serious harm to the UK industry in a highly competitive international market. Similarly, tariffs on exports of agricultural products like lamb and beef would have been about 45% and 50% respectively – making them uncompetitive in the EU.

Tariffs would also have applied to those GB goods moving into NI that are considered ‘at risk’ of subsequently moving into the EU. The UK Trade Policy Observatory estimated that if there was no deal, up to 75% of Northern Ireland imports from GB could have been subject to tariffs.

Five industries would have shared 70% of the extra costs from a no-deal Brexit: financial services, cars, agriculture and food and drink, consumer goods, and chemicals and plastics. There are 15 goods importing sectors where the UK depends on the EU (EU share is over 60%). UK import tariffs would have hurt these sectors. However, the UKGT makes some components and raw materials tariff-free. Sectors at risk include:

• rubber and plastic products;
• printing and reproduction of recorded media;
• chemicals;
• motor vehicles;
• food products.

Sources:
World Bank, Deep integration and UK-EU trade relations, January 2017 
Dr Andrew Black for The Federal Trust for Education & Research, Hard Brexit, International Trade and the WTO Scenario, May 2017
Oliver Wyman, The Red Tape Cost of Brexit, March 2018
Centre for European Reform, Brexit and services, How deep can the UK-EU relationship go?, December 2018

Preparation and readiness

This section covers:

• Legislation
• Guidance
• Preparation and readiness

Legislation

There was a range of UK legislation that needs to be in place for Brexit whether there is a deal or not. However, in 2020 unlike 2019, the government had no legal obligation to consult Parliament before triggering ‘no deal’. Key legislation that is already in place includes the European Union (Withdrawal) Act 2018, which brought EU law onto the UK statute book, and the Taxation (Cross-Border Trade) Act 2018, which created the legal framework for a new customs regime.

There were several bills to be agreed. These included the Agriculture, Immigration and Trade Bills which have passed the House of Commons in 2020 and are now progressing through the House of Lords, whereas the Fisheries Bill which began in the Lords is being debated in the Commons.  However, other bills had further to go. For example, the new Environment Bill is only at its Commons Committee stage and had to pass its remaining stages in both chambers before 31 December 2020 to avoid an environmental governance gap. Observers expected that these bills would proceed relatively smoothly.

However, the Internal Market Bill caused serious concern because, in its original form, it overrode aspects of the WA and breaks international law. Aside from the bills, there was a large amount of secondary legislation that needed to be passed in 2020 to flesh out the new regulatory regimes that support the bills. The government would need to ensure that the outstanding legislation is in place before or very soon after ‘no deal’. However, there has been a conflict between the needs for expediency and effective Parliamentary scrutiny.

• EU (Withdrawal) Act 2018 gives very wide powers to enable the government to draft statutory instruments (secondary law) to prepare for a no-deal Brexit.
• In the event of ‘no deal’, additional secondary legislation, which is likely to be subject to an affirmative procedure (MPs are given a binary yes/no vote on it but cannot amend it), will be required.

Guidance

Initially, in the second half of 2018, the UK government issued guidance notices to help businesses and individuals prepare for ‘no deal’. These comprised one summary document and 105 notices, released in three batches August – October 2018. Many of the notices said that further guidance would be on its way, but, at the time, businesses complained that many details were unclear. On 7 February 2020, these notices were withdrawn as being ‘out of date’, although most apply to areas not covered by the Withdrawal Agreement.

On 1 September 2019, the government had launched its ‘Get ready for Brexit’ public information campaign, with a budget of £100m. The campaign’ stated objective was to ensure that everyone was prepared for leaving the EU on 31 October – regardless of the negotiation outcome. The government stopped the campaign on 28 October when the UK and EU agreed an extension to the UK’s EU membership. The spend was £53m. However, the National Audit Office found that the Cabinet Office could not demonstrate that the air campaign (on which the majority of money had been spent) resulted in significantly better preparedness.

‘Check, Change, Go’ is the government’s current communications programme, launched on 20 July 2020. The campaign stressed the benefits of Brexit (without identifying them) but did not prepare businesses and individuals for the scale of change that was coming.

The government website for the UK transition, helps individuals and businesses define their requirements and then lists the changes that might affect them and what they might need to do. Interestingly, the search term ‘no deal Brexit’ provided no relevant 2020 information (as at 17 October).

The most recent EU communication was the European Commission’s 38-page Communication on readiness at the end of the transition period between the European Union and the United Kingdom published on 9 July 2020. It was supported by over 100 end-of-transition readiness notices, many of which were updated in 2020. The EU began its preparations in early 2018.

In June 2019, the Commission reported it had tabled 19 legislative proposals and adopted 63 non-legislative measures covering things like temporary air, road and rail transport access for UK operators in the event of ‘no deal’. These were supplemented by 102 preparedness notices which provide information for EU citizens and businesses to prepare for ‘no deal’. EU member states have also provided their own guidance and, in some cases, funding to support no-deal preparations.

Note that the UK and the EU had not agreed any ‘side deals’ to mitigate negative consequences of ‘no deal’.  In 2019, each side undertook to implement unilateral measures, many of which were temporary. However, it was not clear whether these would be repeated in the event of a 2020 ‘no deal’.

Sources:
HMG, How to prepare if the UK leaves the EU with no deal, last updated 12 October 2018 (Withdrawn 7 February 2020)
HMG, UK government’s preparations for a ‘no deal’ scenario, December 2018 (Withdrawn 7 February 2020)
European Commission, Brexit ‘no-deal’ preparedness: Final Commission call to all EU citizens and businesses to prepare for the UK’s withdrawal on 31 October 2019, 4 September 2019
European Commission, Communication on readiness at the end of the transition period between the European Union and the United Kingdom, 9 July 2020
List of EU member state websites for Brexit
NAO, EU Exit: the Get ready for Brexit campaign, 28 January 2020 HMG, UK Transition website

Preparation and readiness – 2020

Business and government were not ready by 31 December 2020. The Bank of England’s Decision Maker Panel survey for October reported that around a third of firms were only partially prepared for the extra requirements of trading with the EU when the transition period ends. The four reports below showed the challenges in more detail – from National Audit Office, Institute of Directors, Cabinet Office and the Institute for Government. Please note that the challenges that they identified apply with a basic FTA as well as ‘no deal’. However, as the Scottish government pointed out in 2019, being ready would be no protection against the damaging impacts of Brexit on livelihoods and jobs. The Scottish government’s no-deal readiness assessment of 8 October 2019 concluded:

“We are clear that even the fullest and most comprehensive set of mitigating actions cannot remove entirely the negative impacts of ‘No Deal’. Depriving citizens and businesses of the benefits of the UK’s membership of the EU, in any circumstance, will inevitably have a significant and enduring impact on businesses, the economy and the lives of the people of Scotland on top of the unpredictable effects of a chaotic exit. However ‘ready’ we are, we will still face those impacts.”

GB-based businesses still need to prepare for Brexit changes. In particular, these involve more red tape (checks, controls, form filling) at the borders:

• Customs declarations and inspections for trade with the EU (and between GB and Northern Ireland) as GB exits the EU Customs Union.
• HM Revenue & Customs (HMRC) estimate it may be necessary to process 270 million customs declarations a year from 1 January 2021 (about five times the current volume of 55 million).
• HMRC estimates that there are 180,000 small businesses which will have to adopt these customs processes for the first time (as they currently only export to other EU countries), .
• Additional costs for business include bureaucracy, delays and extra inventories to act as buffers against inevitable delays at customs.

National Audit Office

The National Audit Office (NAO) published its fourth report on readiness on borders and customs on 6 November 2020. It reflected information up to 30 October 2020. As before, the NAO highlighted key risks in three areas:

• Systems development
• Infrastructure and resourcing
• Industry and trader readiness

The NAO pointed out that many of the issues it identified were foreseeable and had been raised before. The review focused on the movement of goods through ports and examined the work of all UK government departments with significant responsibilities at the border. These included HMRC, Department for Environment, Food & Rural Affairs, Home Office, Department for Transport, and, in the Cabinet Office: Border Protocol Delivery Group (BPDG) and Transition Task Force (TTF).  The NAO also engaged with departments in the Northern Ireland civil service with significant roles in relation to the Northern Ireland Protocol. The report concluded that there is likely to be significant disruption at the border from 1 January 2021. The review’s key findings included:

• Government’s emergency response to COVID-19 delayed preparations that were already rated high-risk.
• Many traders and third parties will not be ready for new EU controls.
• New regulatory border in the Irish Sea will not be ready.
• Insufficient customs brokers, vital for increasing trader readiness:
  • Takes about 18 months to train a customs broker properly;
  • Government has not yet facilitated the required expansion of the customs intermediary market.
• Unprepared border sites
  • HMRC says seven inland sites are needed to facilitate transit movements, but they will not be ready.
• Failure to build enough capacity in new customs software.
  • HMRC’s new CDS customs system will not be ready
• Government intends to phase in import controls in three stages between January and July 2021:
  • Gives departments, traders and industry more time to prepare;
  • Even by July 1 2021, the BPDG flags “high risk” that not all infrastructure will be ready;
  • There is ‘fiscal risk’- import duties and tariffs may not be collected while full import controls are not in place.
• There is not enough time for business to integrate with new systems like GVMS and SmartFreight (now ‘Check an HGV’).
  • These include setting up new processes, changing or implementing IT systems, and interfacing with government systems that are not ready nor fully tested.

Institute of Directors

In late September 2020, the Institute of Directors surveyed nearly a 1,000 directors in business. They found:

• 54% said that Covid-19 would magnify the impact of a no-deal Brexit on their organisation, while 9% thought the reverse.
• 45% indicated they were not yet fully prepared for the end of the transition period:
  • 21% said they thought they would be ready by 31 December 2020;
  • 24% said their company may not be ready in time.
• 21% said they were fully prepared for the end of the transition period.
• 28% said they didn’t expect Brexit to affect their organisation.

The most common action taken to prepare for Brexit was building up cash reserves (37%). Stockpiling was also set to rise, as 12% said they intended to do so. Many firms still needed to obtain EU licences and authorisations (14% of respondents)

Cabinet Office

In September 2020, the Cabinet Office published what it called a ‘Realistic Worst Case Scenario’ (RWCS) for freight crossing the Channel through Dover and the Eurotunnel (this is part of the unpublished updated Yellowhammer assumptions). The assumptions were based on available survey data and other evidence derived from businesses and their representative bodies. It concluded:

• 30-50% of trucks might not be border ready.
• Could reduce flow rate to 60-80% of normal levels at the bottom end of the readiness range.
• Could lead to maximum queues of ~7,000 port bound trucks in Kent.
• Associated maximum delays of up to two days.

The underlying assumptions were:

• 40,000 HGVs use the short Channel routes in a busy January week.
• 50-70% of large businesses will be ready (and will have the right documentation is in place to meet EU requirements)
• 20-40% of small and medium-sized enterprises (SMEs) will be ready.
• Main impact will be on GB-France outbound movement initially. However, the constraint would quickly impact France-GB flow as HGVs that would have been used to return to the UK would be unable to do so as they would be stuck in queues in Kent.
• With HGVs prevented from returning to the UK with another load, some logistics operators may stop sending lorries via these routes in the event of significant delays.
• A winter spike in COVID-19 could suppress freight demand. This could limit traffic disruption caused by a lack of border readiness. However, other risks such as absenteeism among port or border staff and social distancing measures could adversely impact fluidity.

Other considerations:

• Worst disruption may not manifest immediately, but after two weeks as demand increases.
• Disruption could be lower in the initial days of January but the CO expects sustained disruption to worsen over the first two weeks as freight demand builds.
• Significant drop in disruption and improvement in flow capacity within the first three months as fewer unready HGVs arrive at the border
• Schengen passport control could continue to cause disruption until the French relax checks or add more capacity to undertake checks.

Institute for Government

In September 2020, the Institute for Government updated its paper on the progress on preparations for ‘no deal’, originally published in August 2019. Table 14.2 summarises their view on the main challenges and current status for non-trade areas, Table 14.3 covers preparations for trade. Please note that these challenges apply with a basic FTA as well as ‘no deal’.

Sources:
Bank of England, Monthly Decision Maker Panel – October 2020, 3 November 2020.
HMG, No-Deal Readiness Report, 8 October 2019 Scottish Government, Overview of ‘No Deal’ Preparations, 8 October 2019
NAO, The UK border: preparedness for EU exit October 2019, 16 October 2019 BCC, Business still unable to prepare fully for a no deal Brexit, 6 September 2019
Cabinet Office, Reasonable Worst Case Scenario for borders at the end of the transition period on 31 December 2020, 23 September 2020
Institute for Government, No deal Brexit preparations, 1 August 2019, updated 23 September 2020
Institute of Directors, Survey press release, 16 October 2020
National Audit Office, The UK border: preparedness for the end of the transition period, 6 November 2020

Yellowhammer

Bird briefing

Male yellowhammers have a bright yellow head and underparts, brown back streaked with black, and chestnut rump. In flight they show white outer tail feathers. They are often seen perched on top of a hedge or bush, singing. The yellowhammer is common in open areas with some shrubs or trees, and forms small flocks in winter. Its song has a rhythm like “a little bit of bread and no cheese”. Breeding commences mainly in April and May, with the female building a lined cup nest in a concealed location on or near the ground. The three to five eggs are patterned with a mesh of fine dark lines, giving rise to the old name for the bird of “scribble lark”. Sources: Royal Society for the Protection of Birds and Wikipedia Thanks to the Game & Wildlife Conservation Trust for providing the image.

What is Yellowhammer?

Operation Yellowhammer is the government’s contingency planning for its response to the most severe anticipated short-term disruption under a no-deal Brexit – known as its ‘reasonable worst case’ scenario (in March 2019, the same description was used in the Yellowhammer documents that the National Audit Office reviewed for the House of Commons).

The government published its planning assumptions to Parliament in September 2019. Since then, it has not published any updated assumptions, but in August 2020, there was a leak of a Cabinet Office EU Transition Task Force update which took into account Covid-19. Reasonable worst-case planning assumptions are used as the basis to prepare plans. If plans are in place, the government believes it can expect a reasonable level of preparedness for most of the risks. Note that the Yellowhammer and EU Transition Task Force assumptions are not a likely scenario or a prediction.

At the heart of the planning effort is the Civil Contingencies Secretariat, with its own communications hub to support ministers on emergency responses. The CSS coordinates contingency planning under 12 risk areas and three cross-cutting work areas. Government departments undertake contingency planning for their areas of responsibility (see Table 14.4).

The number of people involved underlines the scale and complexity of the issues faced. By February 2019, more than 16,000 civil servants were working on Brexit. 1,500 were moved on to contingency planning for ‘no deal’ (i.e.Yellowhammer) prior to 29 March 2019. Afterwards, many were stood down. Some were then stood up again for a possible ‘no deal’ on 31 October, only to be stood down again on 28 October (this included stopping the government’s advertising campaign to get ready for Brexit). Although no-deal planning continues it is not clear how many civil servants are now involved. For the wider Brexit effort in 2019:

• Over 14,000 civil servants were working across six departments: BEIS, DCMS, DEFRA, DIT, HMRC and the Home Office.
• About 2,000 were working across the Cabinet Office, DExEU, DfT, DHSC, FCO and MHCLG

Coordinating the response of all the bodies involved under a no-deal scenario would be a significant task. Should the Yellowhammer plans become operational it could involve:

• More than 30 central government bodies, including almost all central government departments;
• 42 local resilience forums in England and Wales, and equivalent bodies in Scotland and Northern Ireland, which in turn will coordinate the work of local bodies, including police and local authorities;
• Scottish and Welsh governments;
• Northern Ireland Civil Service;
• Crown Dependencies, Overseas Territories (including Gibraltar) and Sovereign Base Areas in Cyprus; and
• Sectors and industries which are impacted (including their regulatory bodies)

Yellowhammer risk areas

Table 14.4: Yellowhammer risk areas
Ref	Area of risk	Lead
1	Transport systems	DfT
2	People crossing borders	BDG
3	Key goods crossing borders	BDG
4	Healthcare services	DHSC
5	UK energy and other critical industries	BEIS
6	UK food and water supplies	DEFRA
7	UK nationals in the EU	FCO
8	Law enforcement implications	Home Office
9	Banking and finance industry services	HMT
10	Northern Ireland	NIO
11	Overseas Territories and Crown Dependencies	FCO
12	National security	NSS
	Cross-cutting areas of work (i.e. across all 12 risk areas)
	Data	DCMS
	Legal	Cabinet Office – legal
	Communications	Cabinet Office and DExEU – communications
	Scroll down to the bottom of this section for departmental abbreviations.

Sources:
NAO, Contingency preparations for exiting the EU with no deal, 12 March 2019
Letter from Cabinet Office to Chair of Public Administration and Constitutional Affairs Committee, 28 March 2019
House of Commons Library, Brexit: contingency planning and powers, March 2019

Government planning assumptions

August 2019 – On 9 September 2019, MPs requested that all Operation Yellowhammer documentation be made public. The government decided not to publish it in full after ministers took the view that the findings would alarm the public. Instead, the government published a short six-page paper dated 2 August 2019, which provided its planning assumptions for ‘no deal’. The government also said it was updating its assumptions (which is a continuous process).

Comment: Given the amount of work that has gone into Yellowhammer, it’s clear that the six-pager was only the tip of the iceberg. For example, in February 2019, there was a leak of the DfT’s Yellowhammer document: the summary for transport of the risks and mitigating actions. This tip of another iceberg had 37 pages. Sky reported at the time that the DfT paper noted:

“Operation is potentially enormous”…“Impacts … could grow exponentially as issues impact upon each other and capabilities of responders at all levels decrease or become overwhelmed”

August 2020 – The Cabinet Office’s EU Transition Task Force presented updated assumptions to ministers to kick off refreshed planning for ‘no deal’. The document was leaked and is not in the public domain, so what follows below is based on the Sun’s exclusive report about it. The overarching assumptions probably remain broadly the same as 2019, with the exceptions of the addition of Covid-19 and that the border in Ireland should now be covered by the Withdrawal Agreement. Nevertheless, the Task Force warned that overall:

“pandemic influenza, severe flooding, a Covid second wave and an unruly exit from the EU transition period could cause a systemic economic crisis with major impact on ­disposable incomes, unemployment, business activity, international trade and market stability.”

The detailed implications from 2019 (listed below) are likely to stand, but there are certain areas where specific planning assumptions are now updated in 2020 as a result of Covid-19. These include:

• Traffic flow between Dover and Calais could go down 45 per cent, triggering long queues of HGVs in Kent.
  • France will force “mandatory controls on UK goods from day one” and between 40 and 70 per cent of hauliers travelling across the Channel may not be ready for this.
  • Could lead to shortages of the 30 per cent of food imported from EU as well as medicines, chemicals for drinking water purification and fuel supply.
  • Focus on Covid-19 has led to a slump in animal vaccine production. If borders are jammed, stockpiles could shrink, risking disease among livestock.
  • Food supply across the country would be hit by panic buying at Christmas, the busiest time of year.
  • Risk of water rationing and even power cuts.
• NHS could be overwhelmed.
  • A further 24-months of virus infections in care homes.
  • Mental health crisis that will hit the poorest hardest.
• Inflation could “significantly impact social care providers due to increasing staff and supply costs”.
• Five per cent of councils in England “are already at high risk of financial failure ­following Covid-19”. Some town halls may go bust and need bailing out or may need to be under direct control of Whitehall.
• Fears of public disorder and coordinated industrial action as a result of shortages and a major economic slump.
  • Troops may have to help the police in the worst-case scenario – 1,500 are already on standby.
• Gibraltar could be cut off from Spain and crippled economically.
• Channel Islands may need airdrops of medicines and food.

Source:
The Sun, Disaster Dossier – Leaked document reveals Cabinet’s emergency plans for perfect storm of No Deal Brexit and coronavirus second wave, Harry Cole, 22 August 2020

Overarching assumptions – August 2019

The August Yellowhammer paper described the current overarching assumptions:

• UK reverts fully to ‘third country’ status (i.e. non-EU and non-EFTA)
  • Relationship between UK and EU and individual members states is unsympathetic
  • No bilateral deals in place with EU or member states to manage impact (except for social security coordination with Ireland)
• Public and business remain very unprepared as there is no clear decision on the form of EU Exit
• For businesses:
  • Larger businesses are better prepared than SMEs
  • Brexit extension means some businesses are less prepared than in March due to ‘Brexit fatigue’ and the seasonal impacts
• Seasonal factors in the autumn/winter will compound impacts (e.g. warehouse availability, severe weather, flooding, flu etc.)

Five further general points to note (numbers in brackets refer to paragraphs in the Yellowhammer document):

• Impact of no-deal Brexit on the EU will be small (2)
• Several assumptions about borders and likely transport delays, in particular in relation to the Dover-Calais bottleneck, and the implications for supply chains, food and medicines (1,3,6,7,14,18)
• Disruption to data flows (both personal and business), including for security and law enforcement (9,10)
• No assumptions about the impact on services trade apart from: ‘some cross-border financial services may be disrupted’ (8) and ‘a small minority of payments from UK insurers into the EU may be delayed’ (16)
• Low income groups will be disproportionately affected by any price rises in food and fuel (17)

Detailed implications – August 2019

• Borders and transport
  • Three months of disruption at Channel crossings (2)
  • Two-and-a-half day delays for lorries entering the UK (2)
  • Immigration delays for UK tourists heading to Europe (3)
• Food (7)
  • Reduced availability of fresh food
  • Supermarket price rises
  • Panic-buying
• Medicine (6)
  • ‘Severe extended delays’ to medicine supplies
  • Supply chains for medicines and medical products are “particularly vulnerable” to disruption at the Channel ports
  • While some products can be stockpiled, others cannot because they have a short shelf life
  • Impractical to stockpile products to cover expected delays of up to six months
• Social care (20)
  • An increase in inflation would “significantly impact” adult social care providers and may lead to some failing, with smaller providers impacted within two to three months.
• Energy and water
  • Disruption to fuel supplies (5)
  • ‘Significant’ electricity price rises (5)
  • Lack of clean water due to failure in supply of chemicals (7)
• Breakdown in sharing of law enforcement data with EU countries (10)
• Disruption to personal data flows from the EU (9)
• Fishing wars between UK and EU vessels (19)
• Gibraltar not prepared enough (12)
• Rise in protests and public disorder (13)

There would also be disruption in Northern Ireland and to trade between Great Britain and NI. As a result of the Withdrawal Agreement, the impacts would now be different to what Yellowhammer expected in 2019 (18).

Source:
Operation Yellowhammer: HMG Reasonable Worst Case Planning Assumptions, 11 September 2019

Government department abbreviations

BDG – Border Delivery Group (part of HMRC) BEIS – Department of Business, Energy and Industrial Strategy DCMS – Department for Digital, Culture, Media and Sport DEFRA – Department for Environment, Food and Rural Affairs DExEU – Department for Exiting the European Union DfT – Department for Transport DHSC – Department of Health and Social Care DIT – Department for International Trade FCO – Foreign and Commonwealth Office HMRC – HM Revenue and Customs HMT – HM Treasury MHCLG – Ministry of Housing, Communities and Local Government NAO – National Audit Office NIO – Northern Ireland Office NSS – National Security Secretariat (part of the Cabinet Office)

Last updated on 11th May 2024 by Richard Barfield