’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. ‘No deal’ would have created the highest barriers and frictions affecting many areas, not just trade. This section describes what was expected in 2020 with ‘no deal’.
The Withdrawal Agreement (WA) would have still applied as a legally-binding international treaty covering the financial settlement, citizens’ rights, and Northern Ireland (see Appendix F for details). It also dealt with a range of issues to ensure an orderly separation. However, the Political Declaration, which included proposals for the future partnership, was not legally binding.
The principal trade-related differences between ‘no deal’ and a basic FTA related to tariffs and quotas. Many other non-trade areas change in the same way under both scenarios, for example: security, data, aviation, health and food supply (see Figure 14.1).
UK-EU trade would have been on WTO terms from 1 January 2021. 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.
The government liked to call a WTO Brexit an ‘Australian deal’. This was misleading because:.
- Australia had several agreements with the EU that the UK would not have.
- Moreover, Australia was negotiating a Canada-style FTA with the EU, because it wanted a better deal than enhanced WTO terms.
- WTO terms for the UK would have been worse than the those that developing countries like Afghanistan and Somalia whose exports to the EU are tariff-free under Everything but Arms (EBA), whereas UK exports to the EU would have suffered tariffs.
Even with a basic FTA, the Brexit economic harm would have been significant but forecasters expected ‘no deal’ to shrink the economy by two percentage points more than a basic FTA.For the economic impact of ‘no deal’, please see the section on impact assessment.
Note on Australia terms: According to the EU treaty database, Australia’s had 20 trade-related agreements with the EU. These included: a Mutual Recognition Agreement that reduced 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.)
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 put the UK in a much weaker negotiating 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.
Areas affected
For a summary of the main areas affected by ‘no deal’, see Figure 15.1. However, the reality was much more complex (see Figure 15.2). In this section we discuss the items highlighted in red.
If you would like to know more about the other areas, please see, “What would no deal mean?” by UK in a Changing Europe (September 2020) or 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.
Figure 15.1: Main areas affected by ‘no deal‘
In stark contrast to the populist simplicity of ’no deal is better than a bad deal’ or ‘go WTO!’, preparing for no deal meant that the government and business needed to address over 100 different areas (see Figure 15.2 from the Institute of Government).
Figure 15.2 – What the government needs to do to prepare for ‘no deal’ Brexit (2018 view)
Sources: Institute for Government, UK–EU future relationship: what difference would a Brexit deal make?
Institute for Government, No deal Brexit preparations, October 2018
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:
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’.”
In 2017, the government’s 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 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. 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 top three 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.
In 2020, 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.