Preparation and readiness

brexit-fact-base-london — Photo of a Yellowhammer by WildMedia/Shutterstock

Preparation and readiness – 2020

There was overwhelming evidence that Business and government lacked preparation for ‘no deal’ by 31 December 2020:

Separate assessments from National Audit Office, Institute of Directors, Cabinet Office and the Institute for Government laid out the unpreparedness of the UK.
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.

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 needed to prepare for Brexit red tape 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) estimated it might be necessary to process 270 million customs declarations a year from 1 January 2021 (about five times the current volume of 55 million).
HMRC estimated that there are 180,000 small businesses which would have to adopt these customs processes for the first time (as they currently only exported to other EU countries), .
Additional costs for business included bureaucracy, delays and extra inventories to act as buffers against inevitable delays at customs.

UK preparation – guidance and campaigns

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, the government withdrew these notices as being ‘out of date’, although most applied 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 (which accounted for most of the money) resulted in significantly better preparedness.

‘Check, Change, Go’ was the government’s second 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, aimed to help individuals and businesses define their requirements and then list 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).

EU preparation – communications

By contrast, the EU began its preparations for Brexit in early 2018.

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.

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

Legislative readiness

There was a range of UK legislation that needed to be in place for Brexit whether there was 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 was already in place included 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 passed the House of Commons in 2020 and then progressed through the House of Lords. However, other bills had further to go. For example, the new Environment Bill was 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 broke international law. There would also be extensive secondary legislation in 2020 to flesh out the new regulatory regimes to support the bills. The government would need to ensure that the outstanding legislation was in place before or very soon after ‘no deal’. However, there would be a conflict between expediency and effective Parliamentary scrutiny.

‘No deal’, if it happened, would require additional secondary legislation, which was likely to be subject to an affirmative procedure (that is, MPs have a binary yes/no vote but cannot amend the legislation).

EU (Withdrawal) Act 2018 gave very wide powers to enable the government to draft statutory instruments (secondary law) to prepare for a no-deal Brexit.

National Audit Office report

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. The NAO pointed out that many of the issues were foreseeable, notably major risks in three areas:

systems development
infrastructure and resourcing
industry and trader readiness

The NAO 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).

They 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 was 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 the seven inland sites necessary to facilitate transit movements 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’ of uncollected import duties and tariffs 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 survey

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 – worst case scenario

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 used to return to the UK 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 report

In September 2020, the Institute for Government updated its paper on the status of preparations for ‘no deal’, originally published in August 2019. For their view on the challenges and current status, please see Table 15.1 for non-trade areas and Table 15.2 for trade. Please note that most of these challenges also applied with a basic FTA.

Table 15.1: Progress on no-deal/end of transition preparations - non-trade
	Issue	Challenge	Progress to date

1	Health	Maintain medical supply chains	Government will continue to accept EU-approved medicines and medical products. EU has said that UK companies will need to re-register their medical products in the EU to continue to sell them in the Single Market.
			The government has asked pharmaceutical companies to build “buffer stocks” of key items to deal with any interruption to supply. It also plans to secure additional freight capacity for shipping medical goods to the UK (but not additional warehouse capacity).

2	Transport	Create new databases, new infrastructure and ensure cross-border travel continues uninterrupted	Road transport. Increased border checks at EU ports will cause traffic delays in Kent and at other ports. UK hauliers and coach companies will no longer be able to serve the EU market. In October 2019, the EU has put in place limited and temporary measures to mitigate road transport disruption. It is not clear if these will be repeated.
			Flights. Aviation is not covered by the WTO. Flights to the EU and many other countries are governed by EU agreements, which the UK is working to renegotiate on its own behalf. The government expects to have all these aviation agreements in place by 31 December 2020. This means UK flights with non-EU countries should not be disrupted significantly. In October 2019, EU said it would unilaterally allow some UK–EU flights to continue for 12 months after a no-deal exit, subject to the UK reciprocating. However, it is not clear whether this will be re-offered. Any such arrangements would be unilateral and more limited than the current arrangements.

3	Energy and environment	Create a new nuclear safeguards regime; replace other functions currently carried out by EU agencies	UK will no longer be bound by EU regulations in these areas, making trade more complicated. It will also lose access to EU regulators and systems governing these areas. The Office for Nuclear Regulation will take over some EU functions and is in the process of procuring a new IT system, training new inspectors and has secured funding for its increased role.
			UK has promised a new environmental watchdog to replace EU functions - the Office of Environmental Protection. However, it has not yet been legally established by statute. Until then, the Environment Secretary has said that it could operate on an administrative basis.

4	Data	Secure an “adequacy” decision to allow data flows to continue	It will be more difficult for organisations inside the EEA to send personal data to the UK after a no-deal Brexit, until the UK's data protection regime is found “adequate” by the European Commission. In 'no deal', the UK will allow data to be transferred from the UK to the EEA. Transfers from the EEA to the UK would be possible with additional legal safeguards such as Standard Contractual Clauses (SCCs). Even though the EU's GDPR is now part of UK law, the UK has not retained the EU's Charter of Fundamental Rights, which means the UK does not commit to protect citizens' data.

5	Competition	Beef up the Competition and Markets Authority	Competition and Markets Authority is expanding to handle an increase in the volume and complexity of its cases, as it takes on the responsibilities of the European Commission in monitoring state aid and competition policy in the UK.

6	Law and justice	Find replacements for EU tools allowing cooperation in law enforcement	(See comments on 'security' above for more details.) UK cannot recreate the EU’s existing cooperation mechanisms on its own: it will have to rely on outdated or less secure methods to work with EU counterparts, as the EU’s tools are only for member states or countries with special agreements. Home Secretary wrote to EU counterparts in February 2019 asking for contingencies to be in place – there has been no move from the EU to agree these.

7	EU programmes and funds	Replace EU funding for research, infrastructure and agricultural subsidies, among other areas	Government has guaranteed that UK beneficiaries of EU funds will continue to receive funding until the end of 2020 – this will be funded by HM Treasury. Many of the payment mechanisms exist already; it will just be the source of funding that changes.

Table 15.2: No-deal preparations - trade
	Issue	Challenge	Preparations to date
1	Borders	Ensure goods can continue to flow across the UK border (particularly at Dover and in Northern Ireland)	UK has committed to continuing to recognise most EU standards for goods to ease their transit into the UK. However, EU has said it will check imports from the UK as it would imports from any other non-member, putting major burdens on businesses.
			HMRC has been communicating with businesses about the new customs processes they will need to follow if there is no deal, but many businesses are still unaware of the changes they will face.

2	Agriculture, fisheries and food	Maintain food supplies and establish new UK regulatory regimes	Government has said that it will continue to allow EU-approved agri-goods into the UK after a no-deal exit. But UK exporters would need to get approval before being able to export any product of animal or plant origin to the EU. After that, they will face greater checks than now and will have to pass through a border inspection post.
			Animal products. There will also be problems exporting animal products to other countries if current EU agreements have not been replaced. Funding. UK has said it will replace EU funding for farmers until the end of the current payment cycle.
			Fisheries. There is no clarity over the UK’s approach to fishing quotas after Brexit.

3	Services	Prepare for changes to regulatory regimes and terms of access to the EU market	UK government has committed to unilateral actions to minimise financial disruption in a no-deal scenario, including a temporary permissions regime allowing EU financial services firms to continue operating in the UK for a limited period while seeking UK authorisation. This will be repeated after then of the transition period.
			EU has committed to a similar temporary permissions regime for some key financial services sectors, for a very short time, on a unilateral basis. For non-financial services like telecoms and broadcasting, firms may need to re-register their services in an EEA country.

4	International agreements	Replace the UK’s access to the EU’s agreements with countries around the world	Government has ‘rolled over’ 29 out of 38 EU trade agreements, including with Switzerland, Chile and Israel. Some countries have refused to roll over trade agreements, for example, Canada.
			On aviation services, agreements negotiated with some key non-EU countries, such as US, Canada and Brazil.
			Replacement nuclear agreements negotiated with partners such as Australia and Canada.
			We do not know what concessions the government may be making to other countries to secure rolled-over agreements.