Richard North, 02/08/2019  
 


I wonder if it is a coincidence that an "internal government document" on the potential consequences of a no-deal Brexit has been leaked to Sky News, especially as the "document" is merely a single slide from a presentation made during the May regime – apparently during the last few weeks of her tenure, although we have no evidence of a date.

The slide (pictured above) bears the header, "What this could look like on the ground" and is marked "Official Sensitive- for discussion – not government policy". It apparently sets out a worst-case scenario, with summaries covering the first day, the first fortnight and the first month and was, according to Sky News, shown to some cabinet members but not the whole cabinet.

What strikes one of the first day scenario, though, is the superficiality of the analysis. Its assertion that "trade and passenger flows from the UK to EU slows" is undoubtedly correct, although it is unlikely that this will be because of "additional process at border" – which the slide suggests.

As we've discussed before, the 31 October is a Thursday, which means that the first day of Brexit will be a Friday – then, of course, followed by the weekend. The best guess here is that most businesses will hold off sending consignments to EU destinations for the first day, and even the following week, until they get some feel for the situation.

Thus, we expect to see a drastic fall-off in commercial traffic, driven entirely by business sentiment. The residual volume will probably present little challenge to the customs and other systems in EU ports, so it is most likely that delays will be minimal.

Another oddity in the slide is an assertion that "UK vessels could no longer have access to EU waters and vice versa", with obvious consequences for the flow of trade, and particularly the operation of ferries on the cross-channel routes.

That this is considered a potential problem is actually rather strange, as shipping access to maritime states is not directly an EU competence, with rights of "innocent passage" (which includes access to ports) guaranteed by the United Nations Convention on the Law of the Sea (UNCLOS).

Maritime states are permitted to impose certain conditions covering the access of shipping to their ports. This applies very much to the ports of EU Member States, where EU law sets requirements for pollution standards and safety inspections. However, these are dealt with in a Notice to Stakeholders, with the publication of a regulation covering the continuation of ship inspections.

Nowhere is it suggested by the European Commission that mutual access of shipping to ports, as between the UK and EU Member States, might be a problem, while both the Commission and Member States are working on the assumption that ship movements will continue.

This, therefore, raises some questions as to the authority of the Sky News "scoop". If this represents the best analysis the government has to offer, then perhaps we need to be worried about the lack of grip.

Nonetheless, the day-one scenario does go on to state that UK nationals in the EU "may lose access to services and resident rights", which could possibly be true. A number of Member States have drafted laws granting UK citizens in their territories rights to remain, but most of these depend on UK reciprocity, which has yet to materialise.

And on the matter of services, those UK citizens who provide services in EU Member States may find that the cessation of mutual recognition of qualifications prevents them from working, effectively rendering them unemployed.

This is not raised by the slide, but it does deal with Northern Ireland, stating that cross-border agricultural trade would "virtually stop" with other trade slowing, while the legal basis for the single electricity market "falls away".

Here, the first of these issues is entirely speculation. In truth, no one knows what might happen in Ireland on day-one of a no-deal Brexit. It is quite possible that, for a short period, Brexit proves a non-event while the relevant authorities work out what to do. And then, the implementation of restrictions may be a slow burn, with a long period of light-touch enforcement.

It is probably fair to say, however, that trade generally will slow down. In fact, this is already happening as Irish exporters look to buyers in the EU to replace UK trade.

As to the electricity market, cross-border transmission will doubtless continue. Even without a legal base, the relevant Notice to Stakeholders points out that Commission Regulation (EU) No 838/2010 provides that a transmission system use fee is to be paid "on all scheduled imports and exports of electricity from all third countries which have not adopted an agreement whereby it is applying Union law". This will apply to the UK, providing a mechanism – albeit less flexible – for the continued trade in electricity.

Then the slide confronts security issues, noting that UK law enforcement will be "working via non-EU security channels". Once again, this is already happening as the UK is being progressively excluded from Europol and is increasingly reliant on Interpol. The erosion of capabilities, though, is likely to be a slow burn and will probably not materialise as a major issue on day one.

Finally, for day one, the slide notes that there will be "volatility of currency and financial markets". Given the current slide in the value of the pound, this is almost certainly going to be the case, and may prove to be the dominant feature of a no-deal Brexit.

This brings us to the first fortnight, where the slide asserts that we could potentially see consumer panic and food shortages, "even in areas which are not directly affected at the border".

Given that panic buying could at any time strip stocks from the shelves, giving the impression of shortage even when there are adequate supplies, this dynamic could be a feature of Brexit at any time, even in the lead-in to 31 October. This is something over which the government (and retailers) have no control and much will depend on public sentiment.

In addition to this, we also get told that there could be possible friction at sea between UK/EU fishing vessels. This, though, I doubt, as vessels flagged with EU Member States will not be permitted by EU law to fish in UK waters unless there has been an agreement on fisheries management plans between the EU and the UK. A re-run of the "Cod Wars", therefore, is – in my view – low down in the order of risks.

More likely is the slide's assertion that unlawful data transfers may lead to enforcement action by EU regulators, leading to disruption of [data] flows. In fact, this is one of the understated risks of a no-deal Brexit, the impact of which could be colossal – bearing in mind that it usually takes much longer than a fortnight for EU regulators to act.

And then there is "continued volatility of currency and financial markets", together with the "potential for disruption of debt markets". These possibilities are undeniable.

Coming then to a month post-Brexit, the slide suggests that small businesses in Northern Ireland may face distress, and there will be potential law and order challenges. UK nationals may be unable to meet new EU Member State residency requirements and may start returning to the UK, or asking the government for help. And, on the domestic front, the heightened policing resource may prove unsustainable and operational gaps will "continue to emerge".

All of these are realistic possibilities, as will be sterling settling at a lower level, with near-term business disruption, leading to calls for support through operation Kingfisher – the government's "secret" Brexit bailout fund.

If anything, though, the slide shows just how difficult it is to predict the effects of a no-deal Brexit, or to rank the effects in terms of seriousness. One could also suspect that the authors had not read the European Commission's Notices to Stakeholders.

However, with the situation changing as Johnson is prepared to throw money at mitigating the effects of a no-deal, the most powerful take-away from this exercise is how poorly informed ministers were of the consequences. And this is likely to be the current state. The higher up the tree they go, the less they seem to know.






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