The Government’s assessments of the impact of a ‘no deal’ Brexit on the UK, published today, show that ministers’ inability to deliver a workable or beneficial Brexit deal means we are now at risk of a no deal Brexit.
Some of the many wide-ranging consequences have today been laid bare:
There would be an unprecedented sudden increase in red tape for Britain’s trading businesses. Importers and exporters would face new costs through punitive tariffs, new administrative burdens, and new reporting duties. This will result in huge hikes in costs, which may be passed on to consumers in the form of higher prices. The new burdens are likely to hit small and medium sized businesses disproportionately.
- The financial services industry, a cornerstone of the UK economy, would be extremely badly hit. Financial services would be unable to provide services on equal terms across Europe, and may have to open new offices in the EU after Brexit - a fundamental disruption of operations.
- UK workers would lose the right to claim compensation when companies go bust. Despite the Government’s promise that worker’s rights will be unaffected by Brexit, the impact assessments show UK employees of EU companies may lose their right to compensation in case of insolvency.
- The pharmaceutical industry would face an absurd scenario of having to register medicines twice. All new medicines would have to be double licensed – once in the UK and once in Europe. For pharmaceutical firms, this entails a huge amount of extra red tape and there is the danger that for some, it will not be worth the hassle to enter the much smaller UK market.
Future generations would lose opportunities to study abroad, and universities would lose access to billions in research funding. The UK, under ‘no deal’ would drop out of the Erasmus programme, which provides our young people with the opportunity to live, study, and work abroad. And our proud universities would lose access to billions in EU funding which supports cutting-edge research in institutions across Britain.
- And the Government’s impact assessments provide absolutely no reassurance about how to resolve issues between the UK and Ireland in the event of ‘no deal’. Businesses and individuals would be asked to contact the Irish Government, rather than given the guarantees that communities on both sides of the border have been waiting for.
- It is also clear that the impact assessments do not truly plan for ‘no deal’. The Government’s plans rely on goodwill from EU countries and special agreements, to avoid the cataclysmic impact that a cliff-edge Brexit would have on our country.
A crunch point is coming. We don’t think the Brexit cheerleaders who created this crisis in Westminster can fix it now. That’s why more and more people, from every region and nation, from all walks of life, are demanding a People’s Vote on any Brexit deal or the outcome of negotiations.
Exporting and importing businesses face red tape, new costs, supply chain disruption and high tariffs
The Government’s impact assessment on trade with the EU shows that businesses would face an unprecedented single increase in red tape, which will result in new costs and time efforts for British businesses that provide the backbone of our economy. The new measures would also mean small and medium sized businesses would be hit disproportionately, as they would find it harder to absorb the new costs. The specific measures anticipated by the Government are:
- Having to hire a customs service broker at an additional cost
- Having to make safety and security declarations to the, in the form of an EU Exit Summary Declaration (EXS) and an Entry Summary Declaration (ENS) for any good moved between the UK and the EU
- Registering for a UK Economic Operator Registration and Identification (EORI) number
- Update their contracts and International Terms and Conditions of Service (INCOTERMS)
- Decide the correct classification of any good that is exported and imported
- Submitting declarations to HMRC for imports
- Declare imported goods on EMCS for onward movement via a Registered Consignor
(HM Government, 23 August 2018, link)
Elsewhere, the Government highlights the potential for supply chains to be disrupted, which again creates the prospect of additional costs for businesses. The Government also highlights that exporters would be hit by WTO tariffs under ‘no deal’, which are as high as 10% on cars and 20% on clothing. The additional cost to business as a result of these tariffs being implemented reaches into the billions.
“Trade with the EU will be on non-preferential, World Trade Organisation terms. This means that Most Favoured Nation (MFN) tariffs and non-preferential rules of origin would apply to consignments between the UK and EU.” (HM Government, 23 August 2018, link)
The Government also admits that it would have to create an entirely new arms-length body called Trade Remedies Authority (TRA) to deal with complaints about unfair trading practices. The Government gives no indication of a timeline when the TRA will be operational.
This process is currently handled entirely by the EU, and the impact assessment is an example of taxpayers’ money and officials’ time having to be spent to replicate a working system that already exists. (HM Government, 23 August 2018, link)
Financial services and banking will lose EU passporting rights
The impact assessments show that financial services would be hugely disrupted by a ‘no deal’ Brexit through the loss of passporting rights to provide their services in other EU countries on the same terms as in the UK. (HM Government, 23 August 2018, link)
This would mean firms would have to open an EU subsidiary company to retain passporting rights, which has already been reported as forming part of company planning for many firms.
Workers would find it harder to make claims against their employer and stay informed
While the Government makes assurances that worker’s rights will not be affected by ‘no deal’, the impact assessment is clear that UK workers working for EU companies risk losing access to two key protections and entitlements:
- The right to claim redundancy pay from your employer in the case of insolvency
- The right to be provided with information and be consulted on decisions that affect employees across two or more EU countries
This is evidence of the fact that contrary to what the Government says, rights and protections for UK workers are at risk under a ‘no deal’ Brexit, and losing these entitlements can result in serious issues for workers. (HM Government, 23 August 2018, link)
Plans on VAT rely on goodwill from EU countries, do not cover all eventualities, and bring new red tape
The government’s plans for VAT in a no deal scenario do not cover all cases and eventualities properly. The Government also anticipates a level of cooperation from the EU that we cannot expect if there is no deal. Examples include:
- In the case of a no deal Brexit, the Government will have no way to enforce rules to declare VAT at the point of purchase on European firms, and no recourse in Europe if firms fail to follow these rules.
- UK VAT numbers will no longer be validated under EU VAT validation service, and the Government only promises to replicate this system. This means there is no plan in place. Furthermore, there is no reason to expect the EU to accommodate British VAT numbers in a no deal scenario.
- Under ‘no deal’, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU. All business currently using this scheme will have to register for the non-union MOSS. They will only be able to do so the day after a no deal Brexit, causing a bureaucratic nightmare.
- Under ‘no deal’ individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods, resulting in delays, extra costs and more bureaucracy.
(HM Government, 23 August 2018, link)
The medicines industry faces new red tape and a bizarre situation of double-licensing
In the event of a no deal Brexit, all new medicines will have to be double licensed – once in the UK and once in Europe. For pharmaceutical firms, this entails a huge amount of extra red tape and there is the danger that for some, it will not be worth the hassle to enter the much smaller UK market. This includes:
- While there is an assurance that all batch testing and blood from the EU will be recognised, there is no guarantee that British exporters will be treated the same way.
- The Government plan to unilaterally convert all Centrally Authorised Products from the EU into UK Marketing Authorisations, but can give no guarantee that the EU would replicate this process for medicines approved in the UK.
- On new medicines, the Government proposes that companies that have gotten approval from the EU will then need to seek UK approval, resulting in a double certification that spells new red tape for pharmaceutical businesses, and in some cases may mean no market entry.
- The Government states that “in order to sell into the EU, EU-based online sellers will have to register, comply with relevant requirements and display an EU common logo linked to the competent authority in which they are based. As they would be outside of the EU, UK-based online sellers would no longer be required to do this.” This means that there will also be double testing for UK firms who want to export, equally presenting them with new red tape.
New medical devices will also have to go through double certification. The following would now have to submitted to UK regulators separately to the EU:
- marketing authorisation (MA) applications
- periodic safety update reports (PSURs)
- paediatric investigation plans (PIPs)
- clinical trial applications
- qualified person for pharmacovigilance (QPPV) and pharmacovigilance system master file (PSMF) notifications
- individual case safety reports (ICSRs) and subsequent transmission of anonymised single patient reports (ASPRs)
- device registration
- e-cigarette notifications.
The Government says “for applications that you plan to submit to both the EU and the UK (for example, a MA for both EU and UK markets), you would need to submit the information separately through EU systems and our portals.”
There are serious questions over farm payments, the devolution settlement and the Irish border
After Brexit, the UK would leave the EU’s Common Agricultural Policy and design its own agricultural policy. This is being brought in by the Agriculture Bill.
If there is no deal, EU farm payments will stop. In this case, the government says:
- It will continue to commit the same cash total in funds for farm support until the end of this parliament, expected in 2022. This covers the whole UK.
- Domestic legislation is being prepared to ensure we have the ability in law to continue operation of payments.
- The same standards will apply in order to receive payments, including on-site inspections.
One major outstanding issue is that agreement has not yet been reached over how UK-wide frameworks on agriculture will be implemented between Westminster and the three devolved administrations (Scotland, Wales and Northern Ireland). There is an impasse between Holyrood and Westminster (currently at the Supreme Court) with Scotland calling the UK’s proposals a power grab. Meanwhile political deadlock in Northern Ireland currently means there is no devolved authority to agree anything.
No deal would hasten the transfer of EU powers over agriculture to the UK - with still no clear plan of how to, or who, implements it. This complex scenario is potentially the stuff of constitutional crisis, as it undermines the devolution settlement.
There is also the issue of the Irish border, where deep economic and social cooperation means agricultural supply chains criss-cross the border and farms themselves often straddle it. If there is no deal, the government says:
- The Irish government has indicated it would need to discuss arrangements with the European Commission and EU Member States.
- The UK stands ready to “engage constructively to meet our commitments and act in the best interests of the people of Northern Ireland”.
- It recognises that the lack of a UK-EU legal agreement would pose “very significant challenges”.
The government’s wording on this is vague, raises a number of concerns and no solutions.
On rural development funding for farming communities across the UK, all the Government is doing is give a vague assurance that funding will continue. There is no guarantee about levels of funding or the method by which they are allocated and paid. This means uncertainty for farmers across the country.
Students risk losing access to study abroad programmes, and universities would lose billions in research funding
The Government impact assessment makes clear that there will be no participation for UK organisations in Erasmus programmes under a ‘no deal’ scenario. Therefore, organisations have no guarantee they will be part of the programme.
Students and young people face losing access to a very popular programme to study, live, and work in other EU countries. They have been directed to contact the organisations handling it (universities, vocational organisations etc), who most likely will not have more answers than the Government, and will face an increased administrative burden and cost dealing with this. (HM Government, 23 August 2018, link).
For our world-leading universities, while funding has been underwritten for existing projects there is no guarantee for participation EU programmes beyond 2020, which currently deliver billions in research funding to British institutions.
Funding would not be guaranteed for consortiums where a UK body leads and distributes funding to other participants. The document says that the government would consult with EU27, but this is not a true ‘no deal.’ While third parties participate in some aspects of Horizon 2020, this would not be guaranteed in ‘no deal’ and there would be uncertainty for UK researchers. Furthermore, there are a number of programmes (like European Research Council grants) that they are excluded from.
There is also additional red tape. Researchers currently receiving EU funding will have to provide data on a UK government portal about which funding they receive.
Organisations moving organs, tissues and cells to and from EU will need to write new agreements
If there is no deal, the EU Organ Directives and EU Tissues and Cells Directives would no longer apply to the UK. We will treat each other as third countries.
Third countries can import and export tissues and cells with the EU. But hospitals, stem cell laboratories, tissue banks and fertility clinics will need new written agreements with relevant EU establishments. The government describes this as “for the most part… a minimum burden” on organisations - but it is extra red tape nonetheless.
Without new agreements, organisations will not be able to import or export tissues or cells from the EU. The impact of this would not affect many people - 22 organs from deceased donors came into the UK from the EU in 2017/18, with 19 organs leaving the UK for the EU.
Specific government actions being taken include:
- NHS Blood and Transplant (the organisation responsible for organ donation and transplantation in the UK) is currently working with the UK regulator for organs (the Human Tissue Authority) to ensure that appropriate written agreements are in place with EU organisations.
- Organisations are being advised that, as a third-country, they can make written arrangements to ensure organs can still move between the UK and EU.
- The government is ready to make the “necessary changes to national regulations to maintain day one operability for the import and export of organs, tissues and cells”.
Organic Food manufacturers will face a nine-month waiting period to be recognised in the EU
There will be additional red tape for organic farmers, especially if they export to the EU, and a nine month gap where there will be no organic certification at all for British food in European countries.
Logos on packaging would need to change. There would be a grace period to use up existing stock. UK organic operators would not be permitted to use the EU organic logo. UK organic operators may continue to use their control body’s logo.
UK businesses would only be able to export to the EU if they were certified by an organic control body recognised and approved by the EU to operate in the UK. To do this, UK organic control bodies will need to apply to the European Commission for recognition.
UK control bodies are not permitted to make these applications until the UK becomes a ‘third country’. Approval can take up to nine months so we are exploring alternative approaches that should speed up this process. As we are retaining EU regulation in UK law, we expect to negotiate an equivalency arrangement with the EU which will allow the free movement of organic goods between the EU and the UK. We will ask the European Commission to discuss these applications in advance of 29 March 2019.
New red tape for the nuclear industry, and uncertainty about nuclear waste transfers
The impact assessment makes clear that UK-based operators will need to renegotiate their existing nuclear contracts if they involve an EU27 operator, have already been signed by Euratom, or extend beyond withdrawal date. This means additional red tape for nuclear operators, as companies will have to talk to Euratom on process for re-approval, and work out how to bridge the gap.
Operators will now be required to obtain an import license for nuclear material coming from the EU. This is additional red tape, and gives the UK limited time to create a new import regime for nuclear substances.
It is also clear that UK operators will still have to follow Euratom procedures, even if without getting approval from Euratom, making the UK a rule-taker instead of a rule-maker.
There is no detail on what will happen with transfers of nuclear waste between UK and EU27. New contracts will have to comply with existing third county arrangements. There will be more red tape, as companies organising shipments will require authorisation from authorities in both departure and destination countries.
There is also significant uncertainty, as the impact assessment states that radioactive sources (used for example in radiotherapy) will no longer be able to be automatically transferred between UK and EU27. The impact assessment only states that further guidance will be provided on this matter. Similarly, the paper can only give assurances about nuclear shipments into the UK being unaffected, and no guarantee that UK exporters will face no disruption (HM Government, 23 August 2018, link)
E-Cigarettes and tobacco face an overhaul of their safety and quality reporting
The Government impact assessment shows that tobacco products and e-cigarettes would have to participate in a new domestic system for notifications and submission of information for any new products that they wish to sell in the UK.
Companies would also have to introduce new picture warnings for tobacco products as the copyright for the existing picture library is owned by the European Commission. Manufacturers will need to ensure that tobacco products which include picture warnings produced from Exit Day onwards will be labelled with the new picture warnings. (HM Government, 23 August 2018, link)