Future of Brexit will be clearer post-election

It’s been three and a half years since the referendum we are still in the EU, and still arguing about how and even if we are to leave. And we now have with another election looming it feels to some extent that we are going round in circles. But despite this Brexit dizziness, some progress has been made, and we’re certainly a lot clearer on the potential paths forward.

First of all, the Conservatives support a Withdrawal Agreement with the EU that will lead to a Free Trade Agreement.

Labour supports a full and permanent Customs Union and close alignment to the Single Market (subject to a further referendum).

The Lib Dems would cancel the whole Brexit process.

And the Brexit Party would pursue what they call a “clean break” which would lead to the UK trading with the EU on basic WTO terms.

Therefore, all four possible outcomes of the Brexit process are represented.

It may not say much about the state of politics that it has taken so long for our political parties to define what they actually want from Brexit (and in the case of Labour there is still considerable ambiguity). 

However, in the event that the election provides a decisive result for one party or another, at least the way forward will be clearer.

The second thing that we have learnt is that the EU really does not want a “no-deal” Brexit. 

Despite us hearing repeatedly from the EU that “the deal is the deal, there isn’t another deal”, when it came to it, in order to avoid the UK crashing out, the EU did what they consistently said that they wouldn’t which was to re-open the text of the Withdrawal Agreement and allowed important legal changes to the arrangements for Northern Ireland.

This suggests that as we approach future deadlines (the next being 31 January), the EU side will favour flexibility, compromise, delay and extension over a breakdown in talks followed by a disorderly Brexit.

Finally, even if the worst-case scenario of a no-deal Brexit, the UK (and the EU) is now better equipped for it than it was 12 or 18 months ago.  This of course has already cost the government and businesses billions in contingency planning and has diverted resources from other more constructive activities. 

But it means that British business is better prepared, even if it might not be said that it is fully prepared, for no deal. 

Actually, in some very specific circumstances, a no-deal Brexit would mean some cost reductions for UK retailers. 

With the work we conducted with SPB, we calculated that our trade with the EU would add £7.8 billion to the cost of importing retail products into the UK based on WTO rules.

The government’s Temporary Tariff Plan which would come into effect in the event of a no-deal would deliver widespread tariff reductions on food and other consumer goods, reducing the cost of sourcing from non-EU countries.

From the EU, import costs would still increase, but to a much smaller amount of around £2 billion. But tariff reductions outside the EU would see the cost of imports fall by at least the same amount.

 

What conclusions can we draw from these three observations? 

There are some reasons to be cheerful:

Firstly, assuming that there is a decisive outcome to the election (which is far from certain), the direction of Brexit should be clearer after 12 December, and the first phase – the Withdrawal Agreement should be concluded relatively quickly.

Second, if more time is needed for negotiations, the EU will find a way of agreeing it.  In other words, it is highly unlikely that we shall face a no-deal by default Brexit.

Third, even if we do end up leaving the EU without a deal, as time goes on and plans are solidified, the disruptive impact of this on business will lessen and in some cases there may even be cost benefits for retailers who import from outside the EU.

Fourth, our experience with this first phase of negotiations provides some indicators for the second phase (on the future relationship). 

If these negotiations prove to be as long and complicated as the first phase, we are likely to see periodic extensions to the Transition period replacing periodic extensions to Article 50 process.  Either way, it will amount to business as usual for UK firms as they will continue to be bound by the same EU rules under Article 50 or transition.

But we should also be fearful in the event that the election does not provide a decisive result.  In this case, we can expect our politicians to carry on arguing about the best way forward without agreeing on any actual course of action. In that case, the EU might just lose patience with the whole thing and leave us to figure out life for ourselves outside the bloc.

 

 

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