A parliamentary vote to approve the Brexit withdrawal agreement ended in disapproval after the Northern Ireland backstop was left out of the policy following disagreement from the European Council. The Brexit deal was voted down by MPs as without agreement of the Northern Ireland backstop, goods and people passing through Northern Ireland would be subject to extensive checks, risking the formation of a hard border.
The alternative is a no-deal Brexit where Britain would leave the EU without a withdrawal agreement in place, which MPs are desperately attempting to avoid. A no deal Brexit would mean that the 21 month transition period would no longer be implemented which would mark an end to free movement.
However, if a deal is agreed prior to the exit date, new trade agreements would only come into force after 21 months, also known as the implementation period. In the run-up to the exit date on 29 March 2019, key sectors will be preparing for a future outside the European Union in the event of a no deal.
The ‘red tape’ cost of Brexit
The study, ‘The red tape cost of Brexit’ conducted by Oliver Wyman, international management consultancy firm and leading law firm, Clifford Chance , concludes that the following sectors are to be hit the hardest by a Brexit no-deal: automotive; agriculture, food & drink; consumer goods; and chemicals & plastics.
Both parties arrive at this conclusion having calculated that 70 percent of extra costs will most likely be incurred by the above sectors as a result of trade restrictions following Brexit.
Following the UK’s exit from the European Union in the event of a no deal, the import and export sector will have to revert to World Trade Organisation (WTO) rules when trading with European countries. This could vastly change the way products are designed, manufactured and delivered.
The WTO is in place for countries trading without any free-trade agreements in place. The tariffs detailed by the WTO rules fluctuate depending on the sector. As a WTO member, the UK would have to treat each country equally, unable to establish preferred rates with selected countries.
London – the financial capital of the world
The financial services sector is expected to face a blow in the event of a no deal Brexit. As London is the epicentre of financial activity across Europe, a no deal Brexit could affect existing financial relationships due to the limited nature of information currently available.
In the run-up to the exit day in March, the value of the pound has been fluctuating in line with key Brexit announcements and measures which have been unveiled. Following Theresa May’s announcement to renegotiate the Northern Ireland backstop, EU Chief Brexit Negotiator, Michel Barnier, said the NI backstop was ‘part and parcel’ of the Brexit deal and non-negotiable.
As we head closer to March without an agreement in place, it is more likely that the end result will be a no-deal. Theresa May has hinted towards substituting the NI backstop with the next best option, for example, classing the UK as a ‘trusted trader’ to avoid physical checks on the flow of goods.
Medical services and NHS
Earlier this year, Health Secretary Matt Hancock reached out to pharmaceutical companies in relation to minimising the effect of a no-deal Brexit.
Due to potential changes around border access and import charges which may result in delayed delivery, drug companies have been urged to stockpile six weeks’ worth of medicine. Hancock proposed plans for the government to fund any costs incurred due to stockpiling, costing the government £2bn. Hospitals do not typically stockpile in order to avoid medical supplies from running over the shelf date.
If the result is a no deal, British pensioners residing in the EU will no longer be able to access healthcare under the NHS and have been advised to take out medical insurance. As a result, 190,000 retired British citizens would be forced to return to the UK to access treatment and medical care, posing more strain on the NHS.
A no-deal Brexit could result in limited availability of EU products in the UK due to longer transport times and increased prices. The National Farmers Union (NFU) expressed disapproval towards leaving the EU without a deal as this jeopardises EU exports which amount to £13.2bn per year.
Foreign Secretary, Jeremy Hunt, has said that there may be a possible delay in the UK departure date if Theresa May fails to come to an agreement with Brussels. MPs have voted against this in order to avoid a no-deal Brexit and have called off the February recess period for MPs. The next few weeks will be instrumental in Brexit negotiations and indicate towards a possible strategy for key UK sectors following the Brexit departure date.
Oliver Wyman report on the impact of Brexit on UK financial services: https://www.oliverwyman.com/our-expertise/insights/2016/oct/The-impact-of-Brexit-on-the-UK-based-Financial-Services-sector.html
PwC on Brexit: https://www.pwc.co.uk/the-eu-referendum.html
IMF MD Christine Lagarde talking to Financial Director about her concerns for the global economy: https://www.financialdirector.co.uk/2019/01/18/lagarde-says-women-key-to-resilient-global-economy/