Before Britain’s 2016 referendum on membership of the European Union, Britain’s then-prime minister David Cameron adamantly refused to make plans for what his government would do if the country voted to leave. In the event, Britain voted for Brexit. Cameron resigned as the government faced the thorny question of how to leave the E.U.
Today, Cameron’s successor Theresa May is no nearer to an answer after two years of negotiations with E.U. chiefs. And the possibility of the U.K. having to leave the E.U. without a working relationship with its closest neighbors — a ‘no deal’ Brexit — is beginning to look increasingly likely.
On Friday, Mark Carney, the governor of the Bank of England called the level of risk “uncomfortably high.” On Sunday, Britain’s international trade secretary Liam Fox – a prominent ‘Brexiteer’ – said that Britain leaving with no deal was the most likely scenario.
If no deal is reached, Britain would withdraw from the E.U. on March 29, 2019 without any of the trade, customs and regulatory measures May’s government is currently negotiating to smooth Britain’s transition. At the end of August, the U.K. government will release detailed guidance to businesses on what will happen if the country crashes out of the E.U. But already, business lobby groups are warning there could be chaos at the border, uncertainty over citizens’ rights and possibly even food and medicine shortages.
So what is a ‘no deal’ Brexit, how likely is it, and what would it mean for Britain?
Why does Britain need a deal?
Britain’s economy is closely tied to the E.U.’s. The bloc is Britain’s biggest trading partner, accounting for 44% of all U.K. exports. As a member state, Britain can trade with other members unburdened by customs checks or tariffs. Common regulations mean goods do not have to be examined when they cross borders. But when Britain leaves, those things will change.
To decide just how, May is currently negotiating a deal with Brussels on Britain’s exit terms. Those negotiations started in March 2017, when May set the clock ticking by triggering Article 50, a never-before tested legal instrument that gave Britain exactly two years to negotiate a deal before its exit date.
May has already secured a 21-month ‘transition period’ as part of the negotiations, giving Britain time to pursue free trade deals with other countries around the world while still being able to trade with Europe. But if British lawmakers or more than seven E.U. countries reject whatever deal the U.K. forges with European negotiators, that transition period will not come into place — and Britain will face an uncertain future from March 29 next year.
There’s little more than seven months to go until that day. But really, May has even less time. Negotiators are eyeing this October – less than three months away – as the date by which a deal must be finalized to give lawmakers in the U.K. and Europe enough time to ratify the deal. To make things even more difficult, Britain’s parliament is currently out for the summer vacation.
Why are some lawmakers advocating leaving without a deal?
In July, Theresa May attempted to overcome divides within her cabinet by hammering out a plan that would please all sides. However the proposal featured closer alignment with E.U. than many of the ‘Brexiteers’ liked, and both Boris Johnson, then Foreign Secretary, and Brexit Secretary David Davis resigned over May’s plan.
Euroskeptic lawmakers say that instead of accepting May’s softer version of Brexit, Britain could simply walk away without a deal at all. The result of that would be reverting to World Trade Organization (WTO) rules – those that govern international trade in the absence of bilateral or multilateral deals.
Critics say that Britain would be the only large country in the world to trade with the E.U. on WTO rules, and warn that it would introduce huge uncertainty for businesses. One study found U.K. trade with the E.U. solely on WTO rules would fall by 40% in ten years. “I think the Brexiteers assume there’s a whole bunch of rules out there which we can immediately default to,” says Tim Bale, a professor of politics at Queen Mary, University of London. “Whereas in fact, those rules are rather more negotiable.”
What might ‘no deal’ mean for everyday Brits?
Higher food prices, for one thing. Roughly 30% of the food Brits eat daily comes from the E.U., much of it fresh. If Britain fails to secure an exit deal, the risk is that supply chains designed to put fresh food in stores within hours will grind to a halt on March 29.
Without common regulations, Europeans will have no guarantee that British products have been manufactured to the E.U.’s strict standards. And with Britain no longer enjoying free trade with the E.U., goods flowing in each direction will have to be tracked.
The result of that could be food rotting in the backs of trucks and reduced choice – and increased prices – for British consumers. When the new Brexit Secretary, Dominic Raab, suggested there would be “adequate food” if grocery chains made stockpiling plans, he was dismissed as naive by many in the industry who said there was simply no space to do so.
What else might be affected?
Customs and regulatory problems could hit medicines too. In July, French pharmaceutical company Sanofi said it was stockpiling medicines in Britain to prepare for supply disruptions in the event of a ‘no deal’ Brexit, increasing stocks from 10 to 14 weeks’ worth. And Britain’s National Health Service said it would be doing similar for necessary drugs and blood supplies.
One in five businesses would consider relocating to Europe if Brexit negotiations deteriorate, according to a report released by Britain’s Institute of Directors on Friday, which called on the government to speed up its publication of ‘no deal’ guidance.
What are the politics behind preparing for a ‘no deal’ Brexit?
Theresa May hopes that by appearing to prepare for a no deal Brexit, European countries will be incentivized to give Britain a deal she can confidently present to the British parliament after October. As such, cabinet ministers have been undertaking diplomacy across Europe to convince foreign leaders to cut Britain some slack. “At the moment we are heading for no deal by accident,” Foreign Secretary Jeremy Hunt told his Austrian counterpart last week.
“She wants to give them the impression that the U.K. could walk away from an unsatisfactory deal and cope with the consequences,” says Bale. “Whether you think that’s a particularly convincing negotiating strategy depends on how prepared you think the U.K. actually is for that scenario.”