Why a no-deal Brexit may spell disaster for Britain | The Daily Star
12:00 AM, October 10, 2019 / LAST MODIFIED: 12:00 AM, October 10, 2019

Why a no-deal Brexit may spell disaster for Britain

In Ian McEwan’s “Sweet Tooth”, a novel based on the social life of London in the early 1970s, we see a vivid description of conditions that prevailed in the UK which was then facing several crises on different fronts, and was completely torn apart by industrial and social unrest with slowing economic growth and rising unemployment. Then on January 1, 1973, UK joined the European Union (which was called EEC then) and ever since, times have been relatively good. In McEwan’s novel which I am reading now, I can get a good sense of what it was like in UK before 1973. Some of my readers might recall the strikes by coal miners and public servants, bomb blasts by the Irish Republican Army, the oil crises, cold war escalation, and almost a shade of anarchy. As UK struggles now to get out of EU, one can sniff the smell of fear and uncertainty augmented by vague memories of the pre-EU days.

When Boris Johnson was handed over the reins of power as well as the role of Brexiteer-in-Chief by the Tories in July, he reassured the country that Brexit was happening on October 31 and UK was going to leave with or without a deal. At this juncture, it appears that both of his promises are at risk of failure. There is more than a 50-50 chance that UK will be staying in EU, at least for a few more months. And there is only a slim chance that Johnson will leave on October 31 with a deal and a zero probability that the much-discussed No-deal Brexit will happen.

Unfortunately, I cannot predict what else might occur between now and October 31, when the Americans and the rest of the world celebrate Halloween. The next general election in UK is scheduled to be held in 2022. However, an early election is possible if a majority of lawmakers in Britain’s 650-seat parliament vote to hold one and it is very much in the works. But the earliest it can happen is in November after the UK leaves EU with a deal or otherwise if the EU and UK negotiate a three-month extension.

Why do I say that Johnson will fail to deliver on his most important promise or his scariest slogan, “Leave on October 31 without a deal”? Even as late as October 3, he said that if EU were to reject the latest offer made by UK, “we shall have to leave on October 31 without a deal”. But, to make his life difficult, the British Parliament passed a law, known as Benn Act, which outlaws any attempt to pull UK out of EU without a deal. The Benn Act requires Johnson to ask for a Brexit delay by October 19 and this will push the deadline back from October 31, 2019 to January 31, 2020.

While Johnson earnestly desires to leave on October 31 and go down in the history books as the premier who delivered on the Brexit Referendum, it is obvious that time is running out on him. Any Brexit deal needs to be approved by the EU Council. The final council summit of EU starts on October 17 and will discuss any deal agreed upon by the two parties on October 17 and 18. An agreement between them has to be reached by October 11. The EU is reportedly keen to avoid last-minute discussions at an EU Summit on October 17, and thus Friday October 11 is seen as a formal cut-off point for talks.

To answer the question that I pose in the title, even the diehard supporters of Brexit are aware that a no-deal departure would be costly. Various studies have made some plausible estimates of the consequences of crashing out of EU. In view of the fact that a no-deal Brexit has always been a possibility, UK businesses and economists have been aware of such an eventuality since 2016. Some have characterised the option to walk out of EU as “jumping off the cliff” and the implication was the UK would certainly meet its death, metaphorically. Obviously, the country will not cease to exist or its citizens face the same consequences as the blanket bombardment by Nazi Germany during the Second World War, but the doomsayers are talking about a collapse of the economy, food riots, and total chaos. For example, even the Conservative Party Home Secretary (i.e., the Home Minister) Sajid Javid is reported to have said that a “no deal with the EU could cause a sharp rise in crime and widespread protests escalating into weeks of chaos”.

A few weeks ago, a secret planning document created by the UK Treasury Department laid out the worst-case scenario, or what it calls the “Reasonable Worst Case”, should UK leave without a deal. First of all, let me mention that there is a lot of misconception about the deal. Even if there is a deal, there will be a transition period during which both parties will work towards a trade agreement and other regulatory rules which will allow UK and EU to continue as partners. Similarly, a no-deal simply means that UK and EU will not be special friends but they will treat each other like any other nation. UK will revert to “third country” status.

The document, nicknamed Operation Yellowhammer, forecasts protests and counter-protests across UK which may absorb a significant amount of police resource. It also warns of an increase in public disorder and community tensions. The document, aware that even short-term or localised shortages of fuel, food and medicine could trigger panic, offers some scenarios of price hikes and tightening fuel supply in London and the South-East. Or, as Yellowhammer discreetly puts it, “customer behaviour could lead to local shortages.”

The most important reason why a no-deal Brexit could spell disaster is the possibility that some sections of the government could find itself dealing with the crisis that could ensue and be overwhelmed in case of a serious breakdown similar to what happened in the seventies. And the economic costs including staggering government debts, slower economic growth, and a log jam at ports and borders, will be felt by Britain for many years to come.

UK’s Office for Budget Responsibility (OBR) said that borrowing would be almost 60 billion pounds annually if the UK leaves without a deal—up from 29.3 billion pounds if it does get a deal. According to the accountancy giant KPMG as well as Standards and Poor (S&P), a forecasting firm, UK will suffer a major economic downswing in case of a no-deal Brexit. According to S&P, income will be lower by 2.8 percent in 2020 and by 4.7 percent the following year as compared with the base case scenario with a deal.

 

Dr Abdullah Shibli is an economist and works in information technology. He is Senior Research Fellow, International Sustainable Development Institute (ISDI), a think-tank in Boston, USA. 

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