Pro-EU demonstrators wave an mixed EU and Union flag as they protest against Brexit, outside of the Houses of Parliament in central London on June 11, 2018. - After a rollercoaster week of Brexit rows within her government and with Brussels, British Prime Minister Theresa May will on Tuesday seek to avoid another setback in a long-awaited showdown with parliament. MPs in the House of Commons will vote on a string of amendments to a key piece of Brexit legislation that could force the government's hand in the negotiations with the European Union. (Photo by Daniel LEAL-OLIVAS / AFP)        (Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)
What's at stake if a Brexit deal falls through
01:07 - Source: CNN Business
London CNN  — 

As the British government ramps up contingency plans for leaving the European Union without a negotiated deal in place, prominent Brexiteer Jacob Rees-Mogg stated on Twitter that such an outcome “is not the end of the world.”

Many responded that “not the end of the world” falls somewhat short of the utopian promises made by the leave campaign during the 2016 referendum.

But with the British parliament deadlocked and the future of the deal agreed between the UK and the EU in limbo, the chances of a no-deal Brexit suddenly look a lot higher than they did a few months ago.

The truth is that very few people argue that Britain’s departure from the EU on March 29, without a deal in place, would be painless. Such a move would be unprecedented, not just for Britain but for the world, and as such the consequences are unclear.

Indeed, there is not even agreement on what “no deal” means. While the obvious interpretation is that the UK leaves the EU without any agreement in place, Brexit supporters are increasingly talking about a “managed no deal,” in which some agreements are signed even if there is no overarching withdrawal arrangement.

This subtle shift in rhetoric seems to accept that simply leaving without any agreements after March 29, 2019 would cause massive disruption to almost every aspect of British life.

The UK would suddenly no longer be a party to the legislative and regulatory framework that has governed its external trade and much of its internal economy for the past four decades, and experts said there was simply not enough time to put in place an alternative framework.

“The UK is not prepared because it is simply too big a question to be prepared for,” David Henig, a former government trade official and director of the UK Trade Policy Project, told CNN.

The UK government has just released an additional £2 billion ($2.5 billion) from the UK Treasury to help mitigate these consequences – in addition to the £4.2 billion already allocated since 2016.

It still has plans to put 3,500 troops on standby. Nonetheless, business and lobby groups still warn of disruptions at ports, dwindling medical supplies and potential food shortages. The consequences “on the whole will be negative,” according to EU law expert Steve Peers, a professor of law at the University of Essex.

Disrupted trade

Membership of the EU’s single market and customs union allows for lorries and ships to carry goods between any two points in the bloc. When imports arrive from the EU, British customs officials know that they meet required standards and have paid the right tariffs, so can be waved through.

Britain’s industries rely heavily on this – knowing there will be no delays at the border, car manufacturers or supermarkets can plan for components or foodstuffs to be delivered at the exact moment they are needed, saving the need for expensive warehouses.

If Britain leaves without a transition deal, it will default to World Trade Organization (WTO) rules. One consequence of this would be the imposition of tariffs. The lobby group, the Confederation of British Industry (CBI), estimates UK exports to the EU would face tariffs of 4.3%, hurting British businesses competing against cheaper rivals on the continent.

Two minutes of checks in Dover could cause a substantial backlog of lorries at the port.

Backlog and border delays

More importantly, WTO rules would mean an end to the frictionless trade on which British industries depend on. Goods would have to be checked on the border, which will inevitably cause delays.

A study by Imperial College in London found that two extra minutes spent checking each vehicle, be it at the ferry port in Dover in southern England or the Eurotunnel terminal nearby, could translate to jams of up to 29 miles. “At peak times, Kent could see nearly five hours of traffic delays,” it said.

The concerns have led to the government starting work to turn the M26 motorway in Kent into a parking lot for waiting lorries.

Without frictionless trade, manufacturers and retailers would no longer be able to rely on components arriving when required. Many companies have already begun stockpiling supplies; as has the government. Health Secretary Matt Hancock said on December 17 he had become “the largest refrigerator buyer in the world” as he seeks storage for six-weeks’ worth of medicines.

Although contingencies could be put in place, said Peers. “Things can be done like fast-tracking insulin and food that goes off –that kind of thing you could hopefully do – and fast.”

To soften the blow, the European Union proposed this month it would only allow British trucks to carry goods into the bloc – but that provision will end after nine months and will need approval by the European Parliament and the 27 countries remaining in the EU.

Companies have warned of potential food shortages of perishable items like tomatoes in the event of a no deal.

Food shortages

For some products border delays could prove catastrophic. Fresh fruit and other foodstuffs could rot while stuck in lorry queues. According to Buzzfeed, a government briefing from the Food and Drink Federation said Mars bars – one of Britain’s most popular confectionary snacks – could run out within weeks as two imported ingredients go off in a few days and cannot be stockpiled.

Some border delays could be deadly. The radioactive isotopes required for cancer treatment have a half-life of just 66 hours – after which their effectiveness begins to rapidly decline – and are sourced almost entirely from the EU.

Lobby group ScientistsForEU warned that any delays to the isotopes could incur substantial costs, “not least to the one million UK patients who each year depend on these services,” the group said.

Regulatory uncertainty

The potential implications of a no deal Brexit go beyond tariffs and border checks.

After 40 years of integration, much of Britain’s regulatory infrastructure is shared with the EU, including the bodies that help ensure food and medicine are safe for consumption and planes are safe to fly. Dropping out of that infrastructure could leave Britain with no alternatives in place, leaving many areas of the British economy in a legal vacuum.

Take the example of medicine. Currently the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) is responsible for ensuring that medicines sold in the UK are safe, and works under the supervision of the European Medicines Agency (EMA).

In a no-deal Brexit this link is broken. This has implications for trade – British pharmaceuticals approved by the MHRA will no longer be approved for sale in the EU and vice versa – and for jobs as the EMA moves its headquarters from London to Amsterdam. But it also has implications for British drugs sold in Britain.

A report from the parliamentary Business, Energy and Industrial published in May warned that the MHRA would struggle to review all new medicines when unable to draw upon the shared expertise and resources of the EMA.

Fears are growing about the supply of pharmaceutical supplies in the event of a no-deal Brexit.

Grounded planes

The same issue can be found in the food industry – where the UK relies heavily on bodies such as the European Food Safety Authority (EFSA) to maintain standards in animal welfare and food safety – and aviation.

A government technical notice, which said planes may be grounded in a no deal scenario, was dismissed by Brexiteers as scaremongering.

But just like the MHRA, the UK’s Civil Aviation Authority (CAA) will struggle without access to the shared resources and expertise of the European Aviation Safety Agency (EASA), while the certificates it awards will not be recognized outside of the UK.

Alexandre de Juniac, head of the aviation trade group the International Air Transport Association (IATA), warned as much in September: “Everything from pilots’ licenses to security arrangements need to be agreed.

Much of this could be secured through mutual recognition of existing standards. But formalizing this cannot happen overnight. And even when that is done, there will still be an administrative burden for the airlines and governments involved that will take time and significant resources.”

The European Commission has announced a number of temporary measures to limit the worst of this disruption. In aviation these measures include a plan to allow planes to fly between the UK and the EU, and through European airspace.

But British airlines will not be allowed to operate flights between two locations in the EU or stop in the EU during transit, and this arrangement will only last for 12 months.

A temporary measure has been put in place to prevent grounded flights.

Economic implications

The government published a report in November that said leaving without a deal would result in the UK economy being 7.7% smaller 15 years after Brexit. The damage would be even greater if net migration from the European Union substantially dropped, the government said.

The Bank of England warned in its report that a disorderly Brexit would cause the UK economy to contract by 8%. The value of the pound would slump by as much as 25% and home prices could plummet 30%.

While these figures are significant, some key sectors of the economy would be especially hard hit by a no-deal Brexit. Official estimates show that the auto, chemicals and pharmaceutical industries, which trade heavily with the European Union, would be more than 20% smaller over the long run.

Food exports

Agriculture is particularly vulnerable. The National Farmers’ Union warned in September that a no-deal scenario “would have devastating impacts for British food and farming.”

According to their statistics, up to 65% of Britain’s agriculture exports go to the EU. Agriculture is also a heavily regulated sector due to concerns around food safety standards, and as such, the regulatory challenges caused by a no-deal Brexit are causing uncertainty.

An EU parliament report on agricultural trade found that in the worst-case scenario, agricultural exports from the EU to the UK will decrease by $34 billion (representing a 62% decrease) and imports by $19 billion. Ireland, it said, will be most affected.

Ireland's Deputy Prime Minister Simon Coveney warned that a no deal Brexit would cause "significant stress."

The Ireland issue

A no-deal scenario could cause food and medicine shortages for Britain’s closest neighbor, Ireland, according to a contingency plan published by Dublin in December.

According to UK government statistics, Ireland is one of Britain’s largest trading partners. UK exports to Ireland were worth $42 billion in 2017, Britain’s fifth-largest export market.

A no-deal Brexit will cause “significant stress to this country and to many sectors in the Irish economy,” its Deputy Prime Minister Simon Coveney warned.

Britain's services industry accounts for the bulk of its economy.

Service industry

Meanwhile, for all the debate about border checks, the services industry – which accounts for around 80% of Britain’s economy – also faces challenges.

The European Commission said this month that most of the UK’s financial sector would be cut off from the EU market in the event of no deal, Reuters reported.

It however proposed one- to two-year time frames to allow UK and the EU financial services, in a limited number of areas like derivatives trading, to continue.

Numerous banks and firms operating in London have had to establish bases on the continent in the event of a no deal.

Up to 1,000 of UBS’s 5,000 employees in the UK will be moving to Europe, the bank’s chairman, Axel Weber, told CNN back in 2017.

HSBC, which is Britain’s largest bank, said it could also move roughly 1,000 jobs to Paris.