Brexit Business Brief | Deal. No deal. Managed no deal
Published on 20th Dec 2018
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Where we are
There are less than 100 days to go before the UK leaves the EU. The default outcome from here is that the UK departs with no deal.
That is because the UK leaves automatically by operation of law, as the two year period set by Article 50 runs down and then ends at 11.00 p.m. on 29 March 2019. No deal happens unless something else does. It doesn’t need any House of Commons vote for no deal to happen. Something has to happen to stop no deal happening.
As at the time of writing, the UK government is pursuing the following timeline. Each step assumes that the previous step has happened (with the exception of the European Parliament consent, which simply needs to happen before ratification of the deal).
Between 7 and around 17 January 2019: House of Commons approves the Withdrawal Agreement and Political Declaration.
January / February: European Parliament consents to the Withdrawal Agreement and Political Declaration.
January – March: The European Union (Withdrawal Agreement) Bill is introduced to the UK Parliament, debated and passed, making provisions of the Withdrawal Agreement effective in UK domestic legislation.
March: UK and EU ratifies the Withdrawal Agreement and it becomes a binding international treaty.
29 March 2019: The UK leaves the EU and enters into the transition period that runs until the end of 2020, unless extended under the terms of the Northern Ireland backstop.
All of this assumes that the House of Commons approves the Withdrawal Agreement and that the UK departs with the deal contained in that agreement.
If that happens, then the result for business is that, in all practical terms, everything stays as it is now during the transition period. EU law and regulation will apply in the same way as it does in the UK now (bar a bit of constitutional jiggery-pokkery). The UK would remain within the Single Market and the Customs Union. The only, but big, change would be that the UK ceases to have any representation in EU bodies, organisations or agencies.
As I say above, the default at the moment is that the UK leaves with no deal. Something has to happen to stop no deal happening, whether that is the government getting the Withdrawal Agreement through the Commons, a pivot to some other agreed arrangement (such as "Norway Plus"), or an extension of Article 50 to allow a second referendum or a general election.
For business, the overriding issue now is what no deal would be like, and how and to what extent to prepare for that outcome. So what follows is a collection of news and resources on no deal.
No deal generally
The starting point is the 106 no deal notices issued in recent months by the UK government. These cover a wide range of sectors; some are more detailed than others; and some assume that the EU would assist in smoothing some of the worst aspects of a no deal. An overview no deal note from the UK government is here.
The European Commission has also published 79 "preparedness" notices this year. These are (of course) written from a less UK-centric perspective.
European Union implements its no deal "Contingency Action Plan"
The Commission yesterday announced that it is implementing its no deal Contingency Action Plan. This contains arrangements that are being adopted unilaterally by the EU "in pursuit of its own interests", to keep certain very limited key rights and services operating in the event of no deal. The Plan is here and a useful set of Q&As is here.
The contingency measures cover aspects of citizens' rights, and closely circumscribed sector-specific provisions relating to financial services, air transport and road haulage, and customs and the export of goods.
This should not be mistaken for the Commission pursuing a "managed no deal" policy. As the Plan says, these measures "should not replicate the benefits of membership of the Union nor the terms of any transition…should be temporary in nature…revocable at any time…[and] should not remedy delays that could have been avoided by preparedness measures and timely measures by relevant stakeholders".
EU nationals in the UK / UK nationals in the EU, and no deal
The UK government issued a paper on how the "EU Settlement Scheme" would apply to EU nationals in the UK in the event of no deal. "[A]ny EU citizen living in the UK by 29 March 2019 will be eligible to apply to this scheme, securing their status in UK law…[but]…as there would be no agreed implementation period, this guarantee would only apply to EU citizens who are resident in the UK by 29 March 2019."
The UK also updated its guidance to UK nationals in the EU. "The UK continues to call on the EU and Member States to protect the rights of UK nationals in the EU in the event of a ‘no deal’ scenario. We want UK nationals to be able to stay in the Member States that they live in when we leave, and for their rights to employment, healthcare, education, benefits and services to be protected…The UK cannot act unilaterally to protect all of the rights of UK nationals in the EU...However, where it is in our control, we will support UK nationals through an unlikely ‘no deal’ scenario." The provisions on citizens' rights in the EU Contingency Action Plan, discussed above, address some of these issues.
Data protection and no deal
Updated guidance from the UK government was published on 13 December 2018. This confirmed that the UK would transitionally recognise all EEA countries as "adequate" to allow personal data flows from the UK to continue (it is not in the UK government's power to ensure continued data flows from those countries to the UK), and would preserve the effect of all existing EU adequacy decisions.
The Information Commissioner's Office on the same date issued further guidance on how it is helping businesses, particularly SMEs, prepare for no deal.
Financial services and no deal
The Financial Conduct Authority regularly updates its main Brexit page with no deal guidance. The LMA published a paper on no deal's consequences for the European loan market. A London Stock Exchange no deal paper of 11 December 2018 is here. The German Federal Ministry of Finance has published a draft bill which sets out a national transition regime for UK credit institutions, investment firms and insurance undertakings in case of no deal.
Changes at the border and movement of goods in no deal
HMRC issued a detailed "Impact assessment for the movement of goods if the UK leaves the EU without a deal". See also the extensive resources in the UK's "Partnership pack" on preparing for changes at the UK border after a ‘no deal’ EU exit.
More no deal
Life sciences and no deal, by Osborne Clarke. Information for the health and care sector about planning for no deal, from the UK government. IP and Brexit: the facts from the UK government discusses no deal. Bloomberg synopsis on how some companies are preparing for a deal and for no deal. The same from the Financial Times (subscription). French government no deal website for citizens and businesses.
No deal primer
Here's a very short summary of no deal from a legal perspective:
- UK leaves with no Withdrawal Agreement and no Political Declaration.
- No transition (implementation) period.
- EU body of law (the acquis) ceases to apply and the UK is treated as a "third country" for legal, regulatory, political and economic purposes from the moment of exit.
- EU body of law as at exit day defined as "retained EU law" and incorporated into UK law for domestic purposes at the moment of exit by the European Union (Withdrawal) Act 2018, with the UK then under no obligation to implement new EU law.
- EU-third country free trade and other agreements cease to apply to the UK (unless the UK persuades third country counterparties to roll over on a bilateral basis; one done so far).
No deal would also require primary legislation in the form of new immigration, trade, agriculture and fisheries bills. The very substantial amount of secondary legislation required to make "retained EU law" function correctly on the UK statute book would also need to be in place by 29 March 2019. That requires around 800 statutory instruments, of which we have seen around one third in draft so far.
Managed no deal
This is the idea that the UK exits on 29 March 2019 with no Withdrawal Agreement in place – and so no transition period, as that is an integral part of the Withdrawal Agreement – but the UK and the EU work together to mitigate, or manage, the worst effects of a no deal exit. The assumption from some in the UK is that the EU would cooperate in that mitigation exercise (and one sees that assumption, advanced without supporting evidence, even in some of the UK government no deal notices).
There has been no suggestion from the EU that it is interested in facilitating a managed no deal. (The Contingency Action Plan discussed above is a quite different beast, "in pursuit of [the EU27's] interests" only.)
Indeed, the UK government in a recent notice on border planning assumptions stated that the "European Commission has made it clear that, in the event of a ‘no deal’ scenario, it will impose full third country controls on people and goods entering the EU from the UK".
The UK Justice Secretary is reported by the Financial Times to have told the cabinet on Tuesday that "managed no deal is not an option. It's not on offer from the EU and the responsibility of cabinet ministers is not to propagate unicorns but to slay them".
Five of the main UK business lobby groups yesterday said that "with just 100 days to go, the suggestion that 'no deal' can be 'managed' is not a credible proposition". In his most recent speech on Brexit, Sir Ivan Rogers, the UK's former representative to the EU, described the idea of a managed no deal as a "fantasy".
Brexit Business Brief returns in the New Year (unless something very unexpected happens to Brexit!). Happy Christmas!