No Brexit Deal is Better than a Bad Deal

Since the Conservative Party lost its parliamentary majority, the line ‘no [Brexit] deal is better than a bad deal’ has come under attack. Conservative MP Anna Soubry suggested that the line is a ‘nonsense’ (here) and Labour MP Hillary Benn stated that the idea of leaving the EU with no deal is ‘dead in the water’ (here). The Chancellor, Philip Hammond, recently said on the “Andrew Marr Show” that no deal would be a ‘very, very bad’ outcome for the UK (here) and, in doing so, wrongly and unwisely undermined his Government’s own negotiating position as it was so clearly laid out in the Lancaster House speech, the Brexit White Paper, the letter invoking Article 50 and the Conservatives’ 2017 General Election manifesto. This line has also been endorsed by voters: 67% of voters would prefer no Brexit deal to a so-called “soft Brexit” (leaving the EU but remaining a member of its internal market).

However a couple of days ago, I was very pleased to hear the news that the Government has asked businesses to prepare for a no deal outcome in case the EU refuses to back down on the £87.7bn (€100bn) so-called Brexit “divorce bill” some EU figures are citing (here, here and here). This is despite the fact that the figure produced by the Institute for Economic Affairs’ (IEA) Brexit Unit is just £26bn (here) and despite the fact that the European Commission’s own lawyers have admitted that a €100bn “divorce bill” would be ‘legally impossible’ to enforce (here).

The most important part of the Government’s Brexit plan is the line that ‘no deal is better than a bad deal’ and this is what distinguished the Conservative Party from all of the other parties in Parliament on the issue of Brexit. None of the other parties ever said it. What is meant by a “bad deal”? A bad deal would be a punitive deal or a punishment deal which would, for example, require the UK to pay a “divorce bill” of €100bn, be subject to the jurisdiction of the European Court of Justice (ECJ) in Luxembourg, accept the freedom of movement of people from the EU to the UK or to continue to pay vast sums of money into the EU’s budget each year even after we have officially left the EU. Jeremy Corbyn refuses to say ‘no deal is better than a bad deal’ and instead simply said in his interview with Jeremy Paxman before the election that ‘there will be a deal’ and refused to say how much he’d be willing to pay in terms of the “divorce bill”. Why do I think that this line is so vital? This is because, if you are not willing to ever walk away from the negotiating table, not even if your red lines are not met, then you do not even have a negotiation in the first place as John Redwood MP has noted. You are saying that you will accept any deal at all and that ‘any deal is better than a bad deal’, regardless of how high the “divorce bill” is, regardless of much or little free access we get to the single market and, crucially, regardless of how similar the deal is to EU membership. If the Government were to unwisely take Labour’s position here, the EU could offer us a deal which was EU membership in all but name and we’d have to accept it. This is very similar to what happened with David Cameron’s so-called “renegotiation” of the terms of our membership of the EU where he made it clear to the Commission President from the start that, regardless of whatever reforms he did or didn’t manage to attain, he would still campaign and vote for the UK to remain in the EU anyway. This meant he lost any leverage and bargaining he may have had and thus ensured that Cameron failed to secure any significant concessions or reforms and got a lousy deal which, in part, led the British people to vote to leave the EU. The deal was so lousy that Cameron hardly ever mentioned it in the referendum campaign. Labour’s position would be like looking for a new house and, in advance, deciding that you will definitely buy the very first house you come to without even looking inside it and regardless of how much it costs. The worst thing to do in any negotiation is to appear desperate for a deal and to seek a deal at any cost. For Labour, in the words of Peter Lilley, ‘no price is too high, no concession too grovelling to accept’ (here).

We are by no means mere supplicants in this negotiation – quite the opposite in fact. The Governor of the Bank of England, Mark Carney, whose words were constantly quoted by remainers during the campaign has said that if there were to be no transitional Brexit arrangement, the ‘financial stability risks’ would be worse for the EU than they would be for the UK (here) and Michel Barnier has admitted that no deal would be a ‘bad’ outcome for both the UK and the EU. Barnier himself tweeted the following on 6th July 2017: “In a classic negotiation ‘no deal’=status quo. #Brexit ‘no deal’=return to distant past, which we should all avoid”. This is why he has stated that he would like to see a ‘special’ deal with the City of London on financial services after Brexit and why the EU’s own Trade Commissioner, Cecilia Malmstrom, has said that there will be a free trade deal with the UK ‘for sure’ (here), backing down from her original stance last year that trade negotiations could only begin once we’d officially left the EU. The Prime Minister of Hungary (one of the 27 remaining EU member states) said just yesterday that no Brexit deal would mean ‘big trouble’ and a ‘nightmare scenario’ for Europe (here). The EU and its member states have made it clear that they, like the UK, are also aiming for a free trade agreement and are very eager indeed to avoid no Brexit deal. This gives the UK huge leverage in these negotiations as the EU and its member states are likely to, at least eventually, back down from their stern positions and are likely to approve a good free trade agreement for the UK as they are very anxious to avoid no Brexit deal.

A free trade agreement with the EU is by no means necessary and we could survive and manage without one. The property developer, Richard Tice, and the former Director-General of the British Chambers of Commerce, John Longworth, have both said that a free trade deal with the EU would just be the “the cherry on the icing of the [Brexit] cake” (here). It’s also worth bearing in mind the facts about the most unlikely and worst case scenario of the UK leaving the EU with no deal at all. Firstly, the House of Lords’ EU Financial Affairs Committee has stated that the UK would have no legal obligation to pay the EU any “divorce bill” if we were to leave without a deal (here). Secondly, 6 of the EU’s 10 most important trading partners trade with the EU on World Trade Organisation (WTO) tariffs. Thirdly, we already conduct 56% of all of our trade (our trade with the 163 or so non-EU countries) on WTO tariffs and only 44% of our trade is conducted with the EU and this has fallen from 61% in 1999. 60% of our services exports go to non-EU countries and the amount we export to non-EU countries will undoubtedly increase significantly once we leave the EU and the customs union as we can then negotiate our own bilateral free trade agreements with them. 70% of the UK economy is domestic, 17% is exports to non-EU countries and only 13% is exports to the EU. The EU’s share of global GDP (PPP) is significantly shrinking – it was 30% in 1980 but was just 17% in 2015. Over the next 10-15 years, 90% of global economic growth will come from outside of the EU. The fastest growing economies such as China and Hong Kong are outside of Europe altogether and non-EU countries such as Switzerland have free trade agreements with many of them. As of 30th July 2016, 27 non-EU countries with a combined GDP of over £40 trillion had already signalled that they wanted to sign new trade deals with the UK once it leaves the EU and this potential market rather dwarfs the EU’s internal market which is worth about £12 trillion. Fourthly, as we have such a large trade deficit with the EU (which has risen from £60bn in 2015 to £78.1bn in 2016) and as the EU exports much more to us than we export to them, the EU would, in total, have to pay twice as much in tariffs on their exports to us as we would on our exports to them as Mr Redwood has pointed out. Even if you add up all of the tariffs the EU could put on all of our exports to them, it is equivalent to less than half of our annual net EU membership fee. The average most-favoured nation tariff on exports to the EU is less than 5% and just 2.3% for non-agricultural products. Finally, the Government has been and still is preparing for all possible outcomes of the Brexit negotiations, including no deal at all. Conversely, Barnier unwisely refuses to imagine the UK leaving the EU without a deal (here). This refusal in reflected in what Jeremy Browne, the City of London Corporation’s Special Representative to the EU, said recently, ‘it’s also quite noticeable that the EU, I think, is not doing sufficient planning on terms of worst-case scenarios at their end in terms of, you know, would Britain not pay an exit fee?’ (here).

As the former MP and former Secretary of State for Trade and Industry, Peter Lilley, has pointed out, we should instead focus on capitalising on the advantages of leaving the EU, its internal market and its customs union. The first advantage is that we will once again have full and permanent control of our trade, our laws, our regulations, our money and our borders. The second is that we’d once again have our own independent seat in our own right on the WTO and would have full and independent membership of the WTO in our own right. The final advantage is that we’d have the ability to strike our own free trade agreements with the 163 or so non-EU countries (over 90% of the world’s economies).

So all of the parties should get behind the Government’s line that ‘no deal is better than a bad deal’ to ensure we have the best chance of getting a good Brexit deal.

(This above article is a full, extended, revised and updated version of an entitled “No Brexit Deal is Better than a Bad Brexit Deal” article which I wrote for the “Student Voices” website in July of this year)

6 thoughts on “No Brexit Deal is Better than a Bad Deal

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