Consequences and Compromises: House of Commons Report into No Deal

With a new Prime Minister just days away, and the chances of a No Deal Brexit higher than they have ever been before, the House of Commons Select Committee on Exiting the European Union, chaired by Hilary Benn MP, has today published its report into the consequences of a No Deal Brexit on UK business.

The report draws from a huge number of evidence sessions dating back to 2017, including three separate sessions at which techUK gave evidence, the most recent session in June this year.  As a result the report is hugely detailed and seeks to cover almost every part of the economy on which a No Deal Brexit may have an impact.

One very welcome thing about the report is the focus it puts on services.  The service sector has often been absent from the Brexit debate, despite representing 80 per cent of the economy.  For the tech sector, from whom 81 per cent of exports are services, the recognition that Non-Tariff Barriers and new regulatory burdens are likely to be more impactful than tariffs and customs processes for many digital firms is a welcome one.  Also important is the focus placed on the importance of securing the free flow of personal data post Brexit, something on which techUK has given detailed evidence to the Committee. The report states that:

“[Securing an adequacy agreement] is exactly the type of process, to allow the UK and the EU to negotiate and adapt to a new relationship, that the transition period was intended for. Leaving without a deal would abruptly remove the transition period and create considerable bureaucratic and legal obstacles for businesses that depend on the free movement of data.”

This reflects evidence given by techUK on the time it would take to secure such an agreement, and the real difficulties that relying on Standard Contractual Clauses could have for many smaller firms.

Recognition of the impacts on mobility of workers to service contracts abroad, and the potential impacts on Venture Capital investment as the UK loses access to the European Investment Fund, are also strong reflections of concerns techUK member have raised as the risk of a No Deal exit has increased. The report concludes the close alignment with the EU’s Single Market is “vital” to prevent barriers to trade in services, and that membership of the Customs Union (often proposed as a solution to the Brexit impasse) would “do relatively little to support the UK services sector”.

The report also notes the different levels of preparedness between businesses of different sizes and the challenges many smaller firms face preparing for a No Deal Brexit. The reflects evidence from techUK’s Brexit Members’ Survey, quoted in the report, which showed 42% of firms had taken “no active steps” to prepare for No Deal, with the figure rising to “65” for the smallest businesses. This challenge is likely to increase the need for the Government to do more to support smaller businesses, including financially, if the next Prime Minister ultimately decides to take the UK out of the EU without a deal.

Finally, the report seeks to clarify once and for all the question of a transition agreement if there is No Deal. Many have suggested that a WTO rule known as GATT XXIV can be used to create a ten year standstill transition period in the event of No Deal. The report puts this idea to bed once and for all, noting that GATT XXIV requires an agreement to be utilised, and that by definition a No Deal Brexit means no agreement.

All in all, the report makes clear the real challenges that the UK economy and businesses across every sector faces in the event of a No Deal exit. Importantly the report concludes on a sceptical note about the idea that a No Deal Brexit might force the EU to take a more conciliatory approach to agreeing a deal with the UK, stating that this approach “is, at best, a gamble. At worst it could lead to severe disruption of the economy, pose a fundamental risk to the competitiveness of key sectors of the UK economy, and put many jobs and livelihoods at risk”.  Whether that gamble pays off might well be the question we are asking ourselves in November.

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