A Brexit extension has been called for by members of the European parliament after another deadline for negotiations passed on Dec 20.
Talks are ongoing and if a deal is made before the end of the year, some MEPs indicated they want to maintain current trading arrangements until the deal can be ratified – which could take until February.
Boris Johnson has said the UK’s position is “unchanged” despite the chaos caused by a new variant of coronavirus , with hundreds of lorries trapped in Dover queues after France closed its borders with the UK.
“We need transitional solutions. Extension of the transitional period would be best. But it takes two to tango – the UK would also have to agree,” said Bernd Lange, the chair of the European Parliament’s trade committee.
The two sides have made progress on the so-called ‘level playing field’ since the last deadline, Dec 13, was extended, but remain divided over fishing rights, state subsidies and lightening tariffs, according to Downing Street.
Boris Johnson has said that in the event of a no deal that “WTO terms would be more than satisfactory for the UK… not that we don’t want a deal.”
Cabinet minister Michael Gove lowered expectations, claiming the odds of an agreement were “less than 50 percent, ” as the government prepared the Royal Navy to patrol Britain's fishing waters in the event of a no-deal.
“No-deal” contingency planning was ramped up by Mrs von der Leyen ramped up earlier this month, including measures that would ensure basic reciprocal air and road connectivity between the EU and the UK.
The Telegraph revealed on December 13 that cabinet ministers are drawing up a multibillion-pound bail-out package to bolster industries hardest hit by a no-deal Brexit.
Will a no-deal Brexit affect the Covid-19 vaccine?
Even in the result of a no-deal Brexit, the UK is carrying out "extensive plans" to guarantee vaccines will still come to Britain from Europe.
In an interview with Sky News, the Foreign Office minister revealed: "We are committed to make sure we get that vaccine supply, it's an absolute priority product."
He also shared that there are "independent travel plans", including some non-commercial flights to ensure the jabs reach the UK safely.
Is a no-deal Brexit really possible?
The UK is now in a transition period that freezes its membership of the Union until the end of the year, but if no deal is reached by then Britain leaves the EU without one.
UK-EU trade negotiations have remained deadlocked over fishing rights, level playing field guarantees and the enforcement of the deal.
Some compromises have been made, with the EU backing down over some post-Brexit fishing arrangements on December 6.
The UK government also said it is willing to remove three controversial clauses from the Internal Market Bill as an olive branch to the EU, but no progress has been made on the issue of the “level playing field”.
Failure to agree on replacement trading arrangements will mean the UK leaving trading on World Trade Organisation (WTO) terms come January 1, 2021, which would introduce tariffs and quotas.
The Withdrawal Agreement will remain in place, so issues like the Irish border and the so-called “divorce bill” will be settled under its terms, but many other issues remain unresolved. In other words, what is now known as “no-deal” might better be viewed as a “no trade deal” exit.
A no-deal outcome could lead to a three-month “meltdown” at UK ports and significant tariffs on car and agriculture exports after it leaves the bloc, according to Yellowhammer , a leaked Whitehall document outlining the possible worst-case scenarios.
The deadline for the end of the transition period is fast approaching, and a deal needs to be struck well before December 31 in order to be ratified in time.
Boris Johnson has put the country on notice for a no-deal Brexit after telling his Cabinet that Brussels wants to "punish" Britain for refusing to be yoked to EU rules.
On December 13, the Prime Minister said there is a trade "deal to be done". However, he revealed that the UK and the EU "remain very far apart" on several significant issues. He also warned the country to prepare for no deal.
What would no-deal look like?
The European Commission set out a no-deal contingency proposal on December 10 for fisheries, roads and air travel, which could apply from January 1 for a limited time period if no deal is reached.
The Commission proposed maintaining reciprocal fishing access between the UK and EU until December 31, 2021, or until a fisheries agreement is made – whichever comes first.
The plans cover road connectivity for freights and buses including regulations equivalent to those that already exist in the EU, which is important to keep an open border between Northern Ireland and the Republic of Ireland.
On December 13, the Democratic Unionist peer Lord Nigel Dodds also revealed his hopes that the extension of talks may lead to a tariff and quota-free trade deal between Great Britain and Northern Ireland.
Mr Dodds shared his concerns regarding a no-deal Brexit, suggesting it would be hard for trade between Northern Ireland and the EU to continue. He shared: “We must ensure that Great Britain to Northern Ireland trade is tariff-free and with the minimum checks.”
For the six months following the transition period, the Commission proposes that the UK maintain EU aviation safety regulations to allow planes to enter Union territory and for members states’ planes to do likewise in the UK.
The Channel Tunnel will operate under a regulation adopted by the Commission, which empowers an Anglo-French intergovernmental commission with authority in EU law to supervise the rail for two months until France takes over its side.
The commission has insisted any contingency deals between the UK and individual member states must only be temporary and must not undermine Union negotiations or law.
What will WTO trade terms mean for the UK economy?
If there is no deal, the UK will trade with the bloc on World Trade Organisation (WTO) rules from January 1, meaning all imports and exports would be subject to border checks, quotas and tariffs.
Every member in the WTO has a list of tariffs and quotas, otherwise known as WTO schedules, that they apply to other countries with which they don’t have a deal. The United States, China and Brazil are some of the countries that currently trade with the EU using this system, alongside other deals.
The average EU tariff is relatively low (about 2.8 per cent for non-agricultural products) but in some sectors tariffs can be much higher.
Cars would be taxed at 10 per cent and dairy products could rise as high as 35 per cent.
This would have a big impact on UK businesses selling their goods to the EU.
Medicines are not subject to tariffs under WTO rules, but agricultural and manufactured goods such as cars would become more expensive. The price of cars could increase by 10 per cent while some food products such as cheese and beef could see a 50 per cent price hike, according to calculations by the British Retail Consortium (BRC).
There are no tariffs on electricity or gas shipments between the EU and WTO members, so arrangements with the UK would be unaffected if it crashed out on those terms. However, leaving the internal energy market may make trading more difficult, which could affect prices.
The Telegraph reported on December 14 that supermarkets are stockpiling pasta, flour and tinned goods to boost supplies on shelves from January 1, following Government ministers' warnings that the chances of a no-deal outcome to Brexit trade talks are rising.
Extra reserves of non-perishable foods and essentials such as toilet paper are being built up by shops and suppliers to counteract the threat of turmoil at UK ports when the Brexit transition period finishes at the end of this month.
Disruption to fresh produce supplies are meanwhile being treated by retailers as likely, since they cannot be stockpiled.
Tariffs & Consumer Prices
Approximately 30 per cent of the food in British supermarkets is imported from the EU, meaning consumers can expect to see a dramatic increase in their weekly food bill if a deal is not agreed upon.
The National Farmers Union (NFU) has warned that a no-deal Brexit would be “catastrophic” for British agriculture, costing the sector £1.36bn in extra levies.
Minette Batters, the President of the NFU, told the BBC: “We (would be) priced out of the market. You'd be looking at enormous tariffs on every sector – 62 per cent on lamb, 85 per cent on beef, 51 per cent on malt and barley. It would be very savage and a total cost of £1.36 billion pounds in tariffs."
Finance & the City
The EU is heavily reliant on London for some financial services and its capital markets.
Whether or not there is a trade deal, UK financial services will only be granted access to the EU market on the basis of "equivalence", which is the same system of regulatory recognition held by US firms.
Equivalence is a unilateral commission decision and can be withdrawn at as little as 30 days’ notice in some cases.
Brussels has already moved to grant equivalence to UK-based clearing houses, arguing that the institutions, which guarantee large deals, are vital for financial stability.
Bank of England governor Andrew Bailey has previously warned that a no-deal Brexit would do more long-term economic damage to the UK than the coronavirus pandemic.
Trade & customs
The default commission position is that "all relevant" EU legislation will apply to imports and exports, including tariffs, which will mean customs checks.
There could be lines of 7,000 trucks at Dover and two-day waits to get into France immediately after the UK, according to worse case scenarios drawn up by the UK government.
Up to 60 per cent of lorries might not have the correct paperwork on January 1, the government said.
The last time no deal was possible, the commission said the UK would have to apply to a licence scheme that currently only covers 5 per cent of the volume of hauliers traffic.
There is a small risk of a total ban on all meat exports to the EU, if Brussels does not put the UK on its list of countries with high enough food standards.
The commission insists listing will take place as soon as it gets details of the UK's future food safety regime.
European Council President Charles Michel has also stated that the Level Playing Field (LPF) for trade policy is a “key issue” for the EU.
The Office for Budget Responsibility (OBR) warned that no-deal would leave the UK worse off to the tune of 1.75 per cent in terms of real GDP next year and that unemployment could reach 8 per cent, a full percentage point higher than if a deal is reached.
The Telegraph reported on December 14 that crucial updates to IT systems that will enable smooth trade between the UK and the EU from January are being delayed because of continually missed Brexit deadlines, likely heaping further chaos on already struggling ports.
UK Services trade with the EU was worth £89bn last year, all of which is heavily reliant on the ability to transfer data across borders. The UK has already put the EU's General Data Protection Regulation (GDPR) on its statute book.
For now the EU is refusing to say it will reciprocate the UK's stated intention of allowing data to flow freely from the EU, but industry experts note that when the US-EU Safe Harbour data deal collapsed the EU allowed a period of non-enforcement of its rules.
Giles Derrington of Tech UK stated that even if a “data drawbridge” did go up, other legal avenues such as “standard contract clauses” are also available. These clauses are not a fail-safe, but already cover some 80 per cent of personal data transfers.
Forty-five million packs of medicines move from the UK to the EU and 37 million come back the other way every month, according to the Association of the British Pharmaceutical Industry (ABPI).
A leaked Government document suggested medicine supplies could be cut to as little as 60 per cent for three months in the event of a no-deal Brexit. The report said flow rates of medicines “could initially reduce to 60-80 per cent over three months which, if unmitigated, would impact on the supply of medicines and medical products across the UK”.
The Department of Health and Social Care (DHSC) has encouraged medical suppliers to try and stockpile six weeks worth of stock, as part of no-deal contingency plans. In a letter to medicines and medical product suppliers, the department advised that having extra stocks “provides a further buffer against disruption”.
At the time of the letter, dated November 17, the department said it was on course to have six weeks’ worth of stocks of “fast-moving medical devices and clinical consumables”, including supplies which it said are “vital” to the Covid-19 response, by the end of December.
The ABPI welcomed other preparatory measures including an announcement in October of agreements to secure freight capacity on nine routes serving eight English ports in areas thought less likely to experience disruption.
But the deputy chair of the British Medical Association (BMA), Dr David Wrigley, has raised concerns that some medicines with short shelf lives cannot be stockpiled, such as insulin. Despite these concerns, individuals have been discouraged from stockpiling their own medicines.
Economic disruption caused by a no-deal Brexit could pile more pressure on already squeezed banks, forcing savings rates down. Interest rates have already fallen this year after the Bank of England slashed its base rate twice in March 2020 to a record low level of just 0.1 per cent.
Central banks tend to cut interest rates to stimulate the economy, however, further cuts after a disorderly exit from Europe could push rates into negative territory. This means savers could end up having to pay banks to look after their cash. There are currently no easy-access accounts that can beat October's inflation figure (0.9 per cent). A no-deal could also lead some financial firms without a British banking licence to leave the savings market entirely. That would be bad for competition and could push rates down further.
Read more: Brexit: what could it mean for your savings?
Britain has lagged behind other major stock markets since the 2016 referendum. Investors, concerned about what will happen after January, have held off investing in UK companies.
Stock markets face a binary choice. Clarity on trading relations would help to restore confidence and should boost the value of the pound. This could have a negative impact on British companies that derive much of their earnings abroad. These include pharmaceuticals giants AstraZeneca and GlaxoSmithKline and consumer staples Unilever and Diageo. Companies that are closely tied to the British economy should benefit. Domestic banks for example would be among the most sensitive to any trade deal with the EU.
The opposite would be true in the case of a no-deal.
Britons who moved to Europe in retirement have until now benefitted from the same uplift to their state pension as retirees in Britain enjoy. The triple lock ensures their payments increase each year in line with the highest of price inflation, average wage growth or 2.5 per cent.
The government has confirmed it will carry on increasing state pensions abroad by at least 2.5 per cent each year until March 2023 at a minimum. But whether those moving to the EU after 2020 will get the same uplift will depend on the outcome of the Brexit negotiations.
All pensioners could suffer if much of their pot is invested in Britain. As discussed above, if there is no deal, this could spell bad news for the stock market and reduce the value of pensions unless savers have a guaranteed final salary-linked income.
The property market is currently booming, but experts have warned that the momentum cannot last. The economic uncertainty of a no-deal is likely to hit the sector just as the government support measures that are boosting the market come to an end. These include the furlough scheme and stamp duty holiday. A no-deal could make any economic downturn far worse and the Centre for Economic and Business Research, a think tank, has predicted a 13.8 per cent fall in house prices next year.
A silver lining for homeowners is that mortgage rates could stay low for longer following the Bank of England’s record Base Rate cut. The added economic uncertainty brought on by a no-deal would make raising the rate soon even more unlikely. However even if interest rates turn negative, homeowners should not expect their bank to start paying them to hold a mortgage.
However, economic instability will make lenders more nervous about offering mortgages, particularly to people with a lower income and smaller deposits. Lenders may also increase their profit margins to account for the extra risk.
Britons who own holiday homes in the EU will not be granted any special exemption to spend more time there without the necessary paperwork, even if a deal is agreed.
Under the terms of the Withdrawal Agreement, people who currently spend six months of the year in Spain or France will now be restricted to 90 days in any 180-day period.
Britons could spend three months of the summer and three months of the winter in the EU, but not all of the warmest months. If holiday home owners want to spend more than the allotted time in their property, they must apply for a visa or seek full residency in the country where they have bought their property, which would require them to pay taxes there and could mean they lose their NHS provision in Britain.
A free trade deal with the EU will not change the residency arrangements for UK citizens in Europe, which has angered some second home owners.
Campaigners argue that since EU nationals will be able to stay in the UK without a visa for six continuous months after Brexit, Britons with second homes abroad have been unfairly discriminated against. Government guidance states that second homeowners will "need to meet the entry requirements set out by the country to which [they] are travelling" to spend more than 90 days on the continent.
Britons using a "pet passport" for dogs and cats abroad will have to use a new scheme from Jan 1, but the details have yet to be finalised. Pet travel is not a component of the UK's free trade deal with the EU, so will not be affected specifically by a no-deal outcome. The UK Government, however, has formally asked the European Commission to be allowed to participate in a scheme for non-member states.
It is possible the UK could be given "unlisted" status that would mean anyone taking a pet across the border would be required to have their animal microchipped and complete a blood test three months before travelling.
Vets would also have to sign an animal health certificate, which proves the pet has had a microchip and blood test – and travellers could be asked to present that certificate at the border.
If the UK receives "part one" status, pets will be allowed to travel as before, but with a new passport that reflects Britain's status as a third party country. "Part two", which falls between part one and unlisted status, would require pets to have a rabies vaccination 21 days before travel, and a new animal health certificate from a vet for every visit.
Passports and visas
Currently, anyone visiting an EU country only needs a passport that is valid for the proposed duration of their stay. From Jan 1, however, they will need to have at least six months of validity on their travel documents.
Those who do not renew in time will not be able to travel to most EU countries as well as Iceland, Liechtenstein, Norway and Switzerland. These rules do not apply to travel to Ireland. You can continue to use your passport as long as it's valid for the length of your stay.
The Government says tourists will not need a visa for short trips to EU countries, Iceland, Liechtenstein, Norway and Switzerland. "You'll be able to stay for up to 90 days in any 180-day period," it adds. "You may need a visa or permit to stay for longer, to work or study, or for business travel." Note that separate trips to separate EU countries will count towards your 90-day limit.
The European Commission has previously said that, after Brexit, UK passport holders will need to apply for a new ETIAS (European Travel Information and Authorisation System) visa waiver. This is similar to an American ESTA, will probably cost around £6 and be valid for several years. However, its introduction was recently postponed until 2023.
Despite this, we may well find – after December 31 – that it takes longer for British citizens to be processed at airports and other immigration points to the EU. The European Tourism Association has estimated that, even under the ETIAS scheme, additional checks could add an extra 90 seconds for each UK passport holder. That would mean in theory that it would take an additional five hours to process a 737 full of British passengers. In practice it seems likely that most airports will bolster immigration staff to reduce delays.
Once we are inside the EU, of course, we will be free to travel within the Schengen area (which comprises most EU countries) as there are no further border controls (Covid restrictions notwithstanding).
Health and EHICs
Under the transition arrangements, British passport holders have been entitled to free or reduced-cost medical treatment in EU countries during 2020. A European Health Insurance Card (EHIC, formerly E111) is proof of this entitlement. This will no longer be valid after December 31 – you will need to buy travel insurance instead and the cost of this will probably rise during 2021.
The EU Travel Directive, which guarantees financial protection against the failure of your holiday operator and which was so important to all those who got stranded or lost their holidays when Thomas Cook collapsed last year, is enshrined in British law. If the Government wanted to water down those protections – which seems unlikely – it would have to change the law. Meanwhile the remarkably high levels of compensation for delayed or cancelled flights which are covered under another EU directive are also part of UK law. British airlines are likely to lobby hard to get these watered down after we have left.
The Government says: "Some travel insurance policies only cover certain types of disruption. Check your provider's terms and conditions to make sure you have the cover you need if your travel is cancelled or delayed. Your consumer rights will not change from 1 January 2021. This means that if your travel is cancelled or delayed you may be able to claim a refund or compensation. Check your booking's terms and conditions to find out more."
If you want to drive in the EU from 2021 you may need an international driving permit (IDP) to drive in some member countries. This is obtainable through the Post Office (£5.50). If you take your own car abroad from 2021 you may also need to arrange additional cover with your insurer and carry a Green Card to prove that you have done this.
UK mobile users will no longer be automatically entitled to free roaming after December 31. Vodafone, O2 and Three have indicated they will continue to offer it – but we don't know for how long or on what terms. The Government says it will cap automatic data charges at £45 a month for operators that do not continue free roaming. But that doesn't limit the rate at which you will be charged, just the total amount you can be billed automatically. So you could find that you reach the £45 limit rather quickly, then have to decide whether to stop using your phone or pay for more data.
Some restrictions on freedom of work and movement are inevitable even in the event of a deal, and it is almost certain that British citizens will no longer be able to work in EU countries without a permit. From a travellers' point of view that is most likely to affect young people who might to fund a trip around Europe or learn a language by taking casual jobs, or work a ski season.
We lost the right to buy duty free when travelling between EU countries in 1999. But we gained the right to bring home virtually unlimited amounts of duty paid goods – such as wine from France, where it is significantly cheaper than in the UK. From 2021 the Government says that we will be able to buy duty-free tobacco and alcohol when travelling to the EU but it is still unclear exactly what the allowances will be and whether there will be changes to the duty paid arrangements.
Travel to the Republic of Ireland
Travel between the UK and Ireland is covered not by British membership of the EU but by separate arrangements for the Common Travel Area, which covers the UK, Ireland, the Isle of Man and the Channel Islands. This stands to remain the same even after we leave the EU, the Home Office has said.
If a point is reached when no-deal becomes inevitable , then the interests of both sides would become equally aligned in avoiding a catastrophic outcome.
But the EU will only take unilateral, temporary measures to protect its interests and this should not be confused with mini-deals.
Even with temporary measures in place, the fundamental question of what future relationship Britain and the EU want will remain.
No-deal is not sustainable for the long term and eventually the two sides will need to return to the negotiating table.
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