28 August 2018

The false assumptions behind Project Fear 2.0

By Julian Jessop

The UK government has finally begun to publish briefings on the implications of “no deal” – and not a moment too soon. The public is being bombarded with warnings of potentially devastating impacts on the economy, their security and their welfare if the UK becomes a “third country” at 11pm on 29th March 2019, without the Withdrawal Agreement and framework for a future relationship anticipated in Article 50.

Let’s be kind and not spend too long on the daftest headlines. We all have our favourites. Mine is that a “no-deal” Brexit means that the UK would run out of food by August 2019 (the 7th, to be precise). This relies on the bizarre assumption that the UK would no longer be able to import food, not just from the EU but from anywhere in the world, and that we would continue to export food even as our own people starve.

Some other warnings do contain elements of truth and need to be taken seriously. But almost all describe hypothetical scenarios that are (very) unlikely to happen in practice. This is usually because they rely on some combination of up to seven assumptions, all of which are questionable.

First, such stories typically assume that reverting to third country status would inevitably mean no new agreements at all, on anything. Whenever people propose straightforward solutions to problems that would require some continued cooperation, Remainers then complain that this wouldn’t be consistent with “no deal”.

If it shuts these people up, I’d be happy to rename this sort of “no deal” scenario as something like “no deal plus”, or a “bare bones Brexit”. I happen to prefer these terms to the alternative of a “WTO deal”, as there are some important areas (such as air traffic rights) that WTO rules alone would not cover.

But whatever the precise words, the reality is that the EU already has lots of arrangements with other third countries that are not dependent on EU membership and which the UK and the EU could negotiate separately. A good example is the air service agreements that allow planes to fly. It is worth stressing too that some of this additional work would have to done in any scenario where the UK leaves either the Single Market or Customs Union, including under the Chequers Plan.

Second, most scare stories take it for granted that “no deal” would be acrimonious. But both sides may simply recognise that the clock has run down, and that a more ambitious deal will have to wait. In the meantime, the UK could help to maintain goodwill by guaranteeing EU citizens’ rights unilaterally, paying at least some of the estimated £39 billion for existing obligations, and keeping its side of the Irish border open.

Third, it is often assumed that the EU would ignore its other legal obligations, including WTO rules. Admittedly, this point may not be as powerful as some Brexiteers think. In general, it simply means that the EU would not be able to treat the UK any less favourably than other WTO members, and actually rules out any special treatment. Relying on the courts to fix things is also rarely a good idea. But it is absolutely right that the EU can’t go out of its way to make life difficult for the UK either.

Fourth, the warnings assume that the EU won’t care about the impact on its own economy. (As an economist rather than a lawyer, I obviously think this is far more important than the legal minutiae.) There is a rather fruitless debate about whether the UK or the EU would suffer more from a chaotic Brexit. The bigger point is surely that both sides would be worse off, and therefore it is in their best interests to cooperate. Just talk to German car manufacturers, or French cheese-makers.

Fifth, the Government gives far too much credit to the EU for improvements that probably would have happened anyway, and that therefore won’t be lost when the UK leaves. A good example here is the reduction in roaming charges when using mobile phones abroad. These charges have tumbled worldwide, due to falling costs and increased competition, even in the absence of EU intervention.

Sixth, the papers assume we’d be lost without EU institutions to set rules and regulate our lives. In practice, most EU rules are implemented by national regulators. The UK therefore already has a Civil Aviation Authority, a Food Standards Agency, a medicines regulator, and so on. They would have a little more work to do, but we would not be starting from scratch. What’s more, EU regulations would have been translated into UK law on day one after Brexit, so the rulebooks would still exist.

Seventh, and finally, no-deal predictions assume that the UK can’t fix problems on its own, or even that our government would do things that actually make problems worse. For example, scare stories about labour shortages and higher food prices assume that the UK would choose to restrict migration in crazy ways, or impose new tariffs rather than reduce existing ones. And we now know that the government would allow the UK regulator to decide that medicines authorised in the EU are safe for patients in the UK too.

To be clear, time is running out, and there is an awful lot that would still need to be done to allow a clean break in March 2019. Just because a problem is solvable does not mean that it will be. Any “no-deal” scenario is therefore likely to be a risky second best. But if the government is serious about its contingency planning, Project Fear 2.0 should prove to be just as exaggerated as the first.

Julian Jessop is chief economist at the IEA.