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Odds and consequences for the no-deal Brexit scenario - Daily News Egypt

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Odds and consequences for the no-deal Brexit scenario

How will a no-deal Brexit, which is highly expected by politicians, affect the Scottish question of independence, and British economy?


United Kingdom’s Boris Johnson made his first visit to Scotland last week, as part of his tour of the United Kingdom as Prime Minister. The tour comes in a decisive time, where his Conservative Party has refused to support a no-deal Brexit. However, his trip to Edinburgh was marred by crowds of protesters who booed and jeered as he arrived at Bute House for talks with Scotland’s First Minister, Nicola Sturgeon. Even more, the majority of Scots would vote for independence in another referendum, according to a shocking new poll conducted in the wake of Boris Johnson’s visit to Edinburgh.

At the same time, the pound sterling has fallen sharply early Tuesday to $1.2120, its lowest since March 2017. The Confederation of British Industry (CBI) has warned the government that neither the UK nor the EU is ready for a no-deal Brexit on 31 October.

A no-deal Brexit scenario is highly expected by politicians, becoming more and more inevitable as time passes. In this UK would face, several national and foreign issues. On the political scale, this scenario is facing odds between the UK and Scotland.

The Scottish affair

Johnson has vowed to leave the EU, “come what may” by the 31 October, the date the UK must depart if no deal has been reached “no ifs or buts” and the government is ramping up preparations for “no-deal” — something some senior politicians have warned could make the breakup of the United Kingdom more likely.

Scottish politician and Leader of the Scottish Conservative and Unionist Party since 2011, Ruth Davidson has issued a defiant challenge to Boris Johnson, pledging she will refuse to back a no-deal Brexit before his first visit to Scotland as prime minister.

Writing in her regular column for the Scottish Mail on Sunday, Davidson said: “when I was debating against the pro-Brexit side in 2016, I don’t remember anybody saying we should crash out of the EU with no arrangements in place to help maintain the vital trade that flows uninterrupted between Britain and the European Union.”

She added that “I don’t think the government should pursue a no-deal Brexit and, if it comes to it, I won’t support it.”

Johnson-made Michael Gove, British Conservative Party politician and the Chancellor of the Duchy of Lancaster, responsible for planning à no-deal Brexit. Gove has said the UK government is currently “working on the assumption” of a no-deal Brexit. He said that his team still intends to reach an agreement with Brussels, but, writing in the Sunday Times, he added: “No deal is now a very real prospect.”

In the 1975 European Communities membership referendum, it was England that returned the biggest majority for the UK joining the common market with 69%. Northern Ireland’s 52% support was the smallest. Next came Scotland on 58%, though it included the only two regions in the UK that voted to stay out – the Shetland Islands and the Western Isles.

In the Brexit referendum of 2016, the political dynamics had reversed. Now voters in England and Wales voted to leave the EU, while Scotland and Northern Ireland voted to remain. This difference has set the tone for much of what has happened since.

In 2014, Scotland rejected independence by a 55% majority. One of the reasons cited by those opposed to Scottish independence was that it would endanger Scotland being part of the European Union (EU). Following this Conservative victory, the “Leave” side won the June 2016 referendum with 52% of the vote. In Scotland, 62% of the votes were to “Remain” in the EU, with a majority of voters in every local authority area.

Fuelling calls for a second independence vote.

Although the concerns of those who voted to leave must be listened to and addressed, there is a strong desire in Scotland to be a full and active member of the European family of nations. The Scottish Government shares that desire.

After the 2016 referendum came the inevitable debate about whether Scotland and Northern Ireland could avoid leaving the single market against their will. Six months after the vote, the Scottish government published a Blueprint for achieving this by Scotland becoming a member of the European Economic Area after the UK leaves. The UK government refused to even entertain the idea of a differentiated Scottish Brexit.

The most straightforward way for both those regions to remain in the single market would entail the whole UK opting to stay in the EU’s single market. However, this option is impossible right now.

Johnson started his tenure by announcing £300m packages of new investment is for Scotland, Wales and Northern Ireland, which he said would “strengthen the union”.

Scotland has been part of the EU for more than 40 years, delivering many social, economic and cultural benefits for individuals, businesses and communities across Scotland. So, a “hard Brexit” would severely damage Scotland’s economic, social and cultural interests. It will hit jobs and living standards, according to Nicola Sturgeon the First Minister.

Nevertheless, whether the only option for Scotland to maintain its economy is “an independent Scotland” is a question that poses itself to the British political scene.

No-deal tolls over the UK’s economy

Although the Scottish affair is far from being the only issue that the UK is facing, a huge event such as the Brexit would necessarily have significant economic effects on both sides. A no-deal Brexit has always meant that the UK would have greater flexibility to set its trade tariffs because it won’t be any more part of the EU single market. Which means that the UK doesn’t have to accept all four EU freedoms: movement of goods, capital, services and people.

The government has now introduced its temporary plans on how it would take advantage of that opportunity. It has said it will cut tariffs to zero on 87% of the goods it imports if the UK leaves the European Union without a deal in place.

As a member of the EU, the UK currently applies the EU’s common customs tariff to goods imported from outside the EU. Accordingly, goods from countries with which the EU has free trade agreements are exempted of such fees. But in the event of a no-deal Brexit, the UK would no longer apply the EU’s tariff policy and so would have to make decisions about what, if any, tariffs to impose.

UK government has published details of its temporary tariff regime for no deal, in March 2019, designed to minimise costs to business and consumers while protecting vulnerable industries. Under the temporary tariff, 87% of total imports to the UK by value would be eligible for tariff-free access. Tariffs would still apply to 13% of goods imported into the UK. This includes a mixture of tariffs and quotas on beef, to support farmers, retaining several tariffs on finished vehicles to support the automotive sector.

At the moment the EU maximum tariff on cars from outside the EU is 10%, while on some types of beef it is 12.8% plus 265 euros per 100kg.

All Tariff revenue would go to the UK Treasury, which provides revenue for governments, although compared with other types of tax the contribution is relatively small in rich countries. Tariff revenue collected by the UK was about £3bn in 2017. It could be less if tariffs are eliminated widely enough, or more because remaining tariffs would be applied to EU goods that are currently tariff-free. To complicate things further, new tariffs can reduce demand for some imports, and cutting tariffs can do the opposite.

Tariffs are, as a general rule, are reduced or eliminated where there are no British producers to protect, which may help lower costs in the shops. However, it is important to note that some goods are already exempted from the EU tariffs, where the country concerned has a trade agreement, so the drop in prices may not be as great as expected.

Another consideration is that lower tariffs might be offset by a decline in the value of the pound sterling, which analysts think is particularly likely in the event of a no-deal Brexit. Consequently, some beef cuts will be subject to tariffs of over €150 per 100kg. Vehicles from mopeds to busses will be hit with tariffs ranging from 6% to 22%. Imported porcelain or china tableware and kitchenware will be hit with a 12% tariff.

All these tariffs, if and when they come in to force, will apply to imports from the EU, which are currently completely tariff-free, as well as imports from elsewhere. Under the World Trade Organization (the UK is a member) rules. Theresa May’ Chequers plan, the past Prime Minister focused on building a long-term relationship with the customs union and the single market to keep Britain in an EU-UK free trade area covering goods and agriculture.

Farmers say millions of sheep might have to be slaughtered if tariffs are slapped on lamb exports to the EU. On the contrary, Johnson’s office argues that leaving the 28-nation bloc and its rules-bound Common Agricultural Policy will be “a historic opportunity to introduce new schemes to support farming” and will open up new markets for UK agricultural exports. Also, he insists that the bloc make major changes to May’s deal.

This might be negotiable, as the British pound touched its lowest level in over two years against the dollar.

No-deal Brexit would have profound economic consequences with GDP shrinking by up to 8%, putting thousands of jobs at risk, the Confederation of British Industry is to warn. When adjusted for inflation, total earnings in the last three months of 2018 rose by 1.3%, the fastest increase since late 2016, the ONS said.

In late February British workers’ pay growth maintained its fastest pace in a decade in late 2018 and job creation stayed strong, data showed, suggesting the labour market was buoyant ahead of Brexit as the broader economy slowed. Which leads us to discuss the job creation question.

With unemployment at its lowest rate since 1975 – 4.0% in the three months to December – employers have begun raising pay for staff more quickly. The Chartered Institute of Personnel and Development, a human resources professional body, said that private-sector employers planned to increase basic pay rates this year by the most since the survey started in 2012. The Bank of England has said it will need to raise interest rates gradually to offset inflation pressures from rising pay.

The ONS data showed a fall in the number of EU workers in the United Kingdom, largely driven by a decline in eastern European workers. But the number of non-EU workers rose, resulting in a total annual increase of 83,000 foreign workers in the country in the last three months of the year.

Noting that the UK economy has become increasingly reliant on the service sector, both as the main engine of job creation and as a source of export demand. Between 1997 and 2013, according to ONS data on final demand5, the proportion of services in total UK exports rose from 28% to 41%, with rapid growth in key service activities, such as financial and business services. These sectors are now as important to the overall UK export effort as the major manufacturing sectors of cars, aerospace, computers and electronics and pharmaceuticals.

The British pound touched its lowest level in over two years against the dollar after Prime Minister Boris Johnson said a hard divorce from the EU was in the cards, while stocks dipped globally with Wall Street backing off record highs.

Studies published in 2018 estimated that the economic costs of the Brexit vote were 2% of GDP or 2.5% of GDP. According to a December 2017 Financial Times analysis, the Brexit referendum results had reduced national British income by 0.6% and 1.3%.

But Johnson – who just weeks ago put the odds of leaving without a divorce agreement at a million to one – said on Monday he was “very confident” of getting a new deal. Currently, there are no new negotiations planned between Britain and the bloc.

Being less than 90 days away from the deadline, and with Johnson’s announcement, who appears to be sure of UK’s victory, make the world think on how the final chapter of the Brexit will, and which side will have the upper hand in it.

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