No assessment done yet of economic implications for UK of leaving EU without trade deal

British PM Theresa May

No assessment of the economic implications of leaving the EU without a trade deal has been undertaken by the UK Government since last year’s referendum, Brexit Secretary David Davis has said.

Mr Davis confirmed that leaving under World Trade Organisation rules would mean tariffs of 30-40% on agricultural exports and 10% on cars, the loss of EHIC health insurance cards for travellers and passporting rights for financial sector firms, as well as departure from the EU-US Open Skies arrangements for air transport.

But he said it will be possible to devise mitigating action in response to these issues, and it would be “otiose” to estimate their economic impact until that work has been done.

He told the House of Commons Exiting the EU Committee that he expected to be able to provide forecasts in about a year’s time.

His comments came as the European Council president Donald Tusk said that Europe will not be “intimidated” by British threats to walk away from trade talks if it cannot get a good deal.

In a statement to the European Parliament, Mr Tusk dismissed suggestions that a failure to reach agreement in Brexit talks would be worse for the EU than for Britain, telling MEPs: “A ‘no-deal scenario’ would be bad for everyone, but above all for the UK.”

Mr Davis has briefed Cabinet colleagues to be ready for the “unlikely scenario” of the UK crashing out of the EU without a deal – a prospect which Foreign Secretary Boris Johnson said this weekend would be “perfectly OK”.

Prime Minister Theresa May has made clear that she regards no deal with the EU as being better than a bad deal. Asked whether he thought leaving without a deal would be bad for the UK, Mr Davis told the committee: “I think it is not as good an outcome as a free trade, friction-free, open agreement, which is why we are trying for that.”

Confirming that no assessments of the economic impact of failure to reach a deal had been carried out since his appointment as Brexit Secretary, Mr Davis told the committee’s chair Hilary Benn: “Any forecast you make depends on the mitigation you make, and therefore it would be rather otiose to do that forecast before we have concluded what mitigation is possible.”

But he added: “You haven’t asked me about the upsides – for roughly 60% of our trade we could relax things the other way.” Explaining Mrs May’s “no deal is better than a bad deal” mantra, Mr Davis said: “She said that because in the emotional aftermath of the referendum, there were lots of threats of punishment deals and all the rest of it.

“We had to be clear that we could actually manage this in such a way as to be better than a bad deal, and that is true. “I can’t quantify it for you yet. I may well be able to do so in a year’s time. It’s not as frightening as some people think, but it’s not as simple as some people think.”

Mr Davis took a swipe at Mr Johnson’s TV interview comments, telling the committee: “I do my job on the basis of facts and data and research and analysis and operational planning, and off the back of that I will give answers that are accurate and factual – not throwaway lines in interviews, factual answers.”

Mr Benn responded: “Perhaps you should do all the interviews on this, rather than some of your colleagues.”
The Brexit Secretary said he expected royal assent to be granted on Thursday to the Bill giving Mrs May the power to start withdrawal negotiations.

But he declined to discuss the contents of the letter informing the European Council of Britain’s intention to withdraw, which the Prime Minister is due to send to Brussels by the end of March. He denied that the Government had postponed a plan to issue the letter on Tuesday this week, saying this would not have been possible because of the timing of royal assent.

Mr Davis said the Government had not yet been presented with a “divorce bill” by Brussels, amid reports suggesting the EU may demand as much as 60 billion euros (£52 billion) to cover outstanding liabilities owed by the UK.

“We haven’t seen anything,” said the Brexit Secretary. “Our stance is pretty straightforward – we are a law-abiding nation, we believe in international systems of rules and we obey them. “We have rights and obligations and we will insist on one and meet the other.”

Mr Davis acknowledged that the two-year negotiations over Brexit would “blow hot and cold” and that there would be “times when we disagree”. But he insisted that a good deal was “eminently achievable” because it was in the interests of member states to continue to enjoy free trade arrangements with the UK.

“From talking to member states’ foreign secretaries, finance ministers and prime ministers, there is a growing determination to get a constructive outcome. “The issue is whether the member states’ voices make it through to the Commission.”

He added: “My general view is that this is eminently achievable because the attitude of the European states is one which will want a good long-term relationship.

“Even this morning when Mr Tusk was saying sharp things, he said we want to be friends and we want to have an amicable long-term relationship.

“That desire, that wish, that commonality of culture and commonality of interest, is what I think will drive this in the long run, rather than any negotiating gambits we use.”

Following Mr Davis’s admission that no estimate had been made of the costs of leaving without a deal, Labour committee member Pat McFadden told the Brexit Secretary: “Without an assessment, you have mortgaged the country’s economic future to a soundbite.”

Mr Davis responded: “I have a fairly clear view of how it will work out, I just haven’t quantified it yet. We will get a quantification later on, but it is quite plain how it will work out

“On the one hand, we have the aim of a good comprehensive free trade agreement. In the event we don’t get that or there is no conclusion, we will have a fairly extensive contingency plan, which is already under way.

“And we will have, whatever happens, a sharply improved access to the rest of the world off the back of a large number of free trade agreements which will be coming into effect shortly after we leave – or some of them will be.”

Speaking outside the committee hearing, shadow Brexit secretary Sir Keir Starmer said: “The Government is recklessly talking up the idea of crashing out of the EU with no deal. They have repeated the mantra that ‘no deal is better than a bad deal’.

“But we now know they have made no assessment of the economic impact of the Prime Minister failing to secure a deal.

“What’s clear, from the CBI and others, is that there is no result that would be worse for the British economy than leaving with no deal; no deal would be the worst possible deal. The Government should rule out this dangerous and counter-productive threat before Article 50 is triggered.”

Mr Davis insisted there was only a “tiny probability” of the UK leaving the EU without a deal. Asked whether Parliament would be given a vote on this scenario, he replied: “We will no doubt make a statement to the House of Commons and it is up to the House what it wants to do.”

He issued a plea to Brexit-supporting ministers to avoid belligerent rhetoric over Europe, telling the committee: “I will continue to say to colleagues, ‘Keep this as calm as possible and as amicable as possible’.

“It’s very, very important that we ensure that the mood and temperature of our exchanges is controlled and, as far as possible, amicable. “There will be times when the negotiations will get tough, I’m sure, but tough does not mean spiteful or angry.”

Despite Mrs May’s promise in July 2016 that she would not trigger Article 50 until she had secured a “UK-wide approach” to negotiations, Mr Davis acknowledged that differences still remain with the Scottish Government.

“We haven’t got to a position where we are in an identical position, but we are very close on a lot of issues, but not all,” he told SNP committee member Joanna Cherry.

He accused the Scottish National Party of “political point-scoring” and said: “I’m afraid the stance of the Scottish Government has been a very political one, not necessarily in the interest of the people they represent.”

Mr Davis said that there may not be any further meeting of the Joint Ministerial Committee – which brings together ministers from the UK Government and devolved administrations – before Article 50 is triggered, but said he expected the Government to have “conversations” with devolved authorities before the letter is sent.

Liberal Democrat committee member Alistair Carmichael asked in a statement: “How can Theresa May claim that no deal is better than a bad deal, when her Government hasn’t even assessed what damage a chaotic hard Brexit would do?

“It is the equivalent of driving towards a cliff-edge with a blindfold on. It is appalling that this Government is days away from triggering Article 50, yet still hasn’t properly thought through the consequences of its reckless approach.”

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