According to a recent poll, some 60% of the nation are pessimistic about the year ahead and only 38% support the concept of a No-Deal Brexit. Despite this, and even before Boris Johnson assumed the office of PM, political analysts forecast a 70% likelihood of some form of No-Deal scenario. So, should we chase the story of Brexit chaos and economic capitulation? Well, I do appreciate that the proposal of following WTO regulations is near-dead-and-buried and Johnson’s hopes for a deregulated and low tax Britain would make it easier for Britain to rely even more on its (dubious and London-centred) financial services sector. Further, the EU will still be keen on making something of an example of the UK to prevent other members from following their lead, and a No-Deal is perhaps the worst-case scenario for already frigid short-term market sentiment (with fears UK bonds could soon mirror the recession-indicating inverted yield curve of the US). However, I’d first point out a re-hashed and at this stage nigh-on arbitrary point. That is, even in a No-Deal scenario, it is in the EU27’s interest not to extensively hamper the flow of trade between EU member states and the UK post-Brexit. As seen with Trump’s tariffs and the scorched earth campaign the US pulled off on Chinese economic growth, it would be economic masochism on the EU’s part to impose heavy duties on UK goods and services, seeing as the EU has a £60 billion export surplus to the UK (compared with UK exports to the EU). Assuming characters such as Macron and the rest of the hard-line equipe de frappe are willing to take UK tariffs on the chin, what’s to say the EU’s smaller member states are willing or even able to follow suit? Second, and more importantly, I wouldn’t ‘chase the story’ of economic demise until we know more about the state of play with import logistics and inside political game-playing. While it’s all well and good reporting on fear-inducing headline grabbers such as the leaked ‘Yellowhammer’ paper, media outlets do the public a disservice by purposefully polarizing public opinion and not sharing what they likely already know about Brexit preparations. This article will hopefully demonstrate my disappointment with all parties involved and will set out some of the concession proposals being discussed, as well as a few of the (attempted) contingency plans that are already under way.

Will the EU relinquish the stick in favour of the carrot?

The EC will be relieved to hear the end of October isn’t too far away – they’ll soon be able to stop flexing their muscles and let their guts hang loose. After two years of inflating their proverbial chests, the European Council’s punitive show of strength against UK policymakers and negotiators is expected to crumble with their new(ish) leadership and ultimately, a shift in priorities. Approaching the revised deadline date, it looks likely that leader Charles Michel will place greater value on preventing a further Brexit extension than maintaining the unaccommodating approach which has thus far been the go-to of European bodies. Insight from Brussels suggests that with the situation in Westminster looking about as positive as Boris Johnson could have hoped for, the Commission are preparing to make concessions in order to garner support for some incarnation of the Withdrawal Agreement. There are, however, caveats to this possible next move in the game of Brexit chess. The Commission could potentially delay the publication of its concession proposals until the end of September, with the goals of testing Boris Johnson’s mettle and his ability to prepare for a No-Deal scenario, as well as not allowing the UK to extort them in search of further concessions down the line (fearing the UK will simply bank any changes made now and demand further concessions later, before endorsing a deal). Regarding the Commission’s proposals, it is expected that concessions will be largely superficial, affecting the presentation of the ‘backstop’ and mapping out the creation of a new document which bridges the Withdrawal Agreement and Political Declaration. This outcome could easily be framed to make both sides appear – superficially – favourable, but is by no means the No-Deal panacea. The Commission has already (if reluctantly) supported No-Deal mitigation measures being taken by Member States, and the Irish national budget published in June was influenced by the likelihood of a No-Deal Brexit outcome, and tension between the country and its EU27 counterparts.  

The patch-up of leaky No-Deal customs arrangements

Agreements have already been reached on aviation and security, with more expected should a ‘No-Deal with pluses’ scenario materialise. However, all No-Deal legislation proposals in Westminster have and will continue to be met by a legal and constitutional phalanx. Regarding trade and customs arrangements alone, the government’s objective as it stands is to establish linked, pre-registered and digitally led systems based on an ad hoc architecture of secondary legislation. This concept makes sense in that it emulates the French system of keeping goods moving seamlessly and tracking them with EU barcodes. However, the way Britain has proposed rolling out its own version of this scheme has left it fraught with complexity and uncertainty. First, the government has thus far put most of the onus on companies to implement and manage their new and onerous customs requirements. They do deserve some credit – proposed measures such as the ‘office of transition function’ being performed digitally and the pre-registration of goods will mean that there will be less need for checks at ports and the flow of goods over the Irish ‘land bridge’ should remain largely unimpeded. That being said, the logistical challenges companies will face despite the conditions listed above, are considerable. Picture if you will, a lorry carrying 100 deliveries; this one vehicle’s cargo will have 100 different (but linked) pieces of documentation confirming they can enter the EU27 and have ‘permission to progress’ from HMRC. Not only does this process represent a vast workload for civil servants and digital servers (no prize for predicting it will go wrong at some point), but also a tier of complex bureaucracy which undermines Boris’s dream of making Britain a deregulated trade haven. Worrying too, is the fact that this process began with HMRC writing to 145,000 VAT registered companies, the majority of whom are inexperienced in submitting export declarations, telling them to apply for an EORI (Economic Operator Registration and Identification) numbers so they can continue to trade with the EU once the UK leaves the single market. By the end of June, only 45,000 had registered, and there is speculation of a further 100,000 eligible companies who didn’t receive letters from HMRC. More concerning perhaps (or amusing if, like me, taking this whole process seriously takes too much of a toll on your sanity), is the precariousness of the legal framework supporting these new customs arrangements. The first offering of the government’s non-legislative customs meze is the use of Ministerial Directives and proclamation to push through the measures detailed above. This is followed by a Frankenstein job on pieces of primary legislation. Rather than waiting for the Trade Bill to be passed, the government used powers granted in the Taxation Act to establish new trade defence functions; similarly, it used prerogative powers to implement components of the delayed Fisheries Bill. Now, neither of these activities are startlingly irregular in policy implementation, but in a legal context they are so half-hearted that even ‘special one’ Dominic Cummings couldn’t save them. For this reason, a snap election is a necessity for the BoJo government; he needs to introduce post-facto legislation for his No-Deal measures, which require the backing of a steady parliamentary majority. Failing this, the way No-Deal policies initially passed through bicameral scrutiny will prompt legal challenges. The likelihood of these challenges occurring and being substantiated are increased by the fact that even where Secondary Legislation does exist, drafting errors make the pursuit of Judicial Reviews likely in future. So, if you’re still with us, here’s the run-down: the EU will try to convince us to be cool and agree to a revised deal, we’ll probably turn down that level of commitment and opt for No-Deal with benefits, that probably won’t change TOO much for most people and it’ll be fine – even if our plan of action hinges on a game of subvert-the-uncodified constitution (or alternatively, legislation Chinese whispers?). Maybe the No-Deal cohort could be tricked into signing the WA if the EU said they could do it in crayon? Apologies for being facetious – not because legislative hijinks are clever and not a child-like trick, but because they’re allowed to happen and our democracy’s best hope (the opposition) is woefully ineffective – it deserves only hollow laughter.  

The UK setting sail for the Brexit horizon

All Government Departments – other than the Treasury and BEIS – have published Single Departmental Plans which, significantly, do not refer to the Implementation Period laid out in the WA. The government also sped up plans to make unofficial payments to EU27 members to help facilitate No-Deal Brexit mitigation measures, which include a renewed 876 page draft ‘partnership agreement’ on UK funding for EU development programmes (condolences to those thinking Brexit would mean no more money going to those nasty Europeans). MPs still clinging to hope of remaining in the union will have to follow the lead of the attempted Grieve-Beckett double act, and resort to increasingly drastic measures to block or delay a No-Deal Brexit. While any attempt to do so would be unlikely and controversial, I’d wager that a deal-based Brexit may now be seen as equally undesirable, on the basis that it would require a further extension to withdrawal negotiations, at the end of which we’d probably find ourselves in a similar situation to the one we’ve been in for the past two years. No-Deal, then, is perhaps the closest means to fulfilling the mandate provided by the 2016 referendum result. That’s not to say I’m in favour of a No-Deal Brexit by any means. Being optimistic, it represents an opportunity, which would be an interesting prospect if we had more of a consensus on trying to build a prosperous post-No-Deal profile for Britain after Brexit. As it stands, however, my outlook isn’t a positive one. Aside from the predicted negative implications for market fundamentals, a No-Deal will likely boil down to little more than a facilitator for opportunism, and we can content ourselves in the knowledge that we’re stuck on our rock with bigots who voted for the erosion of the rights and regulations that protected them, and the cynical financiers that are glad they did. I’m not hugely in favour of either side, but imagining greasy Boris-backing tycoons such as Crispin Odey getting more rich by shorting the failure of Royal Mail and Intu (post-Brexit), and seeing how normalised hate and polarization have become, you’d have to take a long hard look in the mirror if this were the kind of nihilistic and pseudo-patriotic society you’d want a hand in creating. I gladly and unreservedly say that I wish the 2016 referendum had never taken place; that we have already lost three years’ worth of discussions about living standards and our public services framework which is desperately in need of modernisation; that we fell prey to the greatest filibustering campaign in modern history – the same individuals who prayed on the vulnerable post-recession are not only avoiding scrutiny but are now posing as the populist people’s champions. MP David Lammy said that people deserve the truth because they are smart. While I’m inclined to agree with the first part of that statement, I’d say that after years of centre-ground consensus politics, people fell prey to passion and folly, and the likes of Dominic Cummings knew as much. Apart from an attempt to reclaim sovereignty and deregulate, I think Brexit is an attempt to recapture something missing in British life, or maybe something that was lost. Regardless, it has shown just how far we were willing to go, to love the flag again.   Other market and macro financial updates have come from; UK GDP during the second quarter, the London Stock Exchange Group (LON: LSE), the US-China currency manipulation debacle, and analysts’ outlook for markets and currencies.