Article 50 negotiations: Implications of 'no deal' Contents

4Conclusions and recommendations

56.The process of UK withdrawal from the EU will be complex and challenging, and the exit agreement will have to be concluded under significant time pressure. Even if all sides enter into the process with goodwill and the desire to ensure a successful outcome, there are many reasons why the negotiations might fail.

57.The consequences of such a failure are far from “an exercise in guesswork”. They are, in scope if not in detail, largely predictable—and, in the evidence we commissioned, have been predicted.

58.It is possible to envisage scenarios in which ‘no deal’ might be better than a bad deal, as the Government has suggested; such as, for example, if the eventual proposed agreement only involves payment of a large sum to the EU in settlement of UK liabilities, with no provisions for any preferential trade arrangements or transitional arrangements towards a mutually beneficial future relationship. It is clear from our evidence, however, that a complete breakdown in negotiations represents a very destructive outcome leading to mutually assured damage for the EU and the UK. Both sides would suffer economic losses and harm to their international reputations. Individuals and businesses in both the UK and EU could be subject to considerable personal uncertainty and legal confusion. It is a key national and European Union interest that such a situation is avoided.

59.The immediate consequences of failing to secure an agreement might focus minds in both the UK and EU on resurrecting a deal of some kind, however basic, as quickly as possible, albeit in difficult circumstances. As the Bar Council writes in its evidence, ending the Article 50 period without a deal “could lead to a short, sharp shock, rather than a lengthy period of economic dislocation and political acrimony. But a favourable outcome would be far from certain.”

60.The possibility of ‘no deal’ is real enough to justify planning for it. The Government has produced no evidence, either to this inquiry or in its White Paper, to indicate that it is giving the possibility of ‘no deal’ the level of consideration that it deserves, or is contemplating any serious contingency planning. This is all the more urgent if the Government is serious in its assertion that it will walk away from a “bad” deal. Last year, we concluded that the previous Government’s decision not to instruct key Departments to plan for a ‘leave’ vote in the EU referendum amounted to gross negligence. Making an equivalent mistake would constitute a serious dereliction of duty by the present Administration.

61.The Government should require each Department to produce a ‘no deal’ plan, outlining the likely consequences in their areas of remit and setting out proposals to mitigate potential risks. Such preparation would strengthen the Government’s negotiating hand by providing credibility to its position that it would be prepared to walk away from a bad deal.

10 March 2017