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UK ups no-deal Brexit planning as doubts grow over its readiness

Key Points
  • The U.K.'s government under new Prime Minister Boris Johnson has stepped up planning and funding for a no-deal Brexit.
  • Johnson won a Conservative Party leadership race last week to become the new leader of the U.K. and throughout his leadership campaign Johnson had promised a tough approach to Brexit proceedings.
  • Many feel that contingency plans will not be enough to mitigate the fallout from an increasingly likely abrupt departure from the EU.
Britain's Prime Minister Boris Johnson meets engineering graduates on the site of an under-construction tramline in Stretford on July 27, 2019 in Manchester, England.
WPA Pool | Getty Images News | Getty Images

The U.K.'s government under new Prime Minister Boris Johnson has stepped up planning and funding for a no-deal Brexit, but many feel that contingency plans will not be enough to mitigate the fallout from an increasingly likely abrupt departure from the EU.

Johnson won a Conservative Party leadership race last week to become the new leader of the U.K. and throughout his leadership campaign Johnson had promised a tough approach to Brexit proceedings, saying the U.K. would leave the EU by a deadline of October 31 "do or die, come what may."

His new team of ministers have wasted no time in espousing that message that the U.K. is now preparing for a no-deal departure. A "no-deal" Brexit is seen by many inside and outside of parliament as a "cliff-edge" scenario to be avoided at all costs. Leaving without a deal in place would mean an abrupt departure from the EU with no transition period allowing businesses to adjust to life outside the bloc.

'Turbo-charging' no-deal

Newly-appointed Finance Minister Sajid Javid announced an extra £1 billion in funding for no-deal preparations on Sunday. This includes a public information campaign to ready businesses and the public for no-deal, extra border force officials and possible new infrastructure at British ports to deal with the logistical ramifications from a no-deal Brexit.

Meanwhile, Michael Gove, who was put in charge of planning for a no-deal Brexit, said on Sunday that the government is now "working on the assumption" of leaving the EU without a deal. Then on Monday, new Foreign Minister Dominic Raab upped the ante by announcing that the U.K. is "turbo-charging" no-deal Brexit preparations.

Sterling took a hit on the uncertainties surrounding the Brexit process and was trading 0.4% lower against the dollar, at $1.2334 on Monday.

For the new government, the Brexit deal struck by former leader Theresa May with the EU is unacceptable, particularly the part of the deal pertaining to the so-called "Irish backstop" designed to prevent a hard border between Ireland and Northern Ireland (which is a part of the U.K).

The backstop would only kick in if it is controversial for the new staunchly pro-Brexit government as a fallback option in the case that the U.K. and EU fail to agree a trade deal. It would entail the U.K. (and Northern Ireland) maintaining a close relationship with the EU potentially indefinitely, as part of a customs union, and Brexiteers in the government want to renegotiate that although the EU has shown no willingness to redraw the deal or backstop.

The backstop is important not only to maintain frictionless trade across the Irish border (which will become the U.K.'s only physical border with the EU) but as part of the IrIsh peace process too and the free movement of peoples between the countries.

With both the U.K. and EU seemingly poles apart on a deal, concerns have grown that despite reassurances from Johnson and some of his ministers about wanting a deal with the EU, the U.K. is seriously ready to crash out the EU on or by October 31.

What business says

Businesses have been concerned about such a prospect for months; a no-deal departure is widely seen as a "cliff-edge" scenario to be avoided at all costs for them given the uncertainty and, at least logistical, tumult it would likely cause.

Leaving without a deal in place would mean an abrupt departure from the EU with no transition period which would have allowed businesses to adjust to life outside the trading bloc – the U.K.'s largest trading partner as a bloc. It would also mean that the U.K. has to revert to World Trade Organization (WTO) rules and automatic import tariffs that could damage trade, the transporting of goods and ultimately, consumption.

The most ardent Brexiteers are fed up with the delay to Brexit, however, and believe that the U.K. should adhere to an already-extended deadline to leave the bloc. The EU has insisted many times that it is not open to renegotiating the deal it struck with former Prime Minister Theresa May last year.

On Sunday, the Confederation of British Industry (CBI) published a study warning that neither the U.K. nor EU were ready for a no-deal outcome. "While the U.K.'s preparations to date are welcome, the unprecedented nature of Brexit means some aspects cannot be mitigated," the U.K.'s business body's analysis, based on a study of existing plans laid out by the U.K. government, European Commission, member states and firms, showed.

"The report also highlights how – contrary to many claims – the EU lags behind the U.K. in seeking to prevent the worst effects of a no deal scenario. And although businesses have already spent billions on contingency planning for no deal, they remain hampered by unclear advice, timelines, cost and complexity," the CBI said.

Josh Hardie, CBI's Deputy-Director General, commented in the study that "it cannot be beyond the wit of the continent's greatest negotiators to find a way through and agree a deal."

"But until this becomes a reality, all must prepare to leave without one. It's time to review outdated technical notices; launch an ambitious communications campaign for every firm in the country and rigorously test all Government plans and IT systems."

However, he warned that the U.K. could reduce but not remove the damage of no-deal: "It's not just about queues at ports; the invisible impact of severing services trade overnight would harm firms across the country," he said.

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