No Brexit deal really is better than a bad deal with Brussels

No deal really is better than a bad deal with Brussels, says ROSS CLARK

FOR the past few months many have doubted the words which stood out from Theresa May’s Chatham House speech back in January: “No deal is better than a bad deal.”


It has been assumed by many, not least by Michel Barnier, the chief EU negotiator, that when it comes to the crunch the Government will not be brave enough to leave the EU without some kind of deal, that ultimately Theresa May and David Davis will meekly agree to pay whatever ransom the EU demands of it. Yesterday it became clear that this is not the case. While ministers seem prepared to pay some sort of leaving bill, it was revealed that Liam Fox and his department for international trade are making detailed preparations for the prospect of a departure without a free trade deal.

PA Wire – Barnier thinks Theresa May and David Davis (pictured) will meekly agree to pay whatever ransom the EU demands

Such an outcome would be far from ideal. A modern economy requires goods to pass across borders as deftly and as cheaply as possible. Businesses require that services, too, be conducted across borders. Anything that interferes with that process increases costs and hits productivity. But neither would leaving the EU without a deal be a disaster. Britain and the EU will remain members of the World Trade Organisation and are therefore bound by limits on tariffs – import taxes – which may be applied. The EU would not be allowed to impose more punitive tariffs on Britain than it applies on other countries. Currently, those applied by the EU average 5.3 per cent.
If British businesses exporting goods to EU countries or importing goods from them had to start paying a 5 per cent tax, it would hurt, but there are plenty of other taxes which could be reduced in order to compensate: employers’ national insurance contributions, for example, business rates and so on. The sectors where EU tariffs are highest are, interestingly, ones which would hurt EU businesses exporting to Britain especially hard. On cars tariffs are 10 per cent and on wine 32 per cent. German carmakers exporting to Britain will, as a result, face losing market share to American and Japanese producers, while French wine-makers may struggle to compete with Australian and Chilean producers.


Jasper Juinen/Bloomberg via Getty Images – Chancellor Philip Hammond said Britain could choose to adopt a radically different economic system.

Overall, it is EU exporters who would have most to lose from the absence of a deal with Britain. In the second quarter of this year, Britain ran a trade deficit with the rest of the EU of £8.9billion. Leaving the EU without a deal would not be without its advantages. It would free Britain instantly from having to obey any lingering EU regulations which might otherwise be attached to the terms of a free trade deal. As Chancellor Philip Hammond said, Britain could choose to adopt a radically different economic system – becoming a low-tax, low regulation business-friendly economy. We already have a reputation for being a good place to set up a business. But outside the EU we could go much further. We could, for example, emulate Singapore, which consistently tops polls for the most business-friendly economy in the world thanks to low taxes, streamlined employment law and access to capital.


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