Chancellor confirms forecast of “No Deal” Brexit economic hit

In response to a letter from Rt Hon Nicky Morgan MP, Chair of the Treasury Committee, requesting the Treasury provide the Committee with its detailed impact assessment of a no deal Brexit,  the Chancellor has responded by confirming that a no deal / WTO Brexit will result in a 5% – 10% hit to UK GDP with the largest negative impacts being felt in the North East and Northern Ireland.

Additionally, the Government’s “No Deal” Brexit notices have highlighted the difficulties that will be faced under a no deal scenario, including:

Financial Services

• EEA-based customers of UK firms currently passporting into the EEA, including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, insurance contracts (such as a life insurance contracts and annuities or pensions) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services.

Customs

Before importing goods from the EU, a business will need to:

• Register for an UK Economic Operator Registration and Identification (EORI) number. Businesses do not need to do anything now. There will be further information available later in the year. For those businesses that sign up for the EU Email updates, they will be contacted when this service becomes available.
• Ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer.
• Consider how they will submit import declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations form HMRC will come at a cost.
• decide the correct classification and value of their goods and enter this on the customs declaration.

When importing goods from the EU, a business will need to:

• Have a valid EORI number.
• Make sure that their carrier has submitted an Entry Summary Declaration at the appropriate time.
• Submit an import declaration to HMRC using their software, or get their customs broker, freight forwarder or logistics provider to do this for them.
• Pay Value Added Tax (VAT) and import duties including excise duty on excise goods unless the goods are entered into duty suspension (for example a customs or excise warehouse – a financial security will be required to cover the duty liability of the goods whilst they are being moved to the warehouse).
• Once excise goods leave a customs suspensive arrangement, they may be immediately entered into an excise duty suspension regime. A business will need to declare the goods on EMCS for onward movement via a Registered Consignor.

Tariffs

In the event of “no deal”, goods traded between the UK and the EU after 23h on 29 March 2019 will be subject to the same requirements as third country goods, including the payment of duty. Under World Trade Organisation (WTO) rules, the principle of most-favoured-nation (MFN) treatment means that, unless a preferential agreement is in place, the same rate of duty, on the same good, must be charged to all WTO members equally.

• In a ‘no deal’ scenario, trade with the EU will be on non-preferential, WTO terms. This means that MFN tariffs and non-preferential rules of origin would apply to consignments between the UK and EU.
• The EU will apply its MFN rates to goods imported into the EU from the UK.
• The UK will apply its MFN rates to goods imported into the UK from the EU. The government will determine and publish these new UK duty rates before we leave the EU.

VAT

In the event of “no deal” all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).

• For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.

On the impact of “No Deal” on the UK economy, Mrs Morgan said:

“The Chancellor has confirmed that the Government forecasts a disastrous hit to our economy and living standards in the event of a ‘no deal’ Brexit. The Committee will expect an updated analysis to be published in good time to inform Parliament’s key decisions on the final deal.

“The Chancellor has not committed to producing an analysis of the short-term economic fallout of a ‘no deal’ Brexit. The Committee will continue to press the Treasury for a robust and high-quality short- and long-term analyses of the economic consequences of Brexit so that Parliament can take properly informed decisions in the coming months.

“The Committee also continues to engage with the Bank of England and the OBR on their analyses of the short-term impact of Brexit.”

On the “No Deal” Brexit notices, Mrs Morgan said:

“The ‘No Deal’ Brexit notices have highlighted the myriad of additional tariffs, taxes, and red tape that businesses and households would need to comply with in order to go about their day-to-day lives.

“The British citizens living in the EU who may lose access to their pensions and other basic financial services such as their current accounts will be extremely concerned.

“It is clear that the Government’s mantra that “no deal is better than a bad deal” is dead in the water, and that no deal is in fact a very, very bad deal.”

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Notes to Editors

• The Government’s “No Deal” Brexit Notices have been published here:
• The Chancellor’s letter to Nicky Morgan on the economic impact of “No Deal” has been published here: