Government to lower tariffs in event of no-deal - but at what cost?

This morning the government has given us the first glimpse of the sort of trading terms Britain will have with the European Union and the rest of the world in the event of no-deal.

If Britain leaves the EU in 16 days time without having secured a formal trading agreement then World Trade Organisation (WTO) rules will apply.

The government has published a tariff schedule which it would levy on imports from the moment Britain departs.

As it stands 80% of total imports are tariff-free, this would rise to 87% in what is a modest liberalisation of trade policy.

Currently, of course, 100% of EU imports are tariff-free, this would fall to 82%.

The schedule has been designed to minimise costs to businesses and protect consumers from price rises. The government doesn’t say what impact the measures will have on inflation.

The government says many imports will be tariff-free, but exports won't be. Credit: PA

While many British imports will be tariff-free, many British exports will not. The UK will charge levies on footwear, ceramics, textiles, leather, chemicals and plastics at a significantly lower rate than the EU will impose on British made goods.

The government will continue to impose significant taxes on many agricultural imports (beef, chicken, butter and cheddar cheese) and finished motor cars to protect British producers from cheaper, foreign competition.

There will be winners and losers. In the event of no-deal British consumers will likely notice an increase in the price of some goods which are imported from the EU: the price of new cars, meat, fish, butter and cheese would rise substantially.

Although the price of other imported EU goods - among them oranges, onions, jam, televisions and even spoons - would fall and the price of everything will be offset to a great degree by an expected slump in the value of the Pound.

The tariff schedule has been drawn up in secret and largely without the input of British businesses (who have been crying out for this information for months and are furious they haven’t got it.) It is therefore temporary and would only apply for 12 months while something more permanent is negotiated.

This tariff schedule is designed to show that Britain is open to trade with the rest of the world but it's striking that the groups who represent the interests of Britain's businesses don't like it.

The British Chambers of Commerce say it will come as "an unwelcome shock" to many businesses who trade with the EU, damaging profits and leading to job cuts.

In the event of No Deal on March 29, companies will have only two weeks to work out how to respond. "This is no way to run a country, " Carolyn Fairbairn, the director general of the CBI, told the BBC.

The Society of Motor Manufacturers and Traders acknowledges an attempt has been made to protect the car industry but it warns No Deal will still be "devastating".

HMRC currently collects £3.4 billion in customs duties. The government isn’t sure what impact the new schedule will have on that revenue.

It calculates that the new tariff regime would have a modestly positive effect on economic growth, although it can’t put a number on it and concedes it won’t be positive enough to offset the overwhelmingly negative impact of the disruption to trade no-deal would create.

But here’s the remarkable thing: this temporary tariff schedule will, in effect, not apply in Northern Ireland.

That’s because in the event of no-deal the government is committed to avoiding a hard border between Ireland and Northern Ireland.

To that end, from March 29, were Britain to leave the EU, there would be no checks or controls on goods flowing from Ireland to Northern Ireland and no system of customs declarations.

Tariffs would not be payable on EU goods moving from Ireland to Northern Ireland.

Tariffs would, in theory, be paid on goods moving from Northern Ireland to mainland Britain, although those goods will not be physically checked either.

Anti-Brexit campaigners rally outside the Houses of Parliament. Credit: PA

This would, rather obviously, create a rather large potential "backdoor" through which goods can merrily be smuggled into Britain tariff-free.

The government acknowledges as much but insists it will use "detection techniques" to ensure compliance and will urgently enter into discussions with the European Commission and the Irish Government to intrigue a permanent solution.

There will be obvious concerns that the government’s plan, while protecting the integrity of the Good Friday Agreement, will leave Northern Irish manufacturers exposed to a wave of cheap imports, killing some stone dead.

Absent of an effective monitoring system at the border, the entire system relies on honesty and is open to abuse. Multi-national companies like BMW can surely be relied on to comply with the law, others will find the temptation to game the system irresistible.

As Alexander Clarkson of King's College London points out: "Give it a week and every smuggling cartel in Europe would set up an operation in Northern Ireland with this scenario. Crazy."