Boris Johnson's new Brexit deal: four key questions answered

18 October 2019

Following the publication of the revised agreement between Boris Johnson's government and the European Union on Thursday, and in advance of the vote in the Commons on Saturday, we look at four key questions about the deal, based on claims we've seen being made by politicians, the media, and others. 

Those questions are: Could we still have a “no deal” Brexit in 2020 at the end of the transition? Does the new withdrawal agreement create a border in the Irish Sea? What would the economic impact of the deal be? And could the deal reduce protections for environmental standards and workers rights? 

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Could we still have a “no deal” Brexit in 2020 at the end of the transition?

The past day has seen numerous claims that the revised withdrawal agreement negotiated between Boris Johnson’s government and the European Union allows for a new “no deal” scenario in just over a year’s time at the end of the transition period. 

“It’s false to suggest voting for Johnson’s deal stops no deal. All he needs to do is fail to present a Free Trade Agreement to parliament next year, the transition lapses, and then we have no deal. Parliament will NOT be able to stop it then.”
Sam Gyimah MP, 18 October 2019

“And when transition ends in Dec 2020, likely no trade agreement agreed & hard right will get their dream of crash out No Deal Brexit”
Caroline Lucas MP, 18 October 2019

“There’s been a fundamental improvement in this deal because what it means is, is that... if there’s no deal struck in the transition period up to December 2020, the UK has the right, with the Northern Ireland provisions in place to leave on no deal terms. Now, none of us want that, we’d prefer a good deal to no deal.” 
John Baron MP, 17 October 2019

“There we have it. Tomorrow doesn’t get ‘Brexit done’ and Tory MPs are getting ready to push us out on disastrous no-deal terms as we head into the next stage of trade negotiations.”
Jonathan Ashworth MP, 18 October 2019

“Tory Right-wingers dropped a bombshell by saying that the PM’s deal would allow them to cause Britain to crash out on “no deal” terms in a year’s time even if it is passed.”
Evening Standard, 18 October 2019

The claim that no deal remains a possibility is broadly correct, although it’s important to emphasise that this is a different type of “no deal” to the one that’s commonly discussed. 

That refers to leaving the EU without a withdrawal agreement in place; this new “no deal” refers to not having agreed details of the UK and EU’s future trading relationship by the end of the transition period, which could be in December 2020 at the earliest.

The transition period

Under the terms of the Withdrawal Agreement agreed by the government and the EU in October 2019, the UK will enter a transition period when it leaves the EU. This was the same in the Withdrawal Agreement negotiated by Theresa May’s government which was voted down by parliament three times.

The purpose of the transition period is to provide time for the UK and the EU to negotiate on what their future relationship will look like.

During the transition period the UK won’t be a member of the EU but will still have to abide by its rules. For example, the UK would still have to contribute to the EU budget until 2020 along with paying for any other financial commitments made as an EU member. The latest estimates put the total ‘divorce bill’ at £33 billion. If the transition period is extended then extra payments may need to be made and these would be decided on by a joint UK-EU committee.

As with the agreement Theresa May’s government put forward, the end date for the transition period is set at the 31 December 2020. It is possible the transition period could be extended for one or two years—provided that is settled before 1 July 2020.

As for how likely that will be, Jill Rutter at UK in a Changing Europe says: “At the moment, no one is talking about an extension to the transition period, but with so much of the negotiating time already eaten up, and the need to get all the new arrangements for the NI border with GB in place, it may prove unavoidable.”

No deal

Some version of “no deal” could still happen in a number of different scenarios.

For example, if there is no further extension to the Brexit deadline MPs have until 31 January 2020 to pass a withdrawal agreement. If that’s not done in time then the UK could leave the EU with no deal by default. This is still the same “no deal” scenario that’s been widely discussed over the past few years.

If the Withdrawal Agreement is passed by parliament and the transition period kicks in that doesn’t mean the possibility of no deal is removed entirely—it just means a different kind of no deal. 

While there would be a transition period in which to negotiate a future relationship with the EU, there is no guarantee that these negotiations would be successful. As we’ve already said the transition period lasts until the end of 2020, or 2022 at the very latest—after that if no future relationship deal was agreed then Great Britain’s relationship with the EU would be on World Trade Organisation (WTO) terms.

But, Northern Ireland would still be aligned with some EU rules even if this kind of “no deal” happened, and the rest of the UK moved to WTO terms at the end of the transition period. 

One of the key differences between the Withdrawal Agreement drawn up by this government and the EU, and the previous one signed off by Theresa May’s government, is the Northern Ireland protocol. This piece from the Institute for Government outlines what will happen to Northern Ireland in the event of a no deal Brexit, and we’ve written below about what this would mean in terms of the different rules and regulations this would create between Northern Ireland and the rest of the UK. 

In that scenario this new arrangement agreed between the government and the EU means that, beginning four years after the end of the transition period, the Northern Ireland Assembly “will periodically vote on whether to consent to the continued operation of the protocol for as long as it remains in force. The frequency of the vote will depend on how the decision is made.”

Does the new withdrawal agreement create a border in the Irish Sea?

It has been argued that the new withdrawal agreement will create a “border down the Irish Sea” with checks taking place on goods crossing into Northern Ireland from Great Britain.

It’s correct that goods checks will have to take place. This will kick in at the end of the transition period, unless or until the UK and EU sign a trade agreement superseding it. The transition period would last until December 2020 at the earliest, or at the latest December 2022.

How do the new trade proposals work?

Under the newly revised withdrawal agreement, the whole of the UK (including Northern Ireland) will apply the same tariffs on imports (in technical speak, they will be part of a single customs territory). This means that if the UK strikes future trade deals, Northern Irish businesses would be covered by those deals. 

In addition, Northern Ireland alone will continue to be part of the EU’s customs rules for its trade with the Republic of Ireland. Practically speaking, that means no tariffs or restrictions on goods crossing the Irish border in either direction.

This is crucial to achieving the goal of keeping the Irish border open as it is today, which was the fundamental intention of the Irish backstop—the protocol in Theresa May’s original withdrawal agreement which this arrangement replaces.

The knock-on effect is that Northern Ireland alone will have no tariffs on trade with the Republic of Ireland, but the rest of the UK will. And that leaves a bit of a problem. 

Let’s say you were trying to sell Welsh lamb to Ireland and, after the end of the transition period, the EU charged a tariff on British lamb imports. Under the rules detailed above, you could (instead of shipping directly to Dublin, incurring a tariff) ship your lamb from Wales to Belfast (with no tariff) and then over land to Dublin (with no tariff). In effect you’d have got your lamb into Dublin tariff-free, making a mockery of EU tariff rules.

So the UK government and the EU have come up with a fix—the border in the Irish sea.  

EU tariffs will be applied to selected goods crossing from the rest of the UK into Northern Ireland. Any good which is deemed as “at risk” of moving into the EU after crossing into Northern Ireland will be subject to the EU tariff—a definition of an “at risk” good is yet to be decided

Experts have said it’s likely that most UK exports to Northern Ireland won’t face a tariff.

But this means there will be customs checks and controls on goods crossing from the rest of the UK into Northern Ireland, in order to ensure the correct tariffs are applied. This also applies to goods entering Northern Ireland from other non-EU countries. 

If the “at risk” good crossing into Northern Ireland doesn’t end up in the EU, traders will have paid the EU tariff rate, when they should have paid the UK tariff instead. In those cases, traders will be entitled to a refund from the UK government, provided the UK tariff is lower.

This new protocol replaces the previous Irish backstop in the former withdrawal agreement negotiated by Theresa May. Under the terms of the backstop, if the UK and EU had failed to agree a free trade agreement by the end of the transition period, then the whole of the UK would have entered a “single customs territory” with the EU. 

That would have meant no tariffs on goods moving between Great Britain and Northern Ireland. However Northern Ireland alone would have remained aligned to some extra EU rules (to ensure the Irish border remained open), meaning there would have been some quality checks on goods entering Northern Ireland from the rest of the UK.

What would the economic impact of the deal be?

“The Government's own research says that Boris Johnson's Brexit proposals would lead to a 6.7% drop in GDP and 6.4% drop in real wages - the kind of hit to the economy experienced in the financial crash.” 

Chuka Umunna, 18 October 2019

Mr Umunna was referencing economic analyses published by the government in November 2018, which modelled the economic outcomes under different Brexit scenarios. But he’s wrong to say GDP and real wages would “drop” according to this analysis and his comparison to the financial crash is misleading.

The government estimated that a hypothetical free-trade agreement (FTA) with the EU where we maintained tariff-free access but there were still non-tariff costs (such as regulatory barriers) would cost the UK between 4.9% and 6.7% GDP growth after 15 years. 

GDP (or Gross Domestic Product) is the total value of everything that happens within a country’s economy—the goods and services made and the money earned. It’s the main way economists measure how well the economy is doing.

The FTA scenario is the most likely scenario following the deal agreed by Boris Johnson’s government and the EU, though the details of the trade deal would not be agreed for a while yet, so this is all still hypothetical. 

However, that aside, it’s incorrect to claim the analysis said that the proposals would lead to a 6.7% drop to GDP, as Mr Umunna said. The analysis said that GDP would be up to 6.7% lower after 15 years than it would have been compared to remaining in the EU. The document said “in all scenarios the economy would be expected to grow.”

It’s worth mentioning that the 6.7% figure assumed that the net migration from the European Economic Area (the EU plus Iceland, Liechtenstein and Norway) to the UK would fall to zero—in other words the number of EU immigrants coming to the UK would be balanced by the number emigrating abroad. Other estimates of the free-trade model with a more liberal migration policy were estimated to have a lower impact on GDP.  

More recently think tank UK in a Changing Europe estimated GDP per person would be between 2.3% and 7% lower under Mr Johnson’s deal than remaining in the EU after 10 years.  

The comparison to the financial crisis is unfair

Mr Umunna claimed that the scale of the impact on GDP would be comparable to the financial crash.

This is an unfair comparison. 

Between the first quarter of 2008 and the second quarter of 2009, GDP fell by 6%. GDP per person fell even more, by 8.5% over that period. 

But the key thing is that GDP is still expected to grow in real terms under the new withdrawal agreement. It’s unfair to compare the tangible loss in incomes and earnings over a period of 15 months during the financial crisis, with a similarly sized loss of potential earnings over a period of 15 years.  

For wages, the comparison is even more problematic. Weekly wages fell, in real terms (adjusting for changes in prices) by 11.2% between the high in February 2008 and the low during March 2014. This covers wages for employees in Great Britain. 

So not only is the comparison between a real cut to peoples’ wages during the financial crisis and a hypothetical loss of earnings due to Brexit, the level of financial loss is fairly different. The government estimates wages to be 6.4% lower over a fifteen year period. During the financial crisis and its aftermath, wages fell by 11.2% over six years.

Putting these figures in context

The new withdrawal agreement is seen to be a “harder” Brexit than that negotiated under Theresa May. As such, economists estimate the impact on the economy to be greater. 

UK in a Changing Europe modelled the impact of Theresa May’s deal, Boris Johnson’s deal and a no deal “WTO” Brexit. 

It estimated that, after ten years, GDP per person would be around £1,500 less under May’s deal, £2,000 less under Johnson’s deal and £2,500 less under no deal, compared to staying within the EU. 

Its analysis took into account two things: the expected direct impact of Brexit on trade volumes and the cost of doing trade, and the knock-on impact that trade can have on productivity (which accounted for most of the costs).

As mentioned before, these estimates don’t necessarily mean that people will be worse off by £2,500 in ten years than they are now. They estimate people will be less well off by that much than if we had remained in the EU.

Economic forecasts over such long periods and where the details of what might happen in the future are unknown must be taken with a large pinch of salt.  

As UK in a Changing Europe says: “As we have emphasised throughout, these estimates are subject to considerable uncertainty, for two reasons.

“First, there is inherent uncertainty associated with forecasting the impact of economic policy choices. 

“Second, there is also political uncertainty as to what those future policy choices will be, both on the part of the UK and the EU. 

“Nevertheless, it should be clear that under any plausible scenario the costs associated with Brexit’s potential economic effects are much larger than the savings from reduced contributions to the EU budget.”

Could the deal reduce protections for environmental standards and workers rights? 

In response to the government’s agreement with the EU, Labour said: “These proposals risk triggering a race to the bottom on rights and protections … cutting environmental standards and workers’ rights”. 

At the core of this is the fact that the proposed Brexit deal has two key parts: the withdrawal agreement and the political declaration, the same structure as Theresa May’s deal.

The withdrawal agreement is a legally-binding 535-page treaty which sets out the immediate terms of the UK’s exit from the EU. The political declaration is non-legally-binding (and just 27 pages by comparison) and sets out the intentions of both sides regarding the future relationship, such as trading arrangements. It’s effectively a blueprint for future negotiations.

One key change that’s been made since Theresa May’s deal is that provisions relating to workers’ rights and environmental protections have been moved from the withdrawal agreement to the political declaration, and there have been changes to the wording. In other words, under this deal they would not yet be legally binding on the UK.

Theresa May’s withdrawal agreement contained sections committing the UK and EU to “non-regression” in the level of environmental protection and labour standards. This means that they couldn’t provide less legal protection in these areas than they would at the end of the transition period. These are gone from Boris Johnson’s agreement.

Looking at the political declaration, Theresa May’s did say both the UK and the EU should aim to build on the employment and environmental standards guaranteed in the withdrawal agreement at the time. The text in Boris Johnson’s agreement sees both the UK and the EU commit to maintaining existing standards at the end of the transition period, but takes away the goal of “building on” what was previously part of the withdrawal agreement. 

Even though these commitments aren’t legally binding under this deal, there are arguably political or practical barriers to stop the UK ignoring the provisions. 

The withdrawal agreement—like Theresa May’sstates that: “The Union and the United Kingdom shall use their best endeavours, in good faith and in full respect of their respective legal orders, to take the necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the political declaration of 17 October 2019”.

In addition, the UK government could face practical barriers if it tries to go against the contents of the political declaration. The political declaration now hints that if the UK wants a closer trading relationship with the EU in future, it may have to agree to maintain existing standards on employment and the environment. 

Update 29 October 2019

We updated this piece when the Brexit deadline was extended to 31 January 2020, to include that new information.

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