The Office for Budget Responsibility has said a no deal outcome could wipe 2 per cent of Britain’s GDP in 2021 and scar the economy for the rest of the decade.
If no deal is struck, Britain defaults to trading with the EU on World Trade Organisation terms, meaning a raft of new tariffs on goods and the reintroduction of border checks and other red tape.
Government documents prepared by Britain’s cabinet office show the failure to strike a deal could lead to big increases in the cost of food, reduction in the flow of medicines and medical products, delays at ports and airports, potential protests and queues of up to 7000 trucks in Kent waiting to cross the English Channel.
The Vote Leave campaign repeatedly promised voters in the 2016 Brexit referendum that the UK would be able to quickly and easily strike a new trade deal with the EU.
Jim Harris, the chief executive of Britain’s Revenue and Customs service, on Monday said filling out customs paperwork would cost UK businesses an £7.5 billion ( $13.5 billion) each year even if a deal is reached.
Authorities expect the number of customs declarations made in the UK each year to rise from 54 million to 265 million.
In a joint statement on Monday night, Johnson and von der Leyen said: “We agreed that the conditions for finalising an agreement are not there due to the remaining significant differences on three critical issues.
“We asked our chief negotiators and their teams to prepare an overview of the remaining differences to be discussed in a physical meeting in Brussels in the coming days.”
Negotiators are stuck on three key issues. The two most easily resolved are the level of access EU fishing fleets should have to British waters and the terms of how a new deal is governed in case of breaches from either side.
The biggest sticking point is the so-called ‘level playing field’ – the term used for whether the UK should abide by certain EU rules so that British businesses are not able to gain a competitive advantage over European ones, potentially via state aid.
Ireland’s Foreign Minister, Simon Coveney, told reporters that political leaders around Europe were “increasingly frustrated and increasingly resigned” to the possibility of no deal.
“In Brussels certainly the mood is starting to shift to contingency planning for a no deal, as opposed to the compromises that are necessary to get a deal done,” he said. “That is not where we want this to go.”
Johnson and his ministers have said no deal would be an acceptable outcome because Britain would trade with the EU in an “Australian-style” deal. However Australia has no free trade deal with the EU, and trade between the bloc and Australia is a fraction of the trade between the EU and Britain.
Some 45 per cent of all UK exports in 2018 ended up in the EU, while EU goods made up 53 per cent of all UK imports.
A Downing Street spokesman on Monday conceded an “Australian-style” deal with the EU really meant no deal.
“As a matter of fact, Australia does not have a comprehensive free trade agreement with the EU,” he said.
“So the bulk of their trade is done according to WTO terms. So, Australia terms would mean that the UK would trade with the EU under WTO terms, based on the principles of free trade.”
Bevan Shields is the Europe correspondent for The Sydney Morning Herald and The Age.