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The UK has started planning for leaving the Brexit transition without a trade deal at the end of the year, Penny Mordaunt has said.
The Cabinet Office minister said it is “prudent and wise” to prepare for trade negotiations to fail and for the UK to default to World Trade Organisation (WTO) terms for business with the EU from January.
A Whitehall source later told HuffPost UK that the government was “of course planning” through the cabinet exit operations (XO) committee chaired by Michael Gove for the UK to leave the single market and customs union, with or without a deal on new trade relations.
It came as the UK in a Changing Europe academic think-tank warned that the economic impact of failing to reach a deal could reduce UK economic growth by up to 9% over a decade, compared to a 6% hit if the Canada-style deal proposed by the government is reached.
Negotiations are currently stalled, with both sides unwilling to compromise on key demands, and fears of a no-trade-deal Brexit amid a deep coronavirus-triggered recession are growing.
But Mordaunt confirmed that the UK would not extend the transition period beyond December 31, arguing that the government “cannot keep negotiating forever”.
In the Commons, Labour MP Rushanara Ali asked the minister: “Time is running out and there is a real risk of a cliff-edge Brexit which would come in the context of a health pandemic and the associated economic crisis, with rising unemployment towards the end of the year.
“Can the minister confirm if the government has initiated any planning in the event of a deal not being reached?”
Mordaunt replied: “It would be prudent and wise for us to prepare for every scenario, just as we have always done – just as we did last year and did not need to implement those preparations.
“But I am confident that we can not only come to an agreement but also we can do so in a timeframe that gives people the time that they need to prepare, to understand, and we are of course very aware of the other things that are going on in the world that form the backdrop to that.
“Our approach is going to be achingly pragmatic.”
The Whitehall source said: “We are of course planning for life outside the single market and the customs union at the end of the year, and the opportunities and changes that will bring.
“But ‘no deal’ is an irrelevant concept and Operation Yellowhammer has been stood down.”
Mordaunt attempted to assure MPs that UK supply chains would hold up despite the prospect of significant barriers to trade at the border with the EU if a deal is not struck.
Answering an urgent question from shadow Cabinet Office minister Rachel Reeves, Mordaunt said: “We have the Covid crisis going on, I know she is aware of the huge amount of work that was done last year on no-deal preparations, but also the tremendous work that civil contingencies and all government departments have been doing to ensure that supply chains remain strong, that we can quickly adapt, that we do have stocks of all sorts of goods – including medicines – that we need.”
But Reeves said warnings had emerged about the impact of Covid-19 on medicine stockpiles, adding: “We urge both sides to redouble efforts over the next few days and weeks to ensure progress is made by the end of this month so the government can honour its commitment to ensuring a good deal for Britain by the end of this year.”
It came as UK in a Changing Europe said it was difficult to see how a comprehensive trade deal could be reached without an extension to the transition period.
It also warned there would be a “serious” economic impact if no agreement is reached and the UK defaulted to WTO terms – an outcome dubbed an “Australia-style” deal by ministers.
Professor Jonathan Portes, senior fellow, UK in a Changing Europe, said: “The Covid-19 pandemic and Brexit are major shocks for the UK economy.
“The interaction of the two is complex and unpredictable, with the potential to amplify some impacts while moderating others.
“On balance, the pandemic probably does make the economic risks of exiting transition on January 2021 without a trade deal larger, but considerable uncertainties remain.”
Boris Johnson and European Commission president Ursula Von Der Leyen are expected to meet this month for high-level talks that both sides will hope can unblock negotiations.