The out-of-date Operation Yellowhammer document fails to justify the doom-mongers’ scare stories
We now finally all have sight of the official Yellowhammer briefing, but I’m not sure it was worth the wait. The newly-published summary – of the Government’s ‘Reasonable Worst Case Planning Assumptions’ in a no-deal Brexit scenario – certainly does not support the widespread claims that even the Government thinks ‘crashing out of the EU without a deal’ would inevitably lead to ‘shortages of food, medicines and petrol’.
For a start, it cannot be stressed often enough that this document is a list of things that might go wrong, for the purposes of contingency planning, not forecasts of what will actually happen. As the document put it, these are ‘reasonable worst case planning assumptions’. Some have claimed that the version leaked earlier referred to a ‘base case’ assessment, but the same point would still apply.
This is a common misunderstanding of what risk assessments are about. For example, the Bank of England published its own no-deal study in November last year, which referred to some very large falls in GDP. However, in the words of the Bank itself, ‘this analysis includes scenarios not forecasts’. Bank economists deliberately chose extreme assumptions to produce worst-case numbers, mainly for the purpose of stress testing the financial system.
The Yellowhammer report is also old. A lot has been made of the fact that it is dated 2nd August, but many of the points are already looking stale. Paradoxically, Amber Rudd’s parting shot that the government is now spending 80-90% of its time preparing for ‘no deal’ is rather reassuring.
For example, the fourth bullet refers to ‘EU Exit fatigue, due to the second extension of Article 50, which will limit the effective impact of current preparedness communication’. But since then, the Government has launched a major campaign to help and encourage everyone to ‘Get Ready for Brexit’.
The section on Ireland provides another illustration. The document notes that the ‘agri-food sector will be the hardest hit’. But there is now growing support for an all-Ireland regime for agri-foods. The UK Government could also still go further. One interesting proposal is to make it an offence under UK law to export any good to the EU that fails to meet EU standards. Combined with the clear political commitment not to erect a hard border on the UK side, this would punt the problem right back to the EU, which is arguably where it belongs in the first place.
The document also includes several statements of the bleeding obvious. Some have seized on the one-liner that ‘low income groups will be disproportionately affected by any price rises in food and fuel’. Equally, of course, these groups would disproportionately benefit from any reductions in the prices of food and fuel. The single most important variable here will be the impact on the value of the pound, on which the document is (wisely) silent. Given how much bad news is already priced in, I would not be surprised to see sterling recover strongly even in the weeks following a ‘no deal’ exit.
Above all, an awful lot hinges on the degree of disruption to cross-Channel trade. (In the words of the report, ‘analysis to date has suggested a low risk of significant sustained queues at ports outside of Kent which have high volumes of EU traffic.’) But it is in the section on cross-Channel trade where the significance of ‘worst case’ is most apparent.
For example, the assumption that flow via the short Channel straits could be reduced to as low as 40% of normal is explicitly described as a ‘pre-mitigation reasonable worst case’. Indeed, the words ‘may’, ‘might’, ‘could’ and ‘up to’ have to do a lot of work throughout this section. Even then, this pessimistic assessment recognises that delays are likely to reduce over time as systems improve and more traders adapt. Correspondingly, if the Brexit deadline is extended further, the risk of short-term disruption would be reduced further, as all parties would have had more time to prepare.
This in turn is where the scare stories about food shortages come in. Here at least there is a recognition that there will not an ‘overall shortage of food in the UK’, even if there is temporary disruption to the supply of some fresh products.
Other parts of the report are highly speculative. For example, it is suggested that ‘a rapid SEM [Single Electricity Market] split could occur months or years after EU Exit’, which could lead to ‘significant electricity price increases’. But why? There is no good reason to expect this. Similarly, there’s a section on the risk to the adult social care market from ‘an increase in inflation following EU exit’. Again, why? Is this really the biggest issue in this sector?
I also wonder how many people who are parroting the warnings about petrol shortages have looked at the flimsy basis for these headlines. The UK is planning to reduce tariffs unilaterally on some imported fuels in the event of no deal, which would lower costs to consumers. Despite this, the industry lobby, UKPIA, has done a grand job of pushing the protectionist argument that cheaper imports might drive some domestic refiners out of business.
However, tariffs on fuels are very low to begin with – and many are already zero. Any change is also likely to be swamped by movements in the value of sterling. If it is true that some refiners are already operating on the brink, wouldn’t we still be better off with cheaper imports from sources which may actually be more secure? And if there were a real problem here, wouldn’t it be easy to decide even now just to leave tariffs where they are?
You also have to wonder why so many people think it beyond our ability to fast-track imports of essential medicines, including by air, even if there are significant delays at Channel ports. Of course, it’s the duty of doctors to raise concerns about the risks to patients if particular drugs are in short supply. But a medical background does not make you an expert in cross-border logistics. I would give more weight here to the views of port managers and customs officials, who are telling us they are now much better prepared.
Overall, then, the Yellowhammer report contains little new. Opponents of any form of Brexit will make the most of it, but no-one should think it describes what it is actually likely to happen.