Ruling out no deal is the wrong sort of red line

The Labour Party may be unwise to call on Theresa May to rule out no deal. Although there may be a large majority in parliament who are dead against it, and it would be better to leave with a good deal, that may be impossible. The alternatives to no deal arguably look worse.

The prime minister’s proposals or any close variation on them which may come back, lock us into the Irish backstop, involve us paying £39bn with no clarity as to what we are to receive in return, and would leave us with years of further uncertainty as to what our future trading arrangements would look like.

The Norway-style EEA option entails complex negotiations with existing EFTA members which may not be successful, and would involve the UK locking itself into a law-taking subservience from which it cannot extricate itself.

A second referendum is fraught with problems over whether the government will agree time for the necessary primary legislation, the questions to be put, the cost involved, the divisiveness, unpopularity with the electorate and uncertainty about the outcome.

Rescinding Article 50 to keep the UK in the EU is so flagrantly in conflict with the 2016 referendum outcome, and all the promises which were given at the time that its result would be binding, that it is inconceivable that the Commons would vote it through.

The reason why parliament is in this bind is that a large majority of its members, although elected on manifesto promises to honour Brexit, want to keep us at least halfway in the single market and the customs union. Understandably, the EU27 regard this as cherry-picking. There is no way they are ever going to agree to provide the UK an easy ride on these sorts of terms.

This is why the UK has a choice. We can either go for an unstable, messy, expensive, unpopular soft Brexit for which there might, in the end, be a parliamentary majority, or we can revert to where we were with the prime minister’s Lancaster House speech, heading for a free trade deal along Canada+++ lines, which is the likely eventual outcome of no deal.

The problem, of course, is that facing up to this choice has come far too late. If we had used the last two and a half years to negotiate a free trade deal, we might be there by now. Instead, although no deal may well lead to arguably the best outcome, we are faced with leaving without all the preparations which are needed having been put in place.

A really crucial issue then is to assess both how disruptive a no deal exit would be and what there might be in terms of potential gains from it to our negotiating position with the EU27. Obviously, there is a spectrum of costs and benefits, depending on the extent to which everyone co-operates to minimise the problems.

The most realistic expectations seem to suggest short-term difficulties which would get ironed out over a period of months, with an immediate cost to annual UK GDP of about 0.5 per cent, which is not negligible but not catastrophic either. Given a sensible degree of self-interest on both sides, the UK’s bargaining position would be much improved compared to where it would be with the Withdrawal Agreement, but clearly there would be risks that EU intransigence would get in the way.

This is why the Labour Party may be misjudging the situation by not being prepared to consider a no deal exit. On one hand, ruling out no deal, even if this could be done, will inevitably weaken our negotiating stance with the EU.

On the other, a managed no deal, which leads to a free trade deal with the UK outside both the single market and the customs union, may be a better option than the really disadvantageous soft Brexit which may be the only other realistic alternative. Now is not the time to start negotiations with more red lines in place than are absolutely necessary.