The Sunday Times on August 18th led with this “leaked” Cabinet document, purportedly by a former Cabinet official and then downplayed by Mr Gove and others as a “worst case” scenario or a re-hash of “project fear”.
Even if the “revelations” are slightly dated (although it is said to have been an updated version) the base-case cannot have changed materially since March 2019 and if anything could arguably have worsened given the macro-fiscal setting the UK faces.
The National Audit Office produced a dry overview of Operation Yellowhammer in March 2019 which was setup under the aegis of the Civil Contingencies Secretariat (CCS) at the Cabinet Office. The CCS works alongside the Department of Exiting the EU (DExEU) to prepare for the UK’s exit from the EU across 12 areas.
The institutional mapping and framework to prepare for the operation is impressive and speaks volumes for the hard graft undertaken by our Civil Service and which would potentially involve over 30 central government bodies including all government departments or ministries, 42 local forums in England and Wales and equivalent bodies in Scotland and Northern Ireland, governments in Scotland, Wales and Northern Ireland as well as key sectors and industries.
In short, the exercise was thorough and coherent, covering the key planks of UK-EU over-arch for the key elements for the Single Market – movement of peoples, goods and services but also for an assessment of food security, medical security and our transport infrastructure.
The Sunday Times outlines a summary of the risk assessment from the Operation Yellowhammer assessment from day 1 on November 1st following a no-deal Brexit and paints a fairly harrowing set of potential outcomes.
This is the base case and highlights a likely short-term shortage of food, medical and fuel supplies over 3-4 months and “rising costs” in social care, disruption at ports, a potential rise in civil protests and likely “direct action” following a hard border in Ireland, an expected massive rise in demand for policing etc.
The leak does not spell out the baseline cost as this is not potentially feasible because the social and economic dislocation could be so wide. But such a sector-wide and department-wide study suggests that the government’s own macroeconomic projections for economic growth (including a 1-in-3 chance of recession) looks inconsistent if not wholly over-optimistic. Indeed, the Operational Yellowhammer financing was set at £1.5bn but that may be enough for financing departments but not for the financing cost that would accrue due to a rise in “fiscal stabilisers” in the form of safety net payments, higher calls for current expenses to deal with the above-stated effects and set against a likely significant drop in revenues from a declining GDP.
In simple terms, this would be akin to a massive combined “demand and supply shock” in one-go – as demand in the economy collapses whilst at the same time the change in external conditions vis-à-vis the EU leads to a massive supply-side shock.
Manufacturing, Services and Agriculture – the 3 parts of the economy would each be hit.
Private consumption (i.e. consumption, retail sales, new cars, spending at restaurants), in the UK as indeed in the rest of the developed world accounts for approximately 2/3rds of economic growth and would be substantially and negatively affected; exports would be down set against the new regime of borders and tariffs leading to rising trade deficits; private investment has remained lacklustre since the 2016 referendum given the uncertain business environment and future UK-EU relations. This would leave only government expenditure as the engine for GDP in such a setting – and normally the only course of “stabilisation”. The Bank of England could reduce base rates to even zero but the impact would, I’d argue, be negligible. The only stabiliser would be fiscal policy and as I have argued elsewhere, the numbers could very quickly rocket into very high fiscal deficits.
Yellowhammer is evidence that the economic malaise and costs to the country, society – particularly to the most vulnerable – would be so massive that the No Deal Scenario must be avoided.
* With experience across academia, think tanks, central banking, EU Accession and reforms across 40 developing and transition countries, Dr Rupinder Singh works with multilateral organisations and governments as an independent adviser. He is an Executive member of Liberal International (British Group).
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22 Comments
This ‘leaked’ document had its ancestry in ‘project fear’ of the referendum,then ignored..Now it is re-incarnated. The Civil Service have had 3 years of planning and done a good job for the Govnt. Trouble is they are not liked for identifying the truth of a decision. It is NOT what politicians like to hear. They prefer the ‘sunlit uplands of a wonderful idea’ Not the reality of a dream and thus look for scapegoats.,ie the Civil Service is not doing its job lets alter it.
The mnemonic for the yellowhammer’s song is “a little bit of bread and no cheese”. Clearly there is a bird-watcher in the Cabinet Office with a sense of humour.
Leaving the EU will involve a necessary disengagement if we are to achieve the country’s independence that over 17 million voted for in the plebiscite. However, I feel it highly irresponsible on the part of Remainer sympathisers and opposers of independence whose intention is to induce in vulnerable members of our society huge amounts of unnecessary anxiety by provoking egregious fears of shortages and predictions of economic catastrophe. Our civil service is full of brilliant people. If they are assuring the government their preparations for a no-deal Brexit are sound, why should we disbelieve them?
There is a need to introduce clarity into the discussion over the EU. In fact there has been a need for a long time.
The government, or previous government as the cabinet now like to call it, negotiated a temporary arrangement while the actual relationship with the EU was negotiated.
There was a problem about our – that is the U.K.’s – agreements concerning the Good Friday and Belfast agreements. The government suggested a solution. The Commons rejected it. It is for the U.K. government to say what their attitude now towards their agreements with Ireland is.
We have now seen the proposal of our prime minister. He wants to fudge a simple issue.
It is clear that the majority of the country do not want to see a relationship with the EU based on WTO terms. This would be chaos.
But many of those who are saying they want to leave the EU really want membership without the democracy that is a unique feature of the EU.
It is a sorry state that we have come to that we are prepared to give up our independence to enable some members of the elite to make a lot of money out of a threat to the prosperity of our country as outlined in the report published in the Sunday Times.
Bless poor Mack is facing reality and as Corporal Jones was want to say “They don’t like it up em”. Tis reality Mack, blind faith won’t cut it and when reality bites pray what will you tell the poor souls you’ve been leading astray. Ah yes I know ” Tis the EU’s fault”, well that might get you a little bread but I doubt it will strech to cheese. Reality, O how the poor Brexi’s and Lexi’s fear it, gone are the sun lit uplands now we have ” necessary disengagement”, bless just bless.
Well observed Frank Little
@Mack
But, what if?
@Frankie
I have always been realistic about Brexit, which is why I worry that there will be catastrophic ramifications for our democracy if we do not gain our independence on the 31st of October. It is not the lack of cheese that I fear, but the rise of extreme far right parties with a genuine grievance and their election to our parliament.
@Mack
“It is not the lack of cheese that I fear, but the rise of extreme far right parties with a genuine grievance and their election to our parliament.”
So you propose to appease the far right? That got us a long way in the 1930s didn’t it?
We should address genuine grievances which may have led some voters to support the far right but which are down to our own country’s failings and not the EU.
Mack,
No you are not realistic your frightened, there is a diffrence. As has been pointed out to you appeasing the right wing only emboldens them, Brexit will not end the threat it will magnify it. When Brexit happens the chaos will be blamed on the EU and many will follow the Piped Pipers, I fear you will be one of them.
@Nonconformistradical
“So you propose to appease the far right?”
No. I propose that we respect the democratic decision of the British People to opt for independence from the EU. Not only is it the right democratic thing to do, it would deny the extreme right a legitimate grievance which they are eager to exploit , and would be fuelled by the anger of disappointed millions convinced that they have been betrayed by an arrogant elite who offered genuine democracy and then snatched it away.
@Frankie
I am most certainly not frightened. But I am sickened at the way the democratic choice of the British people to be independent of Europe is being thwarted and deliberately reversed in such an undemocratic manner. Democracy can only function with the consent of the loser, and in this case “Remain” Lost.
The problem is of course that the antiquated processes which pass for democracy in this country are being used to prevent any proper discussion of the issues facing our communities.
We have allowed the debate about our economic future to be taken over by those who say that if we oppose the driving down of living standards for the majority we are being undemocratic. We are undemocratic because they say so. We are undemocratic because we want to talk rationally about our trade with our nearest neighbours. We are undemocratic because we believe in facing up to the problems of our time.
We must recognise what has always been the case. We either take control of our environment or our environment will take control of us.
Mack, you remind me of the teacher who wrote in to Readers Digest. She’d taken a tiny kitten into her infant class, and after a while asked the children, “how can we tell if it’s a girl or a boy?” The were flummoxed, until one boy shot his hand up. “I know, Miss, we can vote on it!”
Her point was how wonderful it was that such young kids had such belief in democracy. Exhibited by adults, it’s less inspiring. Voting for Brexit doesn’t make it the right thing to do. By endlessly focusing on the democratic ‘principle’ you are exposing the fact that there is nothing actually good you can say about Brexit itself. You also seem unaware of Edmund Burke’s definition: an MP betrays the trust put in him (or her) if he doesn’t use his judgement, rather than simply reflecting the thoughts of the voters. Burke is a giant among political philosophers, whereas Nigel Farage is .. well, to put it as politely as possible, not.
Echoing his talk of ‘independence’ is also self-defeating. You simply remind us that in the modern global economy, no small country like ours can set its own standards.
American farmers and big pharma are already telling what we will have to accept, and it was under instruction from the USA that we stopped the Iranian tanker in Gibraltar. Dream on about the great days of Gordon of Khartoum and Admiral Nelson if you like, but wake-up time is approaching fast.
@Mack
“No. I propose that we respect the democratic decision of the British People to opt for independence from the EU….”
Tom Harney (21st Aug ’19 – 2:18am) is right – it is our useless apology for democracy which is the real problem.
A proper modern democratic process would address the right of all voters to fair representation in Parliament – which would mean genuine grievances have to be addressd properly instead of being left to fester until a useless tory prime minister desperate to save his own party calls an advisory referendum on membership of the EU assuming a vote to remain and walking away from the subsequent mess when the vote goes narrowly the other way.
And there was nothing democratic about a referendum in which people were told a pack of lies (not least by the current apology for a prime minister). Cameron called the referendum without planning for the consequences – because of failing to plan he planned to fail (Eton and Oxford should be ashamed of themselves).
We should address genuine grievances which may have led some voters to support the far right but which are down to our own country’s failings and not the EU.
Oh and by the way – if the referendum had gone 52%-48% the other way do you really think Farage would have given up? He’s on record to the contrary.
Give the far right an inch and they’ll take a mile.
Tom Harney is right. Democracy in this country and, dare I say, across the Atlantic as well, is in need of a severe reboot. Looking at the way Parliament so far has handled what ‘Mack’ delightfully terms “the democratic decision of the British People” makes me doubt whether it could even organise the proverbial knees up in a brewery! And to think that, earlier this year, I was convinced that it would be able to sort things out.
Just as local government structure, at least in England, needs major reform, on this evidence, so does its big sister/brother. Instead of the assurance of a Written Constitution we have parliamentary ‘conventions’. How can a decision be “democratic” when only 38% of those with a vote supported it? We have a Leader of Opposition, who spent most of his political career fighting the establishment, now pulling rank and insisting on forming a Caretaker government in the event of a successful No Confidence Motion, when it is clearly obvious that he is damaged goods, that few other parties want to handle.
Time and space does not allow me to elaborate much on the failings of US democracy; but, besides the fact that its current Commander in Chief actually got significantly less votes than his opponent, the bizarre situation of awarding each State two Senatorial seats means that California, with a population of nearly 40 million, bigger than many European countries, has the same number of senators as, for example, Wyoming, with around 550,000 inhabitants, which is around the number in Sheffield.
If I were ‘the British People’ I would be asking myself if it really had to be like this. In fact, ‘It doesn’t have to be like this’ was a slogan that I suggested a while back that the Lib Dems ought to adopt. It has a better ring, in my opinion than ‘Demand Better’, or whatever the party adopted.
It’s going to be a very interesting two months. Mind you, I reckon I said that somewhere on LDV back in January. Will it all be over by Halloween? On the evidence so far the answer is probably ‘no’. This nightmare is set to run and run. And yet……..
“It doesn’t have to be like this” would be an excellent slogan. It sounds perfect. It should be adopted as soon as possible in the present awful mess we are having to put up with.
Rupinder,
you are right to point out that a no-deal Brexit “would be akin to a massive combined “demand and supply shock” in one-go – as demand in the economy collapses whilst at the same time the change in external conditions vis-à-vis the EU leads to a massive supply-side shock.”
Larry Elliott writing in the Guardian last month had an incisive article (as he often does) on the causes of Brexit https://www.theguardian.com/commentisfree/2019/jul/26/boris-johnson-tough-economic-causes-brexit-thatcherite
It’s a devastating analysis of both Conservative and Labour economic policy since the 1990s:
“For decades Britain has consumed more than it has produced, with the result that the UK has the biggest deficit on its current account of any member of the G7…
“The economy was kept going through the boom years of the 1990s and 2000s because cheap imports meant inflationary pressure was weak and interest rates could be kept low, allowing consumers to load up on debt to buy ever more expensive real estate. Rising property prices made people feel richer than they actually were. They borrowed to trade up to bigger homes and they borrowed to fit them out. Personal indebtedness soared.”
“Britain has a trade deficit problem, a London versus-the-rest problem, a debt problem, a housing problem and a care problem.”
Elliot sets out a test of the current government’s willingness to tackle the country’s deepest economic problems:
“Being tough on the causes of Brexit means changing the culture of business so that it boosts investment. It means rethinking the role of the state so that Britain leads rather than follows in the fourth industrial revolution. It means spending more on infrastructure, especially in the north. It means a mass housebuilding programme. Put simply, it means doing stuff not normally associated with politicians who think the free market is always right.”
Larry Elliott is a Lexiteer, so I’m afraid his reputation is shot. Yes we can all agree with his complaints about what has gone wrong, but when your solution is, “Let’s have Brexit and let the hard right fix things” ( which like it or not, is what Larry voted for) I’m afraid Larry lacks any credibility
Joe,
Elliot is right on the problems but offers the usual trite and feeble solutions in response.
“Invest in infrastructure and whatever is the latest techno craze.”
Believe it or not, previous generations of desperate politicians have clutched at the same obvious straws, over and over again.
One day, I hope and pray, some other thinkers than me may reflect upon the question – “Why have all these identical initiatives failed?”
before they are tried all over again.
Innocent Bystander,
Rupinder in his article is focusing on the macroeconomic impact of a no-deal Brexit. As Keynes once noted “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw conclusions.”
N. Gregory Mankiw, Professor of Economics at Harvard publishes a widely used text on macroeconomics. The epilogue offers four lessons on what we know i.e. what the great majority of economists endorse and the four most important unresolved questions of macroeconomics.
What we know empirically:
1. In the long run, a country’s capacity to produce goods and services determine the standard of living of its citizens.
2. In the short run, aggregate demand influences the amount of goods and services that a country produces.
3. In the long run, the rate of money growth determines the rate of inflation, but it does not affect the rate of unemployment.
4. In the short-run, policymakers who control monetary and fiscal policy face a tradeoff between inflation and unemployment.
The four key unresolved issues are:
1. How should policymakers try to promote growth in the economy’s natural level of output?
2. Should policymakers try to stabilise the economy? If so, how?
3. How costly is inflation, and how costly is reducing inflation?
4. How big a problem are government budget deficits?
The conclusion is that economists and policymakers must deal with ambiguity. The current state of macroeconomics offers many insights but also leaves many questions open. The challenge for economists is to answer these questions and expand our knowledge. The challenge for policymakers is to use the knowledge we have to improve economic performance. Both challenges are formidable, but neither is insuperable.
Joe,
As usual what you write is interesting and relevant but the learned Professor’s words are not helpful. As with Eliot, a succinct statement of the “unresolved issues” but no advice on such a resolution.
Except of course, to repeat, with brand new catchy names (but always the same ideas) initiatives that have never, ever succeeded yet.
I know that no new thinking is possible as the tumour of our national plight has spread so far that the country is not prepared to face the drastic surgery needed to remove it.
For example, in a properly run state, following the HS2 debacle, the entire, I repeat entire, senior management of the Dept of Transport should be summarily dismissed.
In China they would be shot.
No initiatives of any kind can succeed in a country which accepts such levels of failure with a shrug of the shoulders.
As Mark Francois MP might counter; “It’ll only be like the Blitz and we survived that”. To which I might reply; “True, and, thanks to your dad’s efforts on D Day, we won the war in the end. The trouble was that, as far as I know, none of us voted at the time to go to war in the first place!”