Brexit - Operation Yellowhammer

Operation Yellowhammer – a Risk Assessment?

Now available for public viewing, the “official sensitive” document that is HMG’s Operation Yellowhammer is a very realistic and comprehensive high-level risk assessment of a no-deal Brexit scenario. It’s an easy read. It sets out the inherent risk and points, in some areas, to what will probably be the natural, logical mitigation of some of these risks. What it fails to do is put a ‘cost to remedy’ on the risks. It also amplifies the interdependencies that exist between Britain and the EU and in particular those between France and Ireland.

Most people do not appreciate the extent of these interdependencies and Yellowhammer confirms that there are very few people in the UK and Ireland who will not be negatively impacted by Brexit, deal or no-deal. If the exit is not orderly and seen as a mutual project with a very well-defined end outcome like, for example, the Norway relationship, it could drag on and potentially become an everlasting nightmare.

The document envisages a worst-case scenario of a hard border in Ireland – the structure alone will require enormous capital investment in infrastructure and manpower to make it operational. It also represents significant initial and ongoing costs to both the UK and the EU (Ireland). Similarly, infrastructure will have to be built and operated at the ‘short crossings’, meaning that all relevant ports, on both sides of the channel, will need to be resourced and financed for the associated capital and operating cost. HMG fails to project the impact of the increased taxes that will be required to pay for the cost of implementation maintenance of the hard borders on both sides.

The Brexit battle lines were drawn many years ago within the Conservative Party and the scripts for the Leave and Remain campaigns were written into the party manifesto of 2013. The then Prime Minister, David Cameron, meaningfully engaged with the EU on the headlines of that manifesto and enjoyed considerable success in addressing the four key UK concerns about the EU: 1. Sovereignty; 2. Migration and Welfare Benefits; 3. Competitiveness and; 4. Fiscal Governance measures to protect non-Eurozone member currencies. The Cameron-Tusk Agreement of 2016 was to give the UK “special status” within the EU and exemptions or work-arounds on some of the four key issues.  Given the enormity of the task of getting twenty-seven member states to agree to the changes for the UK, Cameron met an EU willing to listen and to facilitate the UK’s requirements where possible. Donal Tusk found a workable balance and both men assumed that what they had agreed would be acceptable to the UK electorate.  Tusk made the as yet untested assumption that he could convince the other twenty-seven member states that these changes were beneficial to the whole of the EU. The Brexit referendum result changed all that.

Back to the Operation Yellowhammer document, paragraph 20 makes reference to the potential economic stress on providers of adult social care, and describes how tight-margin care facilities will be under extreme pressure. The document is a risk framework and, Brexit or no Brexit, this sector is under pressure in the UK already.

Paragraph 8 is another part of the risk framework; financial services represent 7% of the UK’s economy, generating £162 billion in revenue and paying £29 billion in tax income. The Yellowhammer document says “some cross-border UK financial services will be disrupted”. Over 48% of the UK financial services exports go to EU member states, close to £30 billion in total. The sector employs 1.1 million people in the UK. The withdrawal agreement envisaged a regulatory “equivalence plus” arrangement that would allow business to continue as normal and there is / was progress on legislating for “temporary permissions” to allow business to continue. Given the size and importance of this sector to the UK economy, the term “will be disrupted” has potential enormous consequence.

This evening I will be at home having a stiff drink, worried, wondering “why?”, and thinking, “Are ye really, really, sure ye want to do this and where, oh, where is the document that sets out the upside potential in the same detail?” I will also ponder what it is in the redacted section 15 that is so bad it could not be shared?

This article was first published on Paul’s LinkedIn page on September 13th, 2019. If you would like to read the Operation Yellowhammer document for yourself, we have posted it here.