No-deal Brexit will bring tangle of red tape, Britain warns companies

By Kylie MacLellan and Kate Holton

LONDON (Reuters) - Britain on Thursday told companies trading with the European Union they would face a tangle of red tape, possible border delays and more costly credit card payments if the government fails to negotiate an exit deal before Britain leaves the bloc.

Brexit secretary Dominic Raab said he remained confident the two sides would reach a deal, but set out in a series of 25 notes what could change without one.

With little more than seven months to go until it leaves the EU on March 29, Britain has yet to reach an agreement with the bloc on the terms of its departure. Prime Minister Theresa May's plan for a "business-friendly" deal has failed to impress negotiators in Brussels and has been heavily criticised at home.

"We have a duty, as a responsible government, to plan for every eventuality," Raab said. "To do this, we need to have a sensible, responsible and realistic conversation about what a no deal situation really means in practice."

After more than 40 years in the EU, Britain is having to set out its plans for every aspect of life. Around 80 technical notices are expected over the coming weeks, with the first 25 covering everything from the movement of organs, blood and sperm to nuclear regulation and organic food.

The guidelines make it clear that companies trading with Europe would face new customs and excise rules and require paperwork covering customs and safety declarations.

If Britain left without a deal "the free circulation of goods between the UK and EU would cease," the guidance said.

Chris Goodfellow, who runs logistics group Lockerfreight, said his clients were asking if they needed more staff to handle customs. "My head is spinning and my clients are panicking," he told Reuters. "My phone has not stopped."

"The companies that only deal with Europe don't realise how much more work is involved."

Supporters of Brexit say there may be some short-term pain for the British economy but it will prosper in the long-term when cut free from the EU's rules and regulations.

A European Commission spokesman said it was clear that the withdrawal of the UK was going to lead to disruption "with a deal or without a deal. And that's why everybody, in particular economic operators, needs to be prepared."

The government asked drugmakers to stockpile medicines for six weeks above normal operations - a target the industry said would be challenging - and called for medicines with short shelf-lives to be flown in to the country.

The drugs sector is one of the most vulnerable because of uncertainty as to how medicines oversight will function.

It welcomed plans to recognise EU tested and licensed products, but said the EU needed to show similar flexibility, echoing warnings from other industry bodies that government contingency plans could be blunted unless the EU cooperates.

Industry also welcomed the fact that import Value Added Tax on goods would not have to be paid upfront under a new "postponed accounting" rule, but UK recipients of expensive parcels from EU businesses will have to pay tax in line with current rules for non-EU countries.

On financial services the government said Britons will have to pay more to make card payments in the EU and businesses on the continent could be cut off from investment banks in London if there is a no-deal Brexit.

More than a million Britons living abroad may not be able to access their UK bank services to receive pensions and salaries, the document said.

POLITICAL FURORE

Plans to release the technical notes were first announced in July, bringing accusations of scaremongering from pro-Brexit campaigners in May's Conservative Party.

That was followed by a backlash from political opponents who said it depicted a government in chaos.

"These papers show that those who claim crashing out of the EU on World Trade Organisation rules is acceptable live in a world of fantasy, where facts are not allowed to challenge ideology," business lobby group the CBI said.

The furore underlines the fragility of May's position, heading into the final phase of negotiations without unity in her party, a clear consensus in parliament on what type of exit Britain should seek and persistent disagreements with Brussels.

Several ministers have warned that the risk of leaving without an agreement has increased. Earlier this month trade minister Liam Fox put the chances at 60-40.

Many economists say failure to agree exit terms would seriously damage the world's fifth-largest economy as the EU is its largest market.

Chancellor Philip Hammond, in a letter to a Conservative MP published on Thursday, said the potential hit to the economy from a no-deal Brexit could result in "large fiscal consequences" for Britain.

One of the main outstanding issues is the Irish border, which the no deal papers failed to address, simply repeatedly saying the government would "take full account of the unique circumstances of Northern Ireland" in its no-deal planning.

Business groups and companies welcomed the details and said more was needed. "It seems to have taken the British side a long time to understand what is at stake economically with Brexit," said Martin Wansleben, head of the German Chamber of Industry and Commerce (DIHK).

The opposition Labour Party's Brexit spokesman Keir Starmer said Raab had not said how ministers would mitigate the serious consequences of leaving the EU without an agreement.

Tackling some of the media reports that had preceded the release of the papers, Raab sought to reassure Britons that the army would not be called in to distribute food. And said a popular sandwich would still be available.

(Additional reporting by London Newsroom, writing by William James and Kate Holton; Editing by Janet Lawrence and Toby Chopra)