This paper considers the policy responses open to the UK in the event that a trade treaty is not reached, in terms of mitigating the cost of these tariffs for UK businesses.
After Brexit, the UK will be bound by the rules of the World Trade Organization (WTO). It will be prevented from offering ‘prohibited subsidies’, linked directly to export performance, and will be at risk from retaliation by foreign governments if it offers ‘actionable subsidies’, those which cause injury to a foreign business by providing specific benefits for UK industries.
Provided the UK establishes mitigation schemes which are non-specific, economy-wide measures, foreign governments will not be able to retaliate.
Freed from the EU rules on state aid, the UK will be able to implement greater tax incentives for research and development expenditure for all businesses. This policy is justifiable in its own right. The cost would be in the region of £2.9 billion, of which £2.1 billion (73%) would go to industries suffering EU-27 tariffs.
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