By Arab News
By Andrew Hammond*
New OECD data on Tuesday showed that the UK has been hit hardest by the coronavirus disease (COVID-19) crisis, economically speaking, of any G20 state apart from Argentina. Yet, amid the nation’s deepest recession in more than 300 years, worse could still be to come thanks to Brexit.
As traumatic as the pandemic has been for the country, with an economic contraction of 11.3 percent expected in 2020, leaked government papers last month pointed to a potentially deeper political and economic “systemic crisis” in the coming weeks. The UK Office for Budget Responsibility estimated that the economy will be significantly negatively impacted by Brexit, whether or not there is a UK-EU trade deal agreed and ratified by the end of the transition period on Dec. 31.
It was in the midst of this gathering storm that a leaked UK Cabinet Office briefing last week warned of a “notable risk” that the country could face a perfect winter storm of challenges. These include the prospect of a bad flu season on top of the COVID-19 crisis, severe flooding, and coordinated industrial action around the end of the transition period.
The leaked briefing lays out for government planners what it calls “reasonable worst-case scenarios” across 20 areas of national life, from oil and healthcare to travel and policing. For instance, it indicates economic chaos could raise the risk of a breakdown in public order and a national mental health crisis, while reducing the financial levers available for the government to respond to other risks.
Whether this systemic economic crisis comes to pass or not, many UK policymakers are already bracing for the end of the transition period following the country’s departure from the EU. The challenges here are wide-ranging. Take the example of UK food supply chains, which will be disrupted, given that the stockpiles built up at the end of 2019 have already been diminished during the pandemic and will not easily be replenished.
The Cabinet Office paper indicates that low-income groups will be most at risk of food insecurity, including single parents, children in large families, and those with disabilities.
There is also a significant risk to the health and social care sectors of potential labor shortages because of the UK’s continuing reliance on EU citizens and a workforce already stretched by pandemic controls.
Moreover, a drop in imports of medicines is also flagged as a serious potential problem, putting patient safety at risk, despite the fact that in October the government announced ferry freight contracts worth nearly £80 million ($107 million) to try to ensure medicines and other vital supplies continue to reach the UK from Jan. 1.
This possible systemic crisis is especially worrying some policymakers, given that central and local government authorities and businesses are still recovering from the pandemic and are not fully prepared for life outside the EU’s single market, regardless of whether talks on a post-Brexit trade deal are successful or not. Much of the private sector has diminished capacity, post-COVID-19, to deal with any financial shock caused by Brexit.
The fragility of many companies will have an impact on business readiness and vulnerability toward the end of the transition period, including the possibility of significant further commercial failures.
In the public sector too, challenges are growing, and they will not be helped by the fact that some 1.3 million public sector workers will see their pay frozen in 2021-22, despite being on the front-line of the pandemic for much of this year. Local council finances are particularly weak, with reduced capacity to absorb and implement the required changes following the end of the transition period. It is estimated that about 5 percent of them are at high risk of financial failure in the wake of the pandemic, even after central government support.
One of the key challenges facing the UK with Brexit is that, despite there being less than a month until the end of the transition period, it is still not clear if there will be a ratified trade deal with the EU. This means there will be only days to prepare for new regulatory regimes, including border checks and paperwork.
The UK government has particular blame here for choosing, earlier this year, not to extend the transition period, which would have given it additional time to negotiate a deal and prepare for its consequences. This means disruption in January is now all-but inevitable, including on borders, and it is likely that key areas of any post-Brexit settlement — including the Northern Ireland protocol, which US President-elect Joe Biden is paying close attention to — may not be implemented on time, since new IT systems and any infrastructure required for border control posts are probably not going to be ready.
This gathering storm will be on Prime Minister Boris Johnson’s mind, and indeed those of the EU decision-makers, as the Brexit end-game plays out. Even if a trade agreement is ratified with the EU before Dec. 31, this will still see significant economic disruption on top of the pandemic’s devastation.
- Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.