News & Events

World news - 28/07/2020

Hard Brexit means no deal?

Author: George Mangion
Published on Malta Independent 28 July 2020

UK’s economy was badly hit by the lockdown and its health authorities are battling the consequences of infections, amid even strict orders for citizens to maintain social distancing.  Measures were taken, not only to protect the health of most vulnerable communities but also their quality of life more broadly – including their financial security, mental health, access to resources, and social relationships. Even so, the economic and social disruption is clearly visible.

The streets of London, so ever fully populated by Londoners and tourists alike, are now bare and gloomy. Time will tell if the Chancellor’s tough financial package to fight the outbreak will be sufficient to meet people’s core needs. This unexpected calamity has exasperated the double whammy of a recession combined with a no-deal Brexit. Brexit will undoubtedly bring long-term systemic changes to the UK economy, politics, and society, and there continues to be uncertainty about how leaving the EU might affect the lives of the UK’s inhabitants. It is interesting that a government document outlining “reasonable worst-case assumptions” in the event of such a no-deal Brexit, has warned of rising food and fuel prices, disruption to medicine supplies, and public disorder.

The UK would have to apply tariffs and quotas to goods coming into the country from the EU, and the EU would apply its “third-country” tariffs and quotas to the UK. That means the UK would be hit by big taxes when it tries to sell products to the EU market. The bloc’s average WTO tariffs are 11.1% for agricultural goods, 15.7% for animal products, and 35.4% for dairy.

The prospect of a trade deal between the UK and the EU in time for the end of the transition period is becoming increasingly unlikely following a stalemate between negotiators.  Government sources now believe that no such trade deal will come to fruition and the UK will begin trading on the WTO come midnight on 31 December.

The concern seems to be that the economic costs of abruptly withdrawing from the European Union without a trade deal might be buried by Boris Johnson beneath the damage wreaked by the Coronavirus. Can this strategy be resisted and normality maintained since it goes without saying that vulnerable groups will be affected? Undoubtedly, there will be unintended consequences.

The poisoned cocktail of Brexit and the Coronavirus in the UK will probably affect badly the lower working classes and the disadvantaged, albeit to a different extent. Indeed, Brexit without a trade deal is likely to exacerbate some of the deleterious effects of the virus. It can be argued that leaving the EU without a deal will make it more difficult to fight the pandemic.

The UK left the EU at the end of January and is now being excluded from EU decision-making – and any collective support packages, for instance, the EU’s Coronavirus Response Investment Initiative – on the pandemic. The British government has stated that it does not plan to take the option to extend the transition period by up to two years. One cannot but lament the loss of some EU nationals working in the health and social care sector since Brexit, at a time when they are most needed. Readers may ask, why is there so much fuss about the UK leaving without a deal? For a start, the consequences of an economic divorce will most probably leave some disadvantaged people with less financial and social resilience therefore more vulnerable to both Brexit and the Coronavirus.

The European Union’s chief negotiator, Michel Barnier said progress in four areas of discussion had been “disappointing” while a British statement said “limited progress was made in bridging the gaps between us and the EU” One can never be fooled that having six months till the end of the year is sufficient time to reach a trade deal on complex issues which took over 40 years in the making. To be realistic, it is pushing it when Boris Johnson reiterates that there will be no extension beyond the end of the year.

There are complex matters to be negotiated starting on the critical issues of aviation to fisheries, new customs posts at the border, and a new immigration system. Little can be more vexatious than agreeing on how best to set up new border checks for both exports and imports. As stated earlier, this could result in higher prices, border backlogs and delays, and even shortages of staples, such as food and medicine. When the prospect of a no-deal arose last year, some British companies and citizens began stockpiling goods.

Thankfully, one major hurdle was solved that in case of a no-deal it will not lead to a so-called hard border between Northern Ireland and the Republic of Ireland, but rather to customs’ checks on goods traversing the Irish Sea. The developments come after the first ministers of Scotland and Wales wrote to Johnson demanding an extension to the transition period past the end of December.

Last year saw several international firms that shifted their investments from the UK to elsewhere in the EU. Aerospace giant Airbus is a prominent example, pointing towards a policy of directing funds and jobs away from the UK if there is no trade deal. Such moves could put tens of thousands of British jobs at risk. Without sounding partisan to the EU’s interest, yet one must admit that London’s role as a world finance leader could also be in jeopardy.

Previously, as a full EU member, one notes that the UK’s financial services provided 11% of tax revenue; 44% of exports go to the EU. If the majority of economic forecasts are correct and the UK’s economy suffers post-a-no-deal Brexit, the negative effect will impact all those groups represented in the low-income bracket (that is, ethnic minorities, the disabled, refugees and asylum seekers and people who are precarious workers) who rely more on public services and benefits and have less disposable income and spending power.

One augurs that Boris Johnson, takes the bull by the horns and prioritises the immediate damages inflicted by the pandemic and in a pragmatic manner seeks an extension so that the UK is adequately positioned to resolve the tangled web of a hard Brexit.

George Mangion

 

Author: George Mangion
Published on Malta Independent 28 July 2020
Get in touch: info@pkfmalta.com