The UK will leave the EU’s trading rules in less than five weeks’ time.
With or without a trade deal with Brussels, Brexit will inflict a significant hit on the UK economy, the Office for Budget Responsibility said this week. No deal would reduce long-term output by 6%, it said.
However, the cost and disruption that awaits the UK didn’t feature in Rishi Sunak’s Spending Review.
The Chancellor and the rest of Boris Johnson’s government are reluctant to talk about Brexit due to its associated costs, Theresa May’s former Europe adviser told Business Insider.
Experts agreed that the government’s refusal to be upfront about Brexit was hindering preparation.
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The UK will break away from the European Union’s trading rules in less than five weeks, and significant disruption and economic pain awaits. However, to the frustration of opposition politicians, British business, and Brexit experts, the issue was barely mentioned in Chancellor of the Exchequer Rishi Sunak’s Spending Review this week.
The Office for Budget Responsibility — the independent public body that provides the UK government with economic forecasts — in its most recent analysis of the country’s finances, expressed in stark terms the damage Brexit was set to do to the UK, after a year in which British economy has been left battered and severely bruised by the coronavirus.
If the UK leaves the Brexit transition period without a free trade agreement on New Year’s Eve, its long-term economic output will be reduced by six percentage points, the ORB said in its report. New tariffs on goods and barriers to doing business with the EU — the UK’s biggest trading partner — will lead to prices rising 1.5% by the year 2026.
The damage caused by leaving the EU without a trade deal will delay the UK’s recovery from the coronavirus pandemic, the financial body said, warning that trading on costly World Trade Organisation terms would “have the effect of delaying the point at which output regains its pre-virus peak by almost a year to the third quarter of 2023.”
“The OBR made it clear that leaving without a deal or on WTO terms would have a huge economic impact,” Rachel Reeves, Labour’s Shadow Chancellor of the Duchy of Lancaster, told Business Insider this week. “Yet with 36 days to go until the end of the transition period, there was not one word from the Chancellor on this.
“This government seems determined to ignore their lack of preparedness and keep their heads firmly in the sand when it comes to the impact no deal would have on already stretched businesses.”
Even if UK and EU negotiators manage to strike an eleventh-hour deal in the next week or so, the UK’s long-term economic output will be reduced by four percentage points, the OBR said. That’s because while a trade agreement would remove tariffs, it would not eliminate an array of new checks on goods moving between the UK and the EU.
Such bleak and urgent figures would normally headline a government statement on the economy — or at least make some notable appearance.
And while the coronavirus pandemic is understandably Prime Minister Boris Johnson’s top priority, his government’s refusal to acknowledge the scale of the challenge posed by Brexit is dishonest and hindering preparations, according to Brexit experts.
“The government cannot bring itself to be honest about it,” Anand Menon, Director of the UK in A Changing Europe think tank, told Business Insider following Sunak’s statement to the House of Commons.
“If you want Brexit to happen and pay dividends, the best thing to do is be honest about the short-term disruption.
“But this government is locked into this denialist attitude that the economy will be fine and there’ll be no downsides, and the fact they won’t be honest will make the impacts of it worse.”
Coronavirus will not hide the impact of Brexit
Johnson’s government is already fighting a losing battle in helping the UK’s small-to-medium-sized businesses be fully-prepared for January 1. Trader readiness is currently category “red,” the Cabinet Office’s Alex Chisholm told Members of Parliament this week, meaning thousands of companies are not expected to be ready on time.
Criticized for not being clear enough about Brexit’s changes, the UK government has recently ramped up its Brexit communications campaign, urging people and businesses to take the necessary action now.
However, Sunak “not using a high-profile moment like the Spending Review to try to double down on that message is somewhat of a missed opportunity,” said Raoul Ruperal, the former Europe adviser to ex-Prime Minister Theresa May.
He told Business Insider that the UK government was reluctant to discuss Brexit due to the costs associated with Prime Minister Johnson’s plan to negotiate a limited free trade agreement with the EU. “The view in government is that they don’t want to talk about the economic impact about Brexit, and that’s been the case for a while,” he said.
“Sunak, from a personal point of view, wants to stay clear of it because he doesn’t feel that there’s a lot to be gained.”
Maddy Thimont Jack of the Institute For Government think tank agreed, telling Business Insider: “The government just hasn’t been willing to communicate the difficult messages around the political decision it has made.
“It’s all well and good saying there’ll be lots of great opportunities with Brexit, and there may well be, but what they need to acknowledge is that it will bring with a lot of red tape for business with our biggest trading partner.”
Ruparel, a leading commentator on the UK’s EU exit, has sought to debunk the idea that Brexit’s negative economic effects will be lost in the larger financial wreckage left by the coronavirus. One UK minister in June told Sky News that the pandemic would make even the worst-case Brexit scenario — a non-negotiated outcome — “almost irrelevant.”
Service industries that have been acutely affected by the coronavirus like travel, tourism, and retail are likely to be among the industries less-affected by Brexit, Ruparel said. However, those that avoided the harshest effects of COVID-19, like manufacturing, the pharmaceutical sector, and professional services, are set to be hit hardest by leaving the EU.
Or, as Thimont Jack put it, “the combined impact [of the coronavirus and Brexit] means that most of the economy is going to take quite a significant hit next year… We see the government talk about these two issues in isolation, and that is happening in public debate too, but what we are going to see in January is those two things collide.”
Responding to those two enormous will pose a challenge of historic proportions, she said.
“How does the government organize itself to ramp up test & trace, deliver the huge logistical challenge of rolling out a vaccine, while at the same time try to manage disruption that comes from Brexit, both in a deal or no-deal scenario?”
Business Insider has asked the UK government for comment.
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