Musings on a post-Brexit economy: where do we go next?
For those of you who were not at our last Annual Conference in 2019, you missed academic and journalist Will Hutton describing Brexit as the largest single act of self-inflicted economic damage that any country has ever done to itself.
I do think the long wait around Brexit, and with the focus on Covid, has resulted in some economic complacency about what is coming down the track. Despite the deal that was agreed with the EU just before Christmas, we are obviously beginning to hear reports of short-term disruption which need to be confirmed, but personally I want to look beyond that here.
This year we might see a false dawn, and could actually see some economic reshoring as a result of Covid: I think we might well see some attempts to reduce supply chain complexity, and that might bring things back on shore. I also think sunk investments that manufacturers have made means that they will remain here for a while, but there will be this slow and gradual realignment to a new competitive environment.
This does raise points of concern. As time goes on, inevitably this means there will be some disinvestment as capacity shifts around to different European plants. I think, therefore, that in five years’ time we will have seen some clear damage to both the manufacturing sector and the agricultural sector in particular. All of that means some consequential damage to UK regional economies that can least afford it. And yet there is every chance that those diverse, knowledge-driven, service-based, fast-growth economies may be barely noticing a difference. It makes you wonder if there is going to be a real twin-track to the economy from now on.
The fact that a deal was achieved will hopefully remove the worst of these threats but it is clear that we will start to see localised damage almost immediately evidenced by a ban on the export of things such as fresh sausages and seed potatoes; that irritants will emerge in areas we take for granted such as European deliveries of small e-commerce purchased items where the seller is now refusing UK purchases; and also in those macro and important pan-state initiatives where the cost of participation was formerly shared (such as the European Space Programme).
One of the things that struck me in the ‘are we ready?’ debate – and this was always going to be limited in terms of what we as economic development professionals can do – is that there will be some businesses who do not do any exporting (or don’t think they do!). Firstly, if they do not do any exporting, they may think they do not have to worry about Brexit, but to what extent did they realise that maybe they are in a product area where a tariff cap was about to be completely removed, and they did not see it coming?
This whole position, and the government’s stated position on the levelling up agenda, seems to be at odds to me – and this is not helped by the need for further clarity on post-Brexit funding. Whilst the Chancellor, in the Spending Review last November, announced that £220 million will be allocated in 2021-22 to help local areas prepare for the introduction of the UK Shared Prosperity Fund, we also know that further details of the UKSPF will be set out in a “UK-wide investment framework” which they have said is due to be published in the spring.
In our pre-Christmas webinar, “Brexit: how are economic development professionals preparing for life post-31st December 2020?”, we asked delegates in a poll how optimistic they are about the medium term. Most said they were “not at all optimistic” or “not very optimistic”, with the two of those combined hitting 62%. And nobody was “very optimistic” about the longer term.
On the flip side, at the beginning of Covid I found myself trapped in some headlights and hysteria that this was going to be economically appalling. Whilst it has been a personal disaster for many, the economy has sort of limped on and some sectors have barely noticed it at all. So perhaps we cry catastrophe slightly too often.
We will be examining the issue of post-Brexit funding, and post-Brexit response, in the form of a further webinar, in the coming weeks.
Nigel Wilcock is Executive Director of the Institute of Economic Development