Since the spread of the coronavirus developed into a full-blown crisis, talk of the UK’s withdrawal from the European Union (EU) has fallen by the wayside.
Coronavirus has shifted every British citizen’s way of life, shut down much of the country’s private sector and strained public services. While finance professionals must focus on the fiscal response to the pandemic, Europeans should not forget there could be another economic shockwave on the horizon. For professionals managing public money, the need to be forward-thinking is that much more critical.
The budgets of English councils, which provide many local public services “delegated down” by the national government, bear significant pressure as a result of the lockdown. Greater spending on social care services, personal protective equipment and housing for homeless people, paired with lower revenue from taxes, fees and charges has seen local government liabilities swell into the billions of pounds. In response, the UK government has, to date, announced £3.2 billion in support for local authorities.
Talk of social distancing measures remaining in place until the end of the year offers little room for optimism. Although we don’t yet have an end date for the UK’s lockdown, we do have a date for the end of the Brexit transition period: December 31, 2020. Regardless of political affiliation, it is well understood that post-Brexit Britain will experience significant economic changes. Pre-pandemic life has largely remained the same since the UK formally left the EU on January 31, 2020. However, research shows us that “business as usual” is likely to change, at least in the immediate term after the transition period.
These additional shocks on top of the challenges coronavirus is likely to leave in its wake cannot be understated or ignored. The National Institute of Economic and Social Research estimates that the Prime Minister’s approved withdrawal deal will make every region of the UK poorer when compared to EU membership. The figures show the UK economy is also expected to be more than 3% smaller than it would be as an EU member, and those estimates assume an ambitious free trade agreement is in-place and ready to go by January 1, 2021.
From a public sector perspective, Brexit is projected to impact the UK’s geography differently, based on the structure of supply chains and concentration of industries that vary from one region to another. Immigration, public-private contracts and international supply chains will all undoubtedly be influenced by how the Brexit transition period is concluded. In turn, we know the public sector is sure to see change in revenue and demand for public services, we just don’t know how much.
Even amid the coronavirus-induced crisis, the UK government has insisted the Brexit transition period will not be extended. Trade negotiations with the EU resumed last week and continue to take place via video conference. Despite the fact that a transition period extension would offer more flexibility and breathing room for struggling councils and public budgets, the option to extend the transition beyond 2020 is of little political interest to a Prime Minister elected to “Get Brexit Done.” If things continue to follow the government’s messaging, real implications will start to be realized for public sector budgets.
It is natural to be focused on the immediate challenge, but neither can we afford to lose sight of Brexit contingency planning. Unfortunately, both coronavirus and Brexit look like they will collide one day and public finance professionals without strong financial management skills and adequate plans in place will have to make unbelievably difficult decisions. If we are to be guided by the government’s tone that day will be here before we know it.
This article first appeared in Forbes.
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