Anne Marie Waters
Tuesday December 8th 2020
News on the British economy this morning is dominated by two things: Brexit and the COVID-19 vaccine. Will we be able to strike a deal, and will the vaccine get us back to work? We have no idea, so our economy remains in limbo.
Boris Johnson is heading off to Brussels this week to try to smooth out the creases regarding our future trade with the bloc. The sticking points truly indicate the depth of the international relationships nation-states now find themselves tied in to. Britain wants to fish its own waters, but the EU objects. Fishing communities around Britain has been crushed, as has the local economy in fishing areas that had built up around the industry.
The Common Fisheries Policy, the fishing policy of the EU, allows for fishermen from across Europe to utilise any waters they wish. The EU insists this remain in place, while the UK wants a 12 mile exclusion zone around its coast. It seems a perfectly reasonable demand to me!
Next up is the ‘level playing field’, which is expressly intended to avoid giving the UK a competitive economic edge over the EU. What this means is that policy on workers’ rights, the environment, and state aid to business must be harmonised in order to avoid the UK having a competitive advantage.
Finally, the European Court of Justice – the court which rules on disputes in the bloc. The EU wants this to remain the decision maker in the event of dispute between the UK and EU, while the UK wants a new independent arbiter.
What all of this means for our economy at present is continued uncertainty, and if a deal cannot be reached, as is looking likely, we will switch to World Trade Organisation (WTO) rules at the end of this year.
The WTO provides a framework within which international trade can operate. This however means tariffs, and this isn’t ideal. The Independent describes it like this:
When there was a possibility of a no-deal Brexit, the Government said it would introduce temporary measures to cut tariffs completely for 87 per cent of imports in a bid to reduce any disruption to businesses.
Having no tariffs could help with the flow of goods coming into the country, but it could also damage British producers due to the influx of cheaper goods. The Government said it would ensure some protection for companies producing cars, farmers producing meat, and the ceramics industry.
All WTO members have to treat the countries they do not have a trade deal with in the same way, which means that if the UK scrapped scrapped tariffs for one member country it would have to do the same for all others.
Aside from tariffs, having a WTO trading relationship with the EU would also lead to “non-tariff barriers” – product standards or safety regulations – which could lead to additional checks at borders and delays.
The EU may not feel it necessary to impose such checks on goods that were permitted to pass through the border pre-Brexit, but the bloc would be within its rights to do so.
Meanwhile, the first person to be vaccinated against COVID-19 is a 90 year old woman from Northern Ireland. On the back of it, Faisal Islam, the BBC’s economic editor, asks ‘Will vaccines save the UK economy?’
At first glance, sadly, the answer has to be no. The vaccination of Margaret Keenan at a hospital in Coventry comes with a rather strange clarification attached: the vaccination will neither prevent Mrs Keenan from catching the virus, nor will it prevent her transmitting it. One wonders how on earth it can help our economy then.
Faisal Islam’s article begins with a false premise, that vaccines have saved more lives than almost anything else. But this isn’t a view universally accepted. Vaccination did not end many of the diseases it is credited with, sanitation and higher standards of living did.
That aside, it is hard to see how this vaccine can save the economy when it does little to confront uncertainty. For people to invest, they must feel confident that their investment will bring returns. But in times like this, few people are confident about anything because there is simply so much up-in-the-air. Low confidence means low investment, less risk, and that’s all bad news for economies.
This uncertainty is reflected in Islam’s article. He writes that a vaccine may now lead to less social distancing and lockdowns, but he isn’t quite sure about that either.
Two notes of caution. The very short-term impact might work both ways. The restrictions could stay in place, and perhaps be stricter than they otherwise would have been.
Also the key voluntary social distancing – where the public simply decides not to go to restaurants, pubs and shops – may be maintained at a higher level through to the spring.
Why? Because, as the government itself is advising, with the scientific cavalry on the way, and light at the end of the tunnel, why take risks right now? Also the early direct beneficiaries of vaccination will be concentrated among the most elderly and at risk, as well as health workers. It will not be the public at large.
In other words, like the rest of us, he has no idea what’s around the corner, and nor do investors or employers or entrepreneurs.
We will simply have to wait and see. Trust in our government however is low, and it is easy to understand why. So sadly the bad news continues for now, as does the uncertainty and confusion and distrust. All very bad news for a struggling economy.
Anne Marie Waters
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