THE biggest risk to the UK economy is no longer coronavirus: we are well past the peak and plans to ease lockdown should be laid out tomorrow. What should now be concentrating the best government minds is how to avoid a long and deep recession off the back of this unprecedented shutdown. The ways in which this might be avoided, or at least minimised, are plentiful, but extending our transition period with the EU is not one of them.
The usual Remain suspects calling for an extension assert either that the government needs to focus on coronavirus, or that the economy has suffered enough and so the risk of a ‘no deal’ Brexit on top of our current economic downturn is a risk too far. Both arguments are spurious. The first is naive in its assumption that central government, with a staff count in excess of three million, is incapable of dealing with more issue than one at a time; the latter because it erroneously assumes an extension will avoid ‘no deal’, and because it fails to take into account the far greater economic risks posed by extending.
In the wake of the Second World War, a physically and economically ruined West Germany rapidly rebuilt its economy through massive deregulation. Production controls, price controls and trade barriers were abolished, with dramatic results. By the early 1960s, Germany was Europe’s powerhouse. Germany did whatever it took to get back on its feet, and post-coronavirus Britain will need to do the same. However, this may prove impossible if we are still tied into the EU’s regulatory structure. Britain could be constrained by new Brussels legislation made over our heads, and EU state aid rules might prevent us offering any further support to UK businesses. It would not be difficult for the EU to frustrate efforts to reboot the UK economy. If there was ever a time for truly independent sovereignty, this is it.
An extension may also entangle the UK into the prospective ‘mutualisation’ of the huge debts being run up by EU member states in the fight against coronavirus. As yet, there is no agreement on this, nor any sense of where the money will come from, but this idea is firmly on the table and is a huge red flag we cannot afford to ignore. It makes our swift extraction from the EU’s financial malaise all the more urgent. We cannot risk being required to contribute to eurozone coronavirus bailouts, nor continue to pump billions into the EU budget during an extended transition period accompanied by recession. Neither can we afford to suspend implementation of bi-lateral global trade deals, given the economic recovery they could help fuel.
The Secretary of State for Trade, Liz Truss, has announced that the UK Global Tariff, which will set tariffs for imports from countries with which we have no trade deals, has been agreed with the World Trade Organisation and will be published shortly. Meanwhile, the EU showed its preparedness for a WTO Brexit during the Article 50 negotiations, publishing 100-plus sector-specific preparedness notices on issues such as aviation safety and VAT, notices which are now being reviewed and updated.
It really is time to put fear of ‘no-deal’ to bed. Both sides are well equipped to manage this scenario.
The insistence by some EU leaders that talks warrant an extension because they are not far enough advanced is merely a last-ditch attempt to milk UK finances for as long as possible. Talk of slow progress on matters such as the Irish border, citizens’ rights, fishing rights, trade, competition etc, are a red herring; negotiators know these are ‘red line’ issues for the UK and no extension will change them. This is about money. The European Central Bank president Christine Lagarde has said eurozone growth could fall by up to 12 per cent this year. EU leaders will have to decide: in the midst of their own economic crises, are they prepared to jeopardise a successful free trading partnership with a country that is already avidly pursuing free trade deals elsewhere in the world?
The bottom line is this: any negative impact of a ‘no-deal’ Brexit will pale into insignificance compared with the impact of coronavirus. If an agreement with the EU cannot be reached by the summer and it becomes clear that no trade deal is forthcoming, for both sound economic and political reasons, it would be in the government’s best interests to walk away as soon as possible.
Our government is already well on the way to fulfilling its Brexit manifesto commitment. Bottling it now, no good reason whatsoever, is unthinkable.