Insight
Brexit and COVID-19 are a toxic mix by Tomas Hirst and John Springford 15 October 2020
The second wave of COVID-19 is arriving just before the UK leaves the single market. The pandemic will make it harder for the economy to adjust to Brexit. Britain’s finance minister, Rishi Sunak, announced last week that his furlough scheme would continue, after vowing it would end on October 31st. Infections are rising in the UK, as they are across much of Western Europe, and hours worked are falling again. But, unlike its peers, the UK will leave the EU single market and customs union in January, which will raise the cost of imported goods, reducing household spending power, and curb European demand for UK products, leading to job losses in Britain’s export industries. The pandemic will make it harder for the economy to adjust to Brexit, and the government needs an economic policy programme designed for a period when unemployment is high and household consumption weak. Given that the economy contracted by 20 per cent in the second quarter – a record decline in output – the relatively modest impact of the pandemic on household disposable income should be seen as a major policy success (it fell by 0.9 per cent in the second quarter). At 80 per cent of pre-COVID income, the UK’s furlough scheme was more generous than the average furlough/short-time work scheme on the continent, which protected closer to 60 per cent of incomes. That allowed the UK economy to bounce back strongly through the third quarter. Yet while these schemes have been extended in many other European countries, Sunak planned to close the furlough scheme at the end of this month before his recent U-turn. He is replacing the furlough scheme with the Job Support Scheme (JSS), which requires employees to work at least one-third of their normal hours, with their pay being topped up by equal contributions from the government and their employer. Because employers have to top up wages for short-time workers when they are off, they have an incentive to fire some workers and employ the remainder on a full-time basis. And as the UK started to see rising coronavirus case numbers, new local restrictions on pubs and bars to curb the spread have compelled the government to provide more support. Last week Sunak revised the JSS so that the government will now support businesses that are forced to close by paying two-thirds of each employee’s salary, up to a maximum of £2,100 a month. CER INSIGHT: Brexit and COVID-19 are a toxic mix’ 15 OCTOBER 2020
info@cer.EU | WWW.CER.EU
1