Brexit and coronavirus: economic impacts and policy response

This report from UK think tank the Institute for Government looks at packages of support to help with Brexit and coronavirus disruption.

The government should restrict access to coronavirus support schemes to businesses affected by the pandemic, rather than those adjusting to Brexit changes. There are already signs that the government is going to allow Covid schemes to be used to cushion Brexit disruption. This report says the chancellor should instead design an alternative package of support to help businesses cope with short-term Brexit disruption, or allow those businesses special access to the existing Covid-19 schemes on a case-by-case basis. Failing to do so risks poor value for taxpayer money and longer-term economic damage from delaying necessary economic restructuring when the UK’s terms of trade with the EU change in 2021. The twin shocks of coronavirus and Brexit cover almost as broad a swathe of the economy as possible, affecting sectors relying on face-to-face interactions (the arts, hospitality) and cross-border trade (manufacturing) respectively. Some 69% of the economy is predicted to be ‘badly affected’ by at least one of Brexit and Covid-19. In the absence of Covid, the government would never have introduced widely available, cheap government-guaranteed loans or schemes like the CJRS to handle Brexit disruption. While acknowledging that trying to limit access to the schemes will be politically difficult, the paper sets out four ways to help ensure that the coronavirus support measures are not inappropriately used to prop up businesses whose competitiveness is undermined by Brexit.

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