UK’s Future
Brexit & Corona Virus
May 26, 2020
Democracy v Dictatorship
June 2, 2020THE FUTURE OF UK DOES NOT LOOK BRIGHT
Brexit threatens UK’s ability to respond to a future pandemic
The coronavirus should remind us of just why international cooperation is so important in reducing the threat of infectious disease
Brexit threatens the UK’s ability to respond to the novel coronavirus and future pandemics.
The coronavirus pandemic could not have come at a worse time for the UK and its citizens. Just as UK government ministers are digging in for the really difficult part of Brexit, the negotiations on future relationships with the EU and the rest of the world, a new virus comes out of China that reminds us of just why international co-operation is so important.
The obvious response, one might think, would be to do everything to safeguard those areas where the UK does collaborate, so as to reduce the threat of infectious disease. Instead, the UK has decided to isolate itself from European systems that have been built up over the past decade, many as a result of problems exposed by the 2009 swine flu pandemic.
The UK’s decision to leave the European Medicines Agency (EMA), an arm of the European Commission, has been discussed at length. The EMA is responsible for overseeing clinical trials for new vaccines and medicines for pandemics, and deciding on marketing authorisations for them that apply across the EU.
Media attention has highlighted the damage that being outside the EMA will do to the British economy – both through lost activity among UK researchers and suppliers, and by making the UK a less attractive place for major pharmaceutical companies.
However, the consequences of being outside the EMA go much further. After the end of the transition period on 31 December 2020, the UK will be outside the EMA’s rapid authorisation mechanism for pandemic vaccines and medicines for treatment. Consequently, the UK could have to wait longer for these than EU member states.
To make matters worse, the UK has already withdrawn from the EU’s emergency bulk buying mechanism for vaccines and medicines, which allows EU member states to increase their market power and speed up access to vaccines and medicines during a crisis. Its exclusion could mean the UK will have to pay more to acquire these pandemic countermeasures.
The government could, if it wished, go for a much closer alignment with the EU, a choice made by Norway, Liechtenstein, and Iceland, which form the European Economic Area (EEA). These countries are on the same footing as regulators in EU countries.
However, the difference is that these countries are in the single market and have accepted its rules. Even Switzerland, which is outside the EEA, has bespoke arrangements with the EMA based on its alignment to EU rules.
A deal similar to the Ukrainian Association Agreement with the EU is another option. But each of these non-member states is outside the EU’s bulk buying mechanism for vaccines and medicines. In any case, all of these models seem unacceptable to the current UK government.
There are other ways that the UK could mitigate the problems that come with being outside the EMA. One would be to copy Singapore, which has decided to automatically recognise EMA marketing authorisations, as well as those issued by the US Food and Drug Administration, subject to a 60-day Verification Route. However, this would be contrary to the UK government’s refusal to be a “rule taker”.
Finally, the UK could also, at least in theory, create its own rapid marketing authorisation mechanism. The slight problem is that this would almost certainly be impossible in the short term, not least because of the need to attract skilled staff. Many staff would have to be recruited internationally, and they may well be put off by the UK’s harsh, and extremely expensive, immigration regime.
And even if a new UK mechanism did work, it would not necessarily ensure swift access to medicines as UK standards may diverge from those in the EU, a real threat given the upcoming implementation of the recent EU clinical trials regulation.
Concerns about UK divergence have been exacerbated by health secretary Matt Hancock, commenting that the UK’s medicines regulator could reduce bureaucracy, which signifies an intention to diverge. Clinical trials data and marketing authorisations in the UK, especially when made on the basis of that data, may not satisfy the EMA.
Some pharmaceutical companies may therefore opt to base clinical trials in the EU, or in third countries that apply EU-compliant standards, so as to ensure they obtain marketing approval through the EMA for the EU market.
Pharmaceutical companies with UK manufacturing plants, including AstraZeneca, have already established batch control sites and pharmacovigilance teams in EU member states. This is to ensure they can continue to lawfully supply medicines in the EU.
Pharmaceutical companies, facing the very large administrative burden involved in obtaining marketing authorisation, are likely to prioritise the EU’s single market over the UK’s far smaller market, as already happens with Switzerland and Canada.
It is a Canada-style trade deal that the UK is now pursuing, although it has not ruled out what it describes as an Australia-style deal, which is in effect code for no deal. Yet this could take upwards of eight years to agree, and EU negotiators are likely to drive a hard bargain. As with any deal with the US, itself very unlikely, this will demand that the UK make choices about who to align with.
For all of these reasons, if, as seems likely, a vaccine is developed against the 2019-nCoV virus, the UK is likely to have to join the queue for access with other countries, and to pay more than it otherwise would as an EU member state.
So while, in one respect, the timing of the pandemic could not have been worse for the UK, in another it could provide an opportunity to reflect on whether an isolationist ideology really is such a good idea. It has taken many years to build up the EU’s systems of defences against infectious disease. In an ever more uncertain and interconnected world, is it really a good idea to withdraw from them?
Will shoppers return to the UK high street after lockdown?
There is no need for Britain to impose dramatic spending cuts in response to the debt surge caused by coronavirus. n 2009, as the UK’s budget deficit surged in the wake of the financial crisis, the Conservatives prescribed a simple remedy: austerity. Only by slashing public spending, it was said, could Britain hope to avoid a Greek-style debt emergency.
A decade later, the social cost of this project is clear. Rough sleeping in England has increased by 165 per cent since 2010; life expectancy in the UK has stalled for the first time in more than 100 years; and the number of people in poverty in working families has reached a record high. Average real wages only returned to their 2008 peak at the end of 2019 – a lost decade for living standards.
Though annual government borrowing was reduced from a peak of £158.3bn (10.2 per cent of GDP) in 2009-10 to £38.4bn (1.8 per cent) in 2018-19, the economic shock triggered by coronavirus means it will now surge once more.
The Office for Budget Responsibility has projected a deficit of £273bn (14 per cent) – the largest since the Second World War – should the lockdown last for three months. The national debt, meanwhile, is forecast to surpass 100 per cent of GDP.
The UK, which enjoys ultra-low borrowing costs and retains its own currency and lender of last resort (the Bank of England), can afford to increase public spending without fear of a new financial crisis. But according to the Conservatives’ past logic, austerity must eventually follow.
Though the Chancellor, Rishi Sunak, has avoided any explicit mention of future cuts, he has warned that taxpayers’ money will “need to be paid back at some point” and has spoken of “chipping in together to right the ship”. Is this a guarantee of future austerity and, if so, what are the alternatives? Sunak does indeed appear to be preparing the ground for austerity, but his project may not mirror George Osborne’s.
Osborne’s programme depended heavily on spending cuts (though some taxes, such as VAT, were also increased). Sunak could place a greater emphasis on tax rises to generate revenue. Corporation tax in the UK was 28 per cent in 2010 but has since undergone a series of cuts that the Institute of Fiscal Studies has said cost the UK at least £16.5bn a year.
It is now, at 19 per cent, the lowest rate in the G20. New or revised property and land taxes could further raise revenue — council tax bands, for example, have not been revised since 1991. T
he top rate of income tax could be raised from 45p, a measure that has precedent in times of crisis — both the UK and the US had top rates of over 90 per cent during the Second World War. Most of the £21.2bn a year the government foregoes through pension tax relief is claimed by people earning more than £50,000 a year.
There are some signs of an appetite for more taxation: the Chancellor has already warned that the self-employed could be forced to pay higher National Insurance rates in return for state support.
However, while services such as the NHS (“the closest thing the English have to a religion”, in the words of Nigel Lawson) will be protected, it would be unsurprising if Sunak chose to impose a less generous spending settlement on other departments.
In view of recent debates, it would be easy to assume that austerity is the only means by which to reduce the national debt. But previous governments also depended heavily on growth (to maximise tax revenue) and inflation (to reduce the cost of servicing debt). After the Second World War, the national debt stood at 250 per cent of GDP, but it was steadily eroded through a “golden age” of growth, falling to 45 per cent by 1973.
However, while measures such as higher infrastructure investment could maximise growth, the rapid breakdown of the environment, growing trade protectionism and the threat of future pandemics mean the UK would be reckless to bank on a new era of prosperity.
For these reasons, more radical and novel solutions are being debated. One option is for the UK to exploit the ultimate magic money tree: the Bank of England. The central bank has already taken the emergency step of creating (or “printing”) new money in order to directly finance government spending. (Though the UK state is still able to borrow from the bond market at ultra-low rates.)
Having broken this taboo for the first time since 2008, the Treasury has emphasised that measure is “temporary and short-term”. Economists have long warned that such intervention threatens central bank independence and risks hyperinflation.
But the possibility of the Bank funding government spending for a sustained period – the dream of Modern Monetary Theory advocates – is no longer fantastical. In an era of stagnation, most economists view inflation as a distant fear. And quantitative easing, under which the Bank of England creates new money to buy government bonds, has already compromised the bank’s independence since 2009.
Such was the harm inflicted by austerity in the post-2008 era that even the IMF, a traditional bastion of free-market thought, warned that spending cuts do more harm than good. On the day he announced £350bn of combined support for the economy, Sunak declared:
“This is not a time for ideology and orthodoxy.” The Chancellor will need to honour that commitment if he is to avoid repeating the errors of his predecessors.
Chancellor warns of 'tough times' for UK economy
The Office for Budget Responsibility (OBR) warned the pandemic could see the economy shrink by a record 35% by June. Mr Sunak stressed that the forecast was only one possible scenario.
But he said it was important that the government was "honest with people about what may be happening". He said the OBR figures suggest that the scale of what the UK is facing "will have serious implications for our economy", in common with other countries.
"These are tough times, and there will be more to come," Mr Sunak said.
However, he said that while the government could not protect every business and household, "we came into this crisis with a fundamentally sound economy, powered by the hard work and ingenuity of the British people and British businesses."
The OBR also expects the economic impact of the crisis to be temporary, he said.
He added that the government is "not just going to stand by" and not act to support the economy. "Our planned economic response is protecting millions of jobs, businesses, self-employed people, charities, and households," he said.
"Our plan is the right plan." Mr Sunak added that at the moment "the single most important thing we can do to protect the economy is to protect the health of our people.
The OBR said a three-month lockdown followed by three months of partial restrictions would trigger an economic decline of 35.1% in the quarter to June alone, following growth of 0.2% in the first three months of this year. Robert Chote, the chairman of the OBR, said a drop of this magnitude would be the largest "in living memory".
While the UK economy would contract by 12.8% this year under this scenario, it is expected to get back to its pre-crisis growth trend by the end of 2020. The OBR stressed the actual amount of growth would depend on how long the lockdown lasted, as well as how quickly activity bounced back once restrictions were relaxed.
In any case, it expects half of any sharp drop in growth in the second quarter to be reversed in the three months to September as the economy starts to recover. Separately, the International Monetary Fund warned the virus would push the UK into its deepest slump for a century. In its report, the IMF said it expects the UK economy to shrink by 6.5% in 2020, while the global economy will contract by 3%.
Coronavirus-related deaths in UK hospitals have risen to 12,107, an increase of 778 on Monday's total. And more than one in five deaths in England and Wales is linked to coronavirus, figures show.
The Office for National Statistics data showed the virus was mentioned on 3,475 death certificates in the week ending 3 April. It helped push the total number of deaths in that week to more than 16,000 - a record high and 6,000 more than expected at this time of year.
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