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Combined impact of Covid-19 and Brexit still uncertain

The Imprudent Accountant provides upbeat and downbeat analyses of the combined economic impact of coronavirus and Brexit. How will departure from Europe impact on an economy ravaged by Covid-19 and what will this mean for us?

6th Aug 2020
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EU and UK Flags

The jury should currently be out on whether the coronavirus pandemic is easing up in the UK or just taking a breather before making a deadly return.

Despite the mixed messaging, the Prime Minister is clearly worried, given his decision to reverse various measures that were supposed to have come in at the beginning of the week then battened down the hatches in Manchester and beyond.

One of the biggest problems has been a failure by those in power to address issues head-on. As with so many other aspects of the response, we started from a position where masks were not needed, developed the thought that they might be a good idea, followed by “encouragement” (perhaps the scariest word in the government’s U-turn vocabulary at the moment),  before finally reaching legislation long after the horse has bolted, and if it had any sense, headed for New Zealand.

This columnist is also seeing parallels between the decision to go it alone with an electronic tracking system which proved such a disaster on the Isle of Wight that it sank without trace and the recent decision to ignore offers to join the Europe-wide vaccine programme.

It might seem overly cynical but it isn’t hard to imagine a situation in a year or two when everyone in Europe has a vaccine and, as their economies return to relatively good health, we watch in jealous horror as our own falters even further. Then again, we might have the last laugh.

This government’s record of backing the wrong horse seems almost unprecedented. You just know that every time the Prime Minister says he is not going to do something, we are bound to enter the pattern described above.

Having just about resigned ourselves to a Covid-19 disaster in which England really is world-beating, in the worst sense possible with more deaths and a bigger economic downturn than almost any other rival, the Europe issue is returning with a vengeance.

Already, we are seeing large numbers of redundancies and this will only get worse as the furlough tapers away.

Downbeat analysis

It is sadly inevitable, given events in the rest of the world, but what has happened to all of the rhetoric about those world-beating trade deals with every significant country apart from those in Europe?

We have decided to wage a verbal and legal war with China, perhaps perfectly justifiably given its human rights record. However, that is hardly likely to help trade.

Any deal with the United States by the end of the year seems like pie in the sky given its own coronavirus and economic problems, while even slightly more realistic options involving Australia, New Zealand and other former Commonwealth countries are not showing any obvious signs of movement.

On the European front, we have just introduced draconian new immigration laws that will almost certainly harm our economy in the long term, not because we won’t necessarily have enough unemployed people to fill any jobs going but the fact is that most Brits don’t fancy doing dirty work for low pay, as we have seen with the need to fly in fruit pickers from Eastern Europe.

More significantly, the government seems determined to leave the EU without a trade deal, meaning that there will be tariff issues, added bureaucracy and numerous other problems including competition on preferential terms from other countries in the EU and beyond.

With an economy that has already been wrecked by the virus, this is surely a recipe for an economic disaster from which it may take a generation or more to recover.

Upbeat analysis

Many readers will be looking at this and wonder why the writer is missing the point. They will have complete faith that the government is going to pull a whole flock or whatever is the collective word for rabbits, out of a magical hat.

This band is convinced that, given its past record, the government will come up with some kind of world-beating deal with Europe at the last minute. One thing we can agree, it has become increasingly apparent that Johnson and his pals are not so much last-minute managers as 10 minutes after the last-minute managers.

The problem here is that our businesses need certainty. Let us assume for the moment that we do not extend the European deadline but, having got to 31 December 2020 without a satisfactory outcome, additional negotiations and something of a cave-in take place in January 2021.

Continuing the picture, some kind of limited trade deal is achieved, which reduces the paperwork, helps the Irish situation and eliminates many but not all tariffs.

At that point, like Neville Chamberlain, Boris Johnson can come home from Europe waving a worthless piece of paper.

Even in this good news scenario, it is hard to believe that 2021 and 2022 will not be tough years when you combine the chaos of Covid with the chaos of Brexit.

What does that mean for us?

It seems that whichever way things go, trading will be difficult for clients for some years and many may not survive. If that is the case, then our own prosperity will be under threat unless we can find new clients or services to offer.

However, from past experience, this writer knows that there are many accountants who can present a far more optimistic view of the future. Here is your chance.

Replies (2)

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By ireallyshouldknowthisbut
06th Aug 2020 18:06

I would genuinely love to be able to project a more positive repost, but you seem bang on to me.

Right now we are riding on the success of clients former years, counting as we do the past, but I see little reason to be cheerful right now. I am working madly (holiday cancelled) bringing in every penny I can to fill the coffers before some lean years. We had the benefit of a stay of execution from the IR35 changes for 12 months which has added about £20-30k to our turnover but that will drop out next year. Right at the point we hit the wall of reality post-brexit that wishful thinking does not make good policy, and business will be failing or cut back through our whole portfolio, not just the obvious ones at the sharp end.

Its the worst economic outlook I can ever remember for my business. The economy can take a few knock but its seems like having being knocked over by Covid, we are going to chop our legs of with a hard Brexit and the only plan from No.10 is to blame Covid for writhing around on the floor.

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Hallerud at Easter
By DJKL
07th Aug 2020 10:43

I suspect you may actually be too positive in your outlook both re our government's ability to get drunk in a brewery and regarding its deficient understanding of trade (the experts, not being wanted, have evidently, like Elvis, left the building).

I have never before really hated a Conservative administration but am certainly making an exception for this one.

At 60 the only thing I can really now do is improve my health in order that I will still be around to read the books about all of this when I reach 90, history is not going to be kind.

For the rest of you, those not yet having enough set aside to soon retire, I pity the struggles you will now have; regarding my children at least one is leaving the UK for good (for the USA) and in another 18 months the other will have an internationally recognised professional qualification to go with her degrees.

I agree with Begbies Traynor re the economic outlook and have been putting my money where my mouth is by buying shares in them within my SIPP.

p.s One thing the author mentions is the EU granting an extension to the transition, I do not believe the EU itself now can, the ability to have a right to trigger and grant any extension was firmly within the WA, the deadline now being passed I think legally any extension we now seek requires the consent of the 27 individual EU members but I think the point is academic, "this idiot is not for turning" to borrow from Mrs T.

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