UK Government unable to protect every industry from the damage done by a no deal Brexit, warns Institute for Government
The UK Government will be unable to protect every UK industry from the damage done by a no deal Brexit, the Institute for Government (IfG) has warned.
In a new report, ‘Bailout for business in a no-deal Brexit’, the IfG found that in the context of “steeply deteriorating public finances”, caused by leaving the EU without a deal, the UK Government will be forced into “impossible choices about which businesses and industries to save”.
Without clear principles, it warned, the fight over subsidies will be “swamped by politics”.
Michael Gove has previously outlined plans to support any business which found itself temporarily affected by changes in circumstances that are related to Brexit.
But warning a no deal Brexit would represent “as sharp a rupture as has affected any trading bloc in recent history”, the report describes a no deal Brexit as “as step into the unknown”, finding that “no amount of preparation can eliminate all the risks”.
The IfG recommends that with thousands of businesses expected to require support to survive a no deal Brexit, some will not be worth pursuing, and that ministers should develop a set of guiding principles to reflect the purpose and constraints of business support.
It said governmental assistance should focus on helping companies avoid a cash-flow crisis, helping to re-establish a position in the market lost due to a no-deal Brexit, and ongoing “life-support” while no deal conditions last.
It also recommends policy makers refrain from launching radical redesigns of industrial strategy in the period of uncertainty following a no deal Brexit.
The UK car industry currently exports 650,000 cars to the EU annually, with the report finding that covering the shortfall would mean the government finding £1.8bn to make good the £2,700 per car disadvantage brought by leaving the bloc without a deal.
It adds: “This is clearly unaffordable, even before the costs associated with higher non-tariff barriers such as the automotive sector’s share of that £15bn customs declaration bill, or a higher cost of imported parts. To put the number in perspective, the amount initially committed to the Advanced Propulsion Centre, a key plank of the government’s automotive industrial strategy, was £500m over 10 years.”
Meanwhile, according to the UK Government’s analysis, keeping the services trade competitive would cost around £30bn a year.
The report says: “Clearly this would not be affordable even for a few months. Given the clear affordability constraints, compensation for ongoing loss of competitiveness that is expected to last any more than a year or two will face a very high bar and require extreme selectivity. To be blunt, it is far from clear that any support of this kind is a good idea.”
Giles Wilkes, Institute for Government senior fellow, said: “With a no-deal Brexit, the government would be pursuing a policy that its own analyses suggests will be very damaging to business.
“It is understandable that they want to play Santa and help UK plc over the ‘bumps in the road’. But faced with so many other calls on the public purse and with little idea of the medium-term direction of the economy, they will have to prepare to play Scrooge instead.
“Badly spent money might do more harm than good, propping up unviable companies and hurting competition.”