U.K. Eyes Covid Programs to Help Business in No-Deal Brexit

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Chancellor of the Exchequer Rishi Sunak is looking to his pandemic support programs to help out businesses in the event of a no-deal Brexit, a person familiar with the matter said.

The Treasury’s furlough program, state-backed loans and tax holidays can all be re-purposed to help companies out if their operations are disrupted by snarl-ups at the border, the person said. It’s still up in the air whether modifications will be made to allow companies to specify they’re using the programs because of Brexit.

The U.K. officially left the European Union at the end of January, but its post-Brexit transition comes to a close at 11 p.m. on Dec. 31 and negotiators are still straining to strike a trade deal. Without an agreement, the U.K. will default to trading with the EU on World Trade Organization terms, with the imposition of costly tariffs and quotas.

The Office for Budget Responsibility estimates a no-deal Brexit would shave 2% off gross domestic product next year, with sectors including agriculture, manufacturing and financial services suffering more than others.

U.K. Eyes Covid Programs to Help Business in No-Deal Brexit

There will also be “limited and targeted” bespoke packages for industries particularly affected, such as lamb, according to the person, who declined to name other sectors. The person said the Treasury has “playbooks for all the scenarios” but dismissed a Sunday Telegraph report that a package of as much as 10 billion pounds ($13.4 billion) was being formulated to help businesses in the event of a no-deal Brexit.

The costs of tackling the virus and supporting businesses and workers through the pandemic so far have been eye-watering, totaling some 280 billion pounds in the current fiscal year.

‘Hostage to Politics’

Acknowledging the prolonged uncertainty caused by the virus, even as the roll-out of vaccinations heralds an easing of restrictions by the spring, Sunak last week extended the furlough wage-support program to the end of April, while three state-backed loans programs remain open to March 31. That support will now be available to firms hit by a no-deal Brexit, the person said.

While the government has said businesses should prepare for changes whatever the outcome of the trade talks, without clarity firms are unable to fully prepare.

“With time almost up, the economic realities of failing to agree a deal cannot be hostage to politics anymore,” Josh Hardie, deputy director-general at the Confederation of British Industry, said in a statement Tuesday. “It is now time for the U.K. government to share full, detailed actions for ensuring trade can continue to flow at the start of 2021, whatever the outcome of talks. Firms simply must have clearer guidance on what they need to do.”

The CBI and other business groups are calling for companies to be given joint grace periods by the U.K. and EU to comply with new requirements on labeling, paperwork, and rules of origin, regardless of the outcome of Brexit talks.

“Disruption is now inevitable, it’s just a matter of how much,” Hardie said.

‘Let Down’

The ongoing restrictions are taking a huge toll on commercial activity, and with a new faster-spreading strain of the virus forcing more businesses to close, corporate leaders are piling on the pressure on for more assistance. Late on Monday, British Chambers of Commerce President Ruby McGregor-Smith wrote to Prime Minister Boris Johnson to say companies “feel let down by the government.”

“The current package is simply not enough to compensate for the severe, ongoing economic impact of the pandemic,” she wrote. “Businesses across the country, and across sectors, are on their knees and many will be spending Christmas making serious decisions about their future.”

She called for:

  • An extension of business rates relief to more industries and beyond March
  • Bigger grants for businesses forced to shut because of the pandemic. They currently get 3,000 pounds a month
  • An extension of the deferral of value added tax payments to the end of 2021
  • Improved access to state-backed loans programs
  • Support for businesses excluded from current assistance, including owner-directors of limited companies and freelancers

“Firms urgently need greater clarity, certainty and stability,” she wrote. “While they understand that the nature of the pandemic means that things can change quickly, they need a much clearer view of the road ahead, rather than handbrake turn after handbrake turn.”

©2020 Bloomberg L.P.

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