Covid crisis means ministers might regret not extending Brexit transition

Deal or no deal, the UK will leave the single market and the customs union – the two main pillars of the UK’s economic relationship with the EU – on 31 December. This will mean reams of new red tape for businesses trading with the EU, and new rules for UK citizens traveling, working or living in the EU. The government gave itself just 11 months – the length of the transition period – to both agree a deal with the EU and prepare, a huge task even before the coronavirus crisis added to the complexity.

By the time of the June deadline to extend the transition period, it was clear the UK would be grappling with coronavirus throughout 2020. But the government decided not to seek more time for Brexit talks and preparations – and at the same time free up more time to focus its, and the country's, energy and effort on the pandemic. Instead it gambled that the UK would be able to withstand the inevitable disruption of leaving the EU, and that more time would not have improved readiness.

To get out of the EU on the date it had promised, the government went all on in its bet. But as our recent report showed, with just weeks to go and most of the country back in lockdown, it is not clear that it will pay off.

A resurgence of the coronavirus has robbed businesses of the ability to prepare

The devastating economic consequences of Covid-19 have left businesses poorly placed to prepare for the end of the transition period, with staying afloat rather more pressing than staying on top of the latest Brexit developments. Some companies are in a worse position now than they were ahead of a potential no deal in October 2019; staff working on Brexit preparations have often been furloughed or made redundant; and firms have run down cash reserves that could otherwise have been used for new paperwork or to stockpile supplies.

Small businesses in particular have been badly hit by the pandemic and remain worryingly unprepared for Brexit. As late as October, almost four in 10 small businesses believed that the transition period will be extended, despite the deadline for doing so having passed in June and repeated assertions from cabinet ministers that no extra time would be sought – exposing how little some firms have been able to follow Brexit developments.

The rise in Covid-19 cases and the reintroduction of lockdown restrictions across much of the country coming at a critical time for Brexit preparations. As the deadline approaches, the government has begun to fill in some of the missing detail on what businesses need to do to getting through the weeks ahead to the end of the year – not what they may need to do in the next one.

Covid-19 complicates the government’s attempts to tell the public to prepare for Brexit

In recent weeks the government has reinvigorated its lacklustre ‘Check, Change, Go’ Brexit communications campaign, belatedly making clear that ‘time is running out’ to prepare for changes coming in January. The government strategy was always based on the assumption that the public would only engage with Brexit changes late in the day, but this may have underestimated the risks of having to deliver critical Brexit message alongside a second wave of the coronavirus.

As the negotiations enter the crunch point, Brexit will return to the headlines. As discussed at our recent IfG event, this could provide the government with a critical window of opportunity to set out exactly what is changing and what must be done to prepare, but the resurgence of coronavirus will make it harder for the government to keep Brexit at the top of its communications agenda. Instead, it will likely need to continue prioritising more immediate public health messages. At the same time, most people will be more interested in when a vaccine will be ready than what they need to do to get ready for Brexit. Against this backdrop, sustaining a consistent message about often complex and sector-specific Brexit changes will be a difficult task. But if the call to prepare doesn’t cut through, businesses may be unable to trade with, or recruit from, the EU come January and individuals may find their travel plans disrupted.

A deal may further complicate the government's message, with ministers needing to emphasise the politically difficult message that even its preferred outcome will demand major preparations.  

The government may find it difficult to manage Brexit disruption alongside Covid

The scale of the changes resulting from the government’s preferred form of Brexit has always meant that some disruption is likely, at least initially. The government’s own reasonable worst case scenario suggests queues of up to 7,000 lorries at the key channel ports if traders are not prepared for new customs checks.

But this year the government will need to be ready to handle Brexit disruption alongside a global pandemic. The interplay between these two issues is complex. In some departments, officials feel they have a better understanding of the nature of supply chains and the challenges facing business as a result of the pandemic. But with the resurgence of the virus this winter, critical staff may fall ill or need to isolate, potentially weakening the government’s capacity to react. The government may also need to prioritise and redirect resources earmarked for tackling Brexit disruption to its pandemic response.

In responding to both issues simultaneously, the government will need to work closely, and share information openly, with other parts of the public sector and devolved administrations. But even if the UK civil service has the resources to respond to both Covid and Brexit, the devolved administrations, local authorities and businesses may still be overwhelmed.

As the coronavirus took hold, the government had the opportunity to pause its Brexit battles, but instead it chose to fight on two fronts through the winter. In theory, it could still try and negotiate more time for preparations, but there are no easy options and little chance that big changes in January can be avoided. 

With just weeks to go until the end of the transition period and little sign of the Covid crisis abating, the government – and businesses across the UK – should not expect the new year to bring good cheer. In fact, the decision not to extend the Brexit transition period may well be one that ministers come to regret.