If the UK leaves the EU without a deal, the government will not be able to support all affected industries, argues a new report by the Institute for Government. Against a backdrop of steeply deteriorating public finances, the government will be forced into impossible choices about which businesses and industries to save. Without clear principles, the fight over subsidies will be swamped by politics.
Published today, Bailout for business in a no-deal Brexit contrasts the simple case of temporary support for sheep-farmers with the messy reality of what is likely to hit UK plc. Damage might arise from anywhere: from soaring export tariffs and queues at the border to duplicate business costs or burdensome red tape.
Conventional business support, normally deployed to help firms grow, is ill-equipped to respond to such a wide spread of harms. A no-deal Brexit will present a uniquely challenging environment for the government to choose who to save and who to let go.
The report argues that the government must:
- Develop clear principles to reflect the purpose and constraints of business support: the government will want to keep afloat companies that might otherwise go bust. But faced with thousands of cases, not every request for help will be worth pursuing, given the need to protect the public purse and fair competition.
- Divide its channels of support into three broad areas: the avoidance of a cash-flow crisis for a company; help with re-establishing a position in a market lost thanks to a no-deal Brexit; and ongoing life-support while no deal conditions last.
- Recognise that it faces severe affordability constraints: during the financial crisis, mechanisms such as Time to Pay for tax, and the Enterprise Finance Guarantee for bank loans, proved effective and affordable. But the ongoing cost for exporters and service firms hit by the tariff and non-tariff barriers that follow a no-deal Brexit runs into the tens of billions and cannot be afforded.
- Hold back from a radical redesign of industrial strategy: the industrial strategy needs a strong and consistent sense of the long-term future to be designed properly, and the period following a no-deal Brexit will be a difficult time for companies or the government to set a course. Money deployed too quickly is easily wasted.
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.”
Notes to editors
- Full report can be found here: https://www.instituteforgovernment.org.uk/publications/
- The Institute for Government is an independent think tank that works to make government more effective.
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