20th May UK Political Update  – As the UK begins to unlock, Brexit talks are back on the agenda

At Westminster, the Houses of Parliament are closing for the half term recess today, with MPs expected to be back in person from June 2nd, with an end to the “virtual parliament” experiment.

But how will they return the Commons to something approaching normal while observing social distancing rules?  As of Tuesday 19th May, the UK death toll stood at 35,341, although infection and death rates are now dropping sharply.

The Times reports today that the Conservative party ‘whips’  (who keep the party’s MPs in line with voting on government policy) have become frustrated by doing their business virtually. Conservative MPs, especially those newly elected in December, have been squabbling in WhatsApp groups.

The Tory old guard are out and about demanding a lifting of the lockdown to put the economy first, while some of the newer, northern MPs are demanding billions here, there and everywhere for pet causes, some worthier than others.

But everyone agrees that in recent weeks informed political debate is back, in part because Sir Keir Starmer, the new leader of the Labour party, is a notable improvement on his predecessor Jeremy Corbyn, and in part because coming out of the lockdown is a good deal more complicated, nuanced and debatable than going into it.

On the surface spirits in Boris Johnson’s team remain good, though sombre.

It is amazing the extent to which Johnson’s absence through illness affected Downing Street, and his mere presence has lifted the mood. “At least he has a personality,” says one No 10 insider. “He has a priceless capacity to cheer people up,” says another.

But Boris has barely been seen since returning to work from his illness. In part the reason he is seen to be struggling is that now is not the time for bonhomie. The death toll climbs, the questions about care homes and testing mount, the dole queues grow and the lockdown grinds on.

Meanwhile, the Brexit negotiations are rising up the political agenda.

The Guardian reported yesterday that Britain’s chief negotiator, David Frost, has accused Brussels of treating the UK as an “unworthy” partner by offering a low-quality trade agreement that he says would force the country to “bend to EU norms”.
In an extraordinary letter to the EU’s chief negotiator, Michel Barnier, the prime minister’s envoy says Brussels’ proposal that EU state aid rules be part of British law is “egregious” and “simply not a provision any democratic country could sign”.

He further accuses Barnier of demanding unprecedented oversight over British laws and institutions through “novel and unbalanced proposals”, in an intervention that will heighten fears that the talks are now destined to fail.
The letter, sent shortly after the publication of the UK’s draft trade and security treaty, highlights the tension at the heart of the negotiation over Britain’s future relationship with the EU after a series of poor rounds of videoconference talks.
The British negotiator seeks to reassure Barnier that he is not trying to negotiate with the member states through publication of the legal text but to “clear up any misunderstandings about the purpose and effect of what we have put to you”.

Frost says the EU demands would tie the UK to Brussels’ labour, environmental and social standards while offering a trade deal that fails to match those signed with others in reducing barriers to trade in animal products, motor vehicles, medicinal products, organics and chemicals.

He writes that the UK government’s proposed free trade deal is very close to that signed with Canada. The draft fisheries proposal is akin to that between the EU and Norway, he claims, and on aviation he says the UK is not seeking more than that given to other non-EU countries.

“Given this reality, we find it perplexing that the EU, instead of seeking to settle rapidly a high-quality set of agreements with a close economic partner, is instead insisting on additional, unbalanced and unprecedented provisions in a range of areas, as a precondition for agreement between us. Overall, we find it hard to see what makes the UK, uniquely among your trading partners, so unworthy of being offered the kind of well-precedented arrangements commonplace in modern [free trade agreements].”

In response to the EU argument that proximity and levels of trade require the UK to remain close to Brussels rules, Frost says Britain is less integrated than Switzerland, Norway or Ukraine and the argument on geography “amounts to saying that a country in Europe cannot expect to determine its own rules… and that it must bend to EU norms”.

Earlier in the day, Michael Gove MP, the very powerful Head of the Cabinet Office, had said that success in the fourth round of the talks starting on 1 June depended upon “the EU recognising that the UK is sovereign”, after a notable lack of progress in last week’s talks.

Barnier, in turn, welcomed Downing Street’s “transparency” after being blocked by the British government during the recent negotiations from sharing the text with the member states, adding that the bloc had already made its text public “over two months ago”.

Pedro Silva Pereira, who is part of a cross-party group of MEPs overseeing the talks on behalf of the European parliament, said the negotiations needed a “political wake-up call”. “And it is Boris Johnson who needs to wake up”, the Portuguese MEP said.

The last chance to agree an extension to the transition period will come in June but Frost writes that the government does not believe it would be in British interests to stay in the customs union and single market after the end of the year.

Without a replacement deal, both sides will fall back on the World Trade Organization’s most favoured nation tariffs, which means duties on everyday food items from cheese to beef of more than 40%.
The UK’s 291-page draft comprehensive free trade agreement was among the multiple Brexit papers made public by the government covering everything from aviation and fisheries to social security coordination and law enforcement.

On level-playing-field provisions, so central to the EU’s proposal, the UK text contains a cut-and-paste from the EU’s trade deal with Canada stating merely that it would be “inappropriate to encourage trade or investment by weakening or reducing the levels of protection” in current labour laws and standards.

Neither the EU or the UK could “waive or otherwise derogate” from its own laws if the motivation is to win an economic advantage but there is nothing to prevent Britain from lowering its standards if it wished to do so.

On state aid, a significant interest within the EU, the UK’s paper simply affords Brussels the right to “express its concerns” and request consultation. “The responding party shall afford full and sympathetic consideration to that request,” the document says.

See PWC’s weekly economic report here

20th May UK Economic Update – Unemployment Rising and Hidden Costs Emerging 

Meanwhile, talking yesterday in Parliament  to the Lords Economic Affairs Committee, Rishi Sunak, the Chancellor, warned that Britain is facing a recession “like no other we have seen before”.  He said that the country could be permanently scarred in the wake of the lockdown and that the economy was unlikely to “bounce back immediately”. He added that there could be a “double-digit” rise in unemployment, as he spelt out the stark impact on the economy, health and society.

Mr Sunak highlighted research suggesting that for every 2 per cent rise in unemployment in the UK, more than a million people develop chronic health conditions. He also raised concerns about the impact of people staying away from hospitals and children missing out on school.
Official figures showed yesterday that claims for unemployment benefits rose 69 per cent between March and April. The 856,500 increase to 2.1 million was the fastest month-on-month rise since records began in 1971.

The Chancellor told that he “hoped” there would be a rapid economic recovery. He said, however, that data from across Europe as lockdowns were eased suggested it was unlikely.
“It is not obvious that there will be an immediate bounce back,” he said. “It takes time for people to get back to the habits that they had. There are still restrictions in place even if we can reopen retail on June 1.”

He said that the “jury is out” on the Office for Budget Responsibility’s suggestions that there will be “zero” economic scarring or whether it will be closer to the IMF’s suggestion of a 4 per cent hit to growth. “We’re clearly dealing with something that is unprecedented, so economic forecasting is less precise than it would be,” he said.

The National Institute for Economic and Social Research said earlier that unemployment was likely to have hit 2.5 million early this month. The Institute for Employment Studies said: “The great winter of February 1947 is the only time that there has been a faster monthly rise in any measure of unemployment.”

The data from the Office for National Statistics provides a glimpse of the wreckage being caused. The Bank of England predicts two million job losses this year, taking unemployment to 9 per cent, on top of an estimated 7.5 million people on the furlough scheme.

Average weekly hours dropped to 24.8 by the end of March, compared with 33.2 last year. Employers reduced their headcount by 450,000 last month to 28.6 million, data from HM Revenue & Customs showed. The cutbacks excluded those on furlough. Wages fell by £55 in April to £1,789 a month.

Mims Davies, minister for employment, said: “Clearly these figures are behind on our current struggle but the impact of this global health emergency is now starting to show.”

20th May UK Social Update – Lockdown is Easing and Summer is Coming

This week garden centres are open and you can meet a friend in the open air, as well as exercise as much as you want and picnic outside. There is much more car traffic on the roads and more and more cafes are opening for take away drinks and food. But town centres remain deserted and people are avoiding public transport wherever possible. Millions of people are continuing to work at home – and trying to imagine having their summer holidays here in the UK.

Non-essential retail shops will start to open from early June, but dentists, opticians, hairdressers, physiotherapy centres and other essential services remain firmly closed for the moment.

From early June all incoming visitors arriving by plane or train or car will have to self-quarantine for 14 days in the UK. However, it looks likely that ‘air bridges’ may be opened between the UK and countries with a low ‘R’ level of corona virus – making it possible that holiday flights to and from Portugal could resume in early July.