British capitalism clobbered by both Covid and Brexit

World-wide there have more than 100 million cases of Covid-19, with a death toll of at least 2 million and still rising. This is the impact of the pandemic at the human level, with overwhelmed hospitals, lives on hold during lockdown, people in isolation and greater poverty, the whole uncertainty of the situation, even with the arrival of the vaccines, and the unpredictability and incompetence of many governments' policies.

For capitalism the effect of the health crisis is keenly felt at the level of the economy. The IMF has estimated that the global economy shrank by 4.4% in 2020 and that the decline was the worst since the Great Depression of the 1930s. While this is a blow for capitalism internationally, it has also had a massive effect on the working class. The International Labour Organisation (ILO) has estimated that workers world-wide have lost as much as £2.7 trillion in earnings.

While every major country has been affected, the crisis has not had a uniform impact. The UK for example, with more than 100,000 deaths, has one of the highest coronavirus death rates in the world and, throughout 2020, the shadow of Brexit hung over the economy, with negotiations continuing for months until the British bourgeoisie finally broke the “shackles” of the EU at the start of 2021. The combination of pandemic and Brexit is hitting a country that already had one of the weakest recoveries from the 2008 financial crisis.

Recession, deficit and unemployment.

Measured by the fluctuations of GDP the British economy is probably already in a double-dip recession, its first since the 1970s. In the second quarter of the current financial year British GDP fell 19%, the biggest fall in history. Even after some months of growth it is currently estimated that the economy is still 8.5% below its pre-pandemic level. The IMF estimates a 10% contraction in the UK economy for last year, the largest decline of any of the G7. Whatever the final measure, it's not been since the Great Frost of 1709, when Britain's GDP dropped by 13% (and did not fully recover for another 10 years) that the economy has experienced anything similar.

As for government debt, the figures from the Office for National Statistics (ONS) show that UK government borrowing was the highest ever for December as spending went up in response to the coronavirus and a fall in tax receipts. "Borrowing reached £34.1bn last month, about £28bn more than the same month a year ago. The increase took the government’s budget deficit … to nearly £271bn for the first nine months of the financial year, a rise of more than £212bn compared with the same period last year. The Office for Budget Responsibility … has estimated borrowing will hit £394bn by the end of the financial year in March, which would be the highest peacetime deficit in history. Borrowing is already higher than during the worst of the 2008 financial crisis.… December’s borrowing pushed the national debt – the sum total of every deficit – to £2.1tn at the end of December, or about 99.4% of gross domestic product (GDP), the highest debt ratio since 1962."  (Guardian 22/1/21).

In 2019, the IMF already pointed out that the level of corporate debt in the UK was so high that almost 40% of it would not be able to survive in the event of a recession just half as deep as 2007-2008. During this Covid-19 crisis hospitality has been particularly badly affected and there are warnings that tens of thousands of pubs, restaurants, bars and hotels could disappear. Apart from furlough the government has adopted various measures and implemented various schemes to keep businesses afloat. Like any other state capitalist measures (generally supported by the left and leftists as “socialist”), sooner or later someone will have to pay, and that means the working class in the first place. If for example, Covid-19 rescue schemes are wound up it could mean that some 1.8 million firms in the UK are at risk of insolvency, 336,000 of them at high risk of going bust. Whenever furlough is removed there is no saying which industries will be capable of reviving.

Before the government's U-turn in December to extend furlough there were a record number of redundancies, with around 370,000 people made redundant in the period August-October 2020 alone. Predictions of hundreds of thousands of jobs being at risk with the end of furlough are common.

Since November 2020 the number of jobs on furlough has doubled to about 5 million. These 5 million are not currently employed. The predictions for the period after the furlough scheme is wound down is that unemployment will peak at 7.5%, 2.6 million people. In February 2020, before the advent of the pandemic, the official unemployment figure was 4%. According these official figures the unemployment rate rose to 5% in the three months to the end of November 2020, representing more than 1.7 million people –the highest level since August 2016. But the real figures for unemployment are much higher than the official figures indicate. At least 300,000 out-of-work people are estimated not to appear in the figures (even though other evidence points to their existence), and many have given up claiming to be unemployed because of discouragement. Of those not benefitting from the furlough scheme millions are struggling to get by on Universal Credit. So, when you read that unemployment in the UK has reached the highest level for more than four years, it's certainly much higher.

Brexit means more taxes and barriers to trade

Even before the final deal was concluded between Britain and the EU in December the thousands of lorries stranded in Kent were a telling foretaste that Brexit would not mean frictionless trade. As 2021 began businesses were reporting hold-ups to supplies and customers complained of extra customs duties, Value Added Tax (VAT) and other additional charges on things they had bought from within the EU. There might initially be a no-tariff agreement with the EU but there are significant non-tariff barriers to trade with the EU. The leader of the Liberal Democrats said "This is the only trade deal in history that erects trade barriers, not remove them. It leaves Britain with a trade border both in the North Sea/English Channel and the Irish Sea. It means an end to frictionless trade with the EU and requires a lot of paperwork and bureaucracy and numerous joint committees to oversee its functioning". When the deal was done there were hardly any measures agreed to reduce the need for customs checks and control.

On top of that, the agreed deal does not include services, which account for 80% of the UK economy, with 12% going to the EU. All we know is that negotiations will continue. This shows that the government's celebration of a 'great' deal is delusional as none of the outstanding problems will be easily managed and resolved in the short term.

According to the analysis of Moody's (the credit ratings agency), the Christmas Eve deal is skewed in the EU’s favour.

The British government’s estimate suggests that, with the agreed deal between the EU and the UK, output will only be 5% lower in 15 years. Economists at Citigroup however think that the UK economy will produce 2% to 2.5% less in 2021 than if it hadn’t left the EU and if had extended its links with the EU. In general, they expect the UK to be at least in a better position than it would have been under a 'hard Brexit' - in which the UK and EU would have used World Trade Organisation rules for trade. The Organisation for Economic Co-operation and Development (OECD) in its turn has offered a more pessimistic outlook. It predicts that the British economy will grow by 3.5% less than if Britain had stayed in the EU.

One thing that optimistic forecasters are agreed upon is the idea that the UK economy will begin to recover once the vaccines are widely available. But with trade becoming costlier and tied up in “red tape”, with immigration decreasing, the impact of Brexit will have deep and prolonged effects and will reveal all the weaknesses of British capitalism. Nicholas Bloom, an economist at Stanford, said “Brexit is like death by a thousand cuts.” In comparison “Covid is like being hit three times by a baseball bat. In the long run Brexit is seen as far worse.”

The economic consequences of the pandemic are far-reaching, but the negative effects of Brexit will continue for the foreseeable future. Together they pose enormous problems for the bourgeoisie and the working class. Both are products of the period of decomposition, which is not a positive factor for either class. In the future we can expect the ruling class to mount an attack on the living conditions of the exploited class. A unified, conscious struggle in response, based around immediate defensive demands but opening up a perspective beyond them, is the only positive prospect for the working class

Car 28/1/21