If 2020 was bad, the start Q1 of 2021 looked worse. Covid-19 is severely affecting every aspect of life, and we are seeing early evidence of post-Brexit disruption. By the spring things may look better: we have a Brexit deal, and vaccines offer hope. But the economic and social damage from Covid-19 will be lasting and the Chancellor faces tough choices about the shape of the recovery.
The Government will attempt to get back to its manifesto commitments, with a legislative agenda including energy, infrastructure, housing and digital. At home, the future of the Union will be a major theme, and so will climate change. Abroad, the UK needs to reset relations with both the US and EU, and China will remain highly sensitive. The Government will prioritise its new trade policy.
The new UK virus variant has brought on lockdown 3.0, while other international variants raise concerns about the efficacy of the vaccines against them. The largest immunisation programme in the UK’s history is a race against time for the NHS and the economy. While the furlough scheme has been extended at least to the end of April, thousands of businesses are at risk, increasing unemployment. The impact on education and welfare of young people threatens to be a time bomb. Covid-19 will dominate our lives until the summer and possibly beyond. The economic and social impact will last far longer.
It is darkest before the dawn. With a successful vaccine rollout, the economy could rebound sharply later in the year, though some level of structural damage will persist. The Chancellor will face tough choices on how to shape the recovery, the level and nature of ongoing business support and the pace of fiscal consolidation. His Budget on 3 March will give the next signals. The Government will continue to prioritise jobs and invest in infrastructure.
The Brexit deal is thin, especially for the UK’s services sector, but it avoids the worst economic consequences of Brexit. Disruption at borders is likely to continue for some months while the new rules bed in and companies adapt. The Government will invest in technical facilitation, and we should see the first Freeports announced in the spring. The deal is politically important as a base for further negotiation on wider aspects of the future relationship. Having “got Brexit done” the Government’s actions going forward may be more pragmatic. It wants to shift focus to the manifesto agenda.
Covid-19 and Brexit have scuppered most of the Government’s manifesto pledges. But in 2021 it will aim to push forward a programme of policy consultation and legislation. The Queen’s Speech in the middle of the year will include bills on infrastructure, energy, housing and online harms / digital regulation. Before that, there is still legislation to conclude in this session, including on national security and investment, and telecoms security. The Government will want to use post-Brexit freedoms to diverge from legacy-EU laws. There is little to suggest it has a clear approach to the inherent tensions between the desire for tighter regulation on tech, removing EU regulation and creating an investor-friendly environment.
Climate is a high priority, building up to COP26 in Glasgow in November. The Government is behind the curve on preparation but the decision to shift Alok Sharma to be full-time COP26 President shows recognition of the need to prioritise the wider diplomatic effort. Decarbonising the economy will be at the heart of domestic policymaking, particularly in energy and transport. The Government wants to leverage private investment to meet net zero targets.
Despite Boris Johnson’s 80-seat majority, 2020 ended with the Conservatives in a difficult position, Labour drawing level in the polls and mutterings about the PM’s future. The Brexit deal is a political boost for Johnson. He has restructured his back-office team and will now seek to shift politics onto his domestic agenda, with a cabinet reshuffle anticipated in summer. Covid-19 remains an unforgiving context, at least in the short-term, and the May local and mayoral elections in England could be bruising for the Tories. But a strong economic recovery could provide a medium-term political boost. Labour will continue to attack on incompetence and try to rebuild advantage in crucial ‘red-wall’ seats - but they face big problems in Scotland. The Government will press ahead with plans to redraw parliamentary boundaries and scrap the Fixed-Term Parliament Act, baking in their advantage and making the task for Labour harder.
The future of the Union will be a big political story. The SNP is likely to secure a mandate for another independence referendum in May’s Scottish elections, though the Prime Minister has ruled this out in this Parliament. In Northern Ireland a census in March will reveal the scale of support for reunification, and the Government has a legal obligation to hold a border poll if it seems a majority favour that outcome. Even in Wales, where independence is a side issue, secession has polled as high as 32%. The Government will push policies to protect the Union, including further managed devolution.
2021 will be an important year for international developments. The UK must reset its relations with the US and the EU, and to put credible flesh on the bones of the “Global Britain” agenda. The Government is expected to publish its delayed Integrated Review of Security, Defence, Development and Foreign Policy early in the year. The UK holds the Presidency of the G7 and wants to use it to establish a D-10 group of democracies (G7+Australia, South Korea, and India) to counter China’s ambitions.
We expect the chill in relations with China to continue, driven in the UK from within the Conservative parliamentary party. Screening of Chinese investment will become more intrusive, but the Government will wish to keep the economic relationship alive. Tensions between the EU and US over the EU/China investment agreement are the latest sign of how sensitive this will be. The US decisions to classify the treatment of the Uighurs as genocide will have much broader implications.
Outside the EU, the Government needs to establish a UK national trade policy. It will continue to pursue FTAs and market access agreements, starting with Australia and New Zealand. A much bigger target is the US, but the change in administration make this unlikely to come to fruition in 2021. The UK will seek formal accession to CPTPP – the trans-Pacific trade partnership.
Kiran Horwich is a Director at Flint. She wrote this piece with input from Flint Managing Partner Simon Fraser and Director Ed de Minckwitz. To find out more about how Flint can help you navigate the changing geopolitical landscape, click here: https://flint-global.com/expertise/policy-and-political-analysis/geopolitics/