Rishi Sunak’s time as Chancellor of the Exchequer has hardly been plain sailing. His first Spring Budget came just as the UK began lockdown and the steepest recession in living memory; his second sees him attempting to find a balance between supporting the UK’s economic recovery, ‘levelling-up’ regions such as the North East and maintaining sustainable public finances, all while sticking to Conservative manifesto commitments not to raise the base rates of income tax, National Insurance or VAT.
Much of the attention of this Budget has been given to UK domestic policy such as support measures for businesses being extended and reforms to UK corporation tax. But from an international perspective, what did this Financial Statement offer on the fallout from Britain’s departure from the European Union and for growing UK trade across the world?
Policy announcements –
£38 million ‘Internationalisation Fund’
Freeport on Teesside
New Export Strategy
Free Trade Agreements across the world including Australia, New Zealand and the US
Firstly, we saw one of the first government calculations for the ‘cost’ of Brexit. The Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook showed that the OBR expects the short-term trade disturbances that we have seen over the last few weeks to reduce GDP by 0.5% in Q1 2021. In the long-term*, the productivity of the UK is predicted to be around 4.0% lower than it would be if the UK were still a European Union member.
Unfortunately, those same trade disturbances were not mentioned in the Budget. No new funding was made available for exporters struggling to adapt to new Rules of Origin, customs paperwork requirements, and requirements for health checks on food exports under the EU-UK Trade and Cooperation Agreement (TCA). A £20m Customs Grant Scheme was announced earlier this year, but this is not yet available for businesses to access and does not address one of the most serious business concerns, the lack of capacity in the customs sector.
After almost five years of asking questions about the UK Shared Prosperity Fund (UKSPF)— the replacement for European Structural Investment Funding — there were still very few answers about when this new fund will come into force and how it will be administered. European funds which support a significant number of infrastructure, charity, and business development programmes across the North East will dry up this year, if they haven’t already. The European Regional Development Fund also provides financial support for companies looking to export for the first time and news on its replacement is long overdue.
When it comes to growing trade internationally there was a little more substance — mostly from the Build Back Better document that accompanied the Budget. This included a £38 million ‘Internationalisation Fund’ to support SMEs grow their overseas trade. The government also re-committed its support for a new Export Strategy to align government support with its priorities for growth and for the Free Trade Agreements signed by the Department for International (DIT). As of 03/03/2021, DIT has signed agreements with 64 non-EU countries as well as the UK-EU trade agreement. DIT expects these new trade deals to make trade between the UK and the rest of the world easier and less costly, while making UK exports more competitive in international markets. By 2022, DIT aims to have 80% of all UK trade covered by a Free Trade Agreement, including deals with Australia, New Zealand, and the United States which are currently being negotiated.
Government also pledged to use its new-found independent voice, outside of the European Union, to champion free trade and be a voice for trade liberalisation both in the World Trade Organisation and as this year’s G7 President.
And then the flagship trade policy for this government — Freeports. Eight locations in England were announced as sites for the first round of Freeports, with Teesside among them. Unfortunately, the bid from the North East LEP area was not successful. These Freeport zones will offer incentives for businesses including tax relief, simplified customs procedures, and simpler planning legislation in the hope that this will stimulate business growth, investment, and trade.
Finally, and perhaps most excitingly, the Chancellor confirmed that the government will be supporting the UK and Ireland’s bid for the 2030 World Cup.
Overall, while the Chancellors’ domestic policies will do much to support an economic recovery, from an international point of view, the Budget seemed to be strong on rhetoric, with little concrete policy. New Free Trade Agreements are welcome and using the UK as a global champion for free trade is a good example of leadership in global trade policy, but UK exporters will need more as the impacts of Brexit become clear. Freeports may well provide opportunities for growth in the future but will do little to address the problems facing firms right now. Our region’s exporters will be at the heart of any recovery but the problems that they are facing when moving goods into the European Union are real. This Budget did little to even acknowledge them never mind provide solutions.
*’long term’ for the OBR is taken to mean 15 years.