The Bank of England – from Brexit to COVID-19

In a previous meeting with the Bank of England, we had discussed what was missing in terms of government funding during the first COVID19 lockdown, government support which should be required with a no deal Brexit, and the required government support to survive a potential second lockdown. This post will explore these topics and advocate the potential funding which the British government could give to support its citizens and the economy through these difficult times.

Regarding what was missing with government funding during the first wave of COVID19, small, limited company owners were an obvious void for government support given that sole traders and partnerships were provided with income funds if they earned less than £50K in a year. Company directors were entitled to furlough payments but 90% of small company directors only take a marginal salary, hence the support being disproportionally less than sole traders and partnerships. To compensate, perhaps small businesses with profits of less than £50K a year can be provided with a corporation tax rebate based on their last filed corporation tax return, this would also reduce the risk of fraud.

Local councils across the UK will need emergency funding, no more so then the London boroughs, to ensure the continuity of local services. London borough councils are fairly dependent on parking income for example, which has seen a huge reduction since lockdown measures were introduced. This leaves the council to rely on reserves which are gradually diminishing in size with London reserves below the national average of 30%.

Black, Asian and minority ethnic (BAME) and low-income household communities have been disproportionately affected by COVID19 and have a high level of employment in the services sector, as will over 25s who are currently employed in the services sector. They will need targeted schemes to retrain and bring them back into work as there will be plenty of opportunities going forward, such as retraining, as the likes of Brexit will create opportunities in new areas of employment. The kickstart scheme covers under 25s, hence has led to a gap in opportunities for over 25s.

Speaking of Brexit, the government support which should be required for a successful no deal Brexit economy are as follows:

  • Once the UK leaves the EU VAT area, this will create huge queues and delays at borders which have a severe impact on lorry transport. HMRC has predicted that up to 85% of lorry drivers will not have the necessary documentation to meet EU border checks and could cost the sector around £15 billion in additional compliance expenses. As the economy would have recently tried to recover from recession, any additional red tape costs will stifle growth in the key services sector of the economy.
  • The UK would have to apply World Trade Organisation (WTO) quotas and tariffs from 1st January 2021 on goods coming from the EU. The EU would apply “third country” tariff and quotas on goods from the UK. The blocs average WTO tariff is 11.1% on agricultural goods, 15.7% on animal products, and 35.4% on dairy products, hence, exporting British businesses would need support to ensure their goods remain competitive.
  • The Confederation of British Industry (CBI) predicts that 90% of UK goods exported would be subject to tariff. Importing business would also need plenty of support to ensure cost remains competitive given the tariff levied on imports from the EU.
  • The tariff levied on UK cars would be 10% which could cost £5.7 billion per year, making the average British car sold in the EU €3000 more expensive. As a key sector of the UK economy, a support scheme to ensure such an impact doesn’t paralyse the UK car export market will be needed.
  • On 1st January 2021, the continuity of trade deals that the UK has in place with 72 other countries outside the EU would lapse, including those with Turkey and Canada, hence why this would lead to great uncertainty for UK businesses that trade with those countries. This would have detrimental impact on international trade.
  • Only 20 continuity agreements have been agreed so far by the UK government with the most notable countries being Norway, Iceland, and Switzerland, but this only accounts for £63 billion in trade to the UK’s £2.8 trillion total output.
  • The small business recovery grant type fund will need to be set up to assist SMEs with compliance to the post-no deal Brexit’s new VAT rules/border rules which will be a hindrance to small SMEs. They need access to their correct professional advice to ensure the continuity of their trading activity which would benefit the economy.
  • The government will also need to address the point of postponed accounting input VAT as many EU countries do not offer this scheme, hence it would cripple UK business from a cash flow perspective  if they have to pay input VAT upfront which would be a considerable outlay.

Considering the current COVID19 situation again, government support which would benefit the UK’s economy in a potential second lockdown would firstly be an extension of period of reduced VAT for the hospitality sector at 5% as this could protect jobs and limit the damage that a second wave could have on the service sector of the economy. An extension of the stamp duty holiday for properties up to £500,000 would also be beneficial, along with potential NI holiday for employers who continue to employ staff once the furlough scheme ends.

With the consideration of both issues, Local Enterprise Partnerships (LEPs) have been refreshing boards across the country to ensure they play their part in providing support and advice during these difficult times. LEPs do not have enough reach to help businesses that do not have much experience with such organisations and what they do. This is the challenge going forward which needs to be tackled on a micro level, and perhaps some initiatives to raise awareness of the work undertaken by LEPs would be beneficial. Of course, with some budget allocated to have non-remunerated board members of LEPs, like myself, to engage in wider circles with targeted efforts.

However, collaboration is the key and the Institute of Chartered Accountants’ (ICAEW) links to LEPs could be a fundamental resource to lobby the government in key policy areas, such as chartered accountants, like us, who sit on local LEPs, sharing our work, successes, and failures with other chartered accountants within LEPs across the country. This could be further fed into a central team within the ICAEW who then can use its remit to drive policy in the identified areas. Local members can also feed this back to the respective LEPs to aid progress.

Overall, these actions of support, regarding COVID19 and a no deal Brexit, that the British government could take on board would help Britain and its economy massively through these difficult and uncertain times.

By Tawhid, Chartered Accountant
Edited by Emma

For further information or if you have any questions, do not hesitate to contact me: or 0151 236 6964

The Bank of England – from Brexit to COVID-19
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