Matthew Elliott, Senior Political Adviser

Thinking back to December 2019, everything looked so much rosier. Boris Johnson had just won his ‘stonking’ majority, Jeremy Corbyn’s far-left, anti-Semitic Labour Party had been roundly trounced in the British General Election, the Government had the mandate to ‘Get Brexit Done’, and the economic prospects for the United Kingdom after 31st January seemed strong, as investors welcomed the return of certainty after the turbulent post-referendum years. And then along came Covid-19.

To say 2020 has been a difficult year will hopefully be the understatement of the decade. Aside from an actual war, it is difficult to envisage a worse disaster than fighting a global pandemic where ‘the enemy’ is invisible. So, within this context, what might 2021 bring to us from a political perspective? In particular, can the Prime Minister pick up from where he was before Covid-19 struck, or will next year prove to be as challenging as this year was?

Over the summer, I wrote about the three areas where Boris Johnson, and the country, needed a lucky break before Christmas. They were: 

• The threat of a second wave/second spike of Covid-19;
• The possibility that inflation might derail plans for a growth-boosting Budget; and 
• The complexity of concluding a smooth end to the Brexit transition period.

I argued that the outcome in these three areas would define whether the Prime Minister ends 2020 on a high, or whether he faces another challenging year in 2021. Reviewing them, I think it is fair to say that the Government has just about kept its head above the water – which should be considered a win in extremely challenging circumstances – but there are still huge challenges ahead.

1. Covid-19

Well, the second wave of Covid-19 came, and we now appear to be at the beginning of a third wave, with a new, more easily transmissible variant of the virus. The situation is grim. But the Prime Minister could no more fully prevent the second and third waves than King Cnut could stop the tide. The fact that most European countries are facing a Christmas lockdown shows that this is not a UK-specific problem, although the question about why liberal democracies have found it such a challenge to fight Covid-19 will no doubt feature in numerous PhD theses in years to come; there have been less than ten Covid-19 fatalities in Taiwan, for example.

Let me be clear; certain aspects of the Government’s response have been appallingly handled. The chaotic rollout of test and trace springs to mind; as does that the Government’s communication strategy (reflecting upon the handling of school examinations is perhaps best left to the ‘Have I Got News for You’ crowd). 

In my previous note over the summer, I noted how the trust of the public had been undermined by the chaotic and confusing lifting of the first lockdown. I think it’s fair to say that the reimposition of the tiered lockdowns has been equally chaotic and confusing. One can only hope that with a new Chief of Staff in No10, and a revamped communications operation, things will improve. But there will be many people at home this Christmas, without their wider families but with a mountain of food and goodies to get through, who will wonder whether the Tier 4 might have been announced sooner.

That said, the Government deserves to be congratulated for two things: reopening schools and the vaccine. Many people didn’t think that schools would reopen in September, but they did, much to the relief of parents, workers and businesses across the country. Against significant opposition from trade unions and some local authorities, students were able to resume their studies in person. This achievement has been underappreciated.

And the big breakthrough – the reason for hope going into 2021 – is the development and rollout of a vaccine. The Government should be proud that the UK was the first country to begin its vaccination programme, and the country should be proud that a British-Swedish pharmaceutical company worked with one of our leading universities to develop a vaccine that is easy to transport and store. The Oxford/AstraZeneca vaccine will not only help many people in this country, but also people who live in less fortunate parts of the world. It’s a real achievement, and the Government and Kate Bingham deserve our thanks. We now need to build a domestic vaccine manufacturing capability.

2. The Economy

Whilst the signs of inflation are still puzzlingly absent – something that continues to defy conventional economic wisdom albeit there are signs on the horizon – the Spending Review revealed the economic challenge facing the Government. And this is the area where it could face its greatest difficulties in 2021. Whilst the vaccine will allow us to gradually and eventually put Covid-19 behind us, and we will know from the New Year whether our future trade with the EU is going to be on ‘Canadian’ (with a trade deal) or ‘Australian’ (WTO) terms, the economic challenge is set to get worse. It is only once tax bills that have been deferred become payable, and the furlough scheme comes to an end, that we will be able to fully assess the damage done by Covid-19 to the British economy. 

An upbeat assessment would predict that the post-election surge of investment that was beginning to come through at the commencement of this year will resume, as the Covid-19 health crisis nears its end. Britain will be able to use its Presidency of the G7 to drive a reset of the world economy, perhaps overseeing an equivalent to the Marshall Plan that proceeded the Second World War. And with Joe Biden in the White House, and the United States reengaging on the world stage, it is not inconceivable that we see a spate of trade deals, including the UK (accession to the TPP, and perhaps a UK-US-EU trade deal to pick up where TTIP left off). Just as the ‘Roaring 20s’ following the First World War, perhaps the roaring 2020s could proceed Covid-19.

A more downbeat assessment would begin with begin with the dire straits of the public sector finances, with public sector net borrowing set to hit a record £394bn this year, falling to £164bn in 2021-22, and £105bn in 2022-23. This constraint raises a few questions: Will the Chancellor be able to temper departmental demands for additional spending in his Budget? Will tax rises be required and, if so, how can they be introduced without damaging our recovery? How long can QE continue – at what point will the Bank of England turn off the taps (it may be vital that the UK is not the last to be turning those taps off in global terms)? It is also unclear how much hidden unemployment there is. And whether the interventionist and protectionist tendencies that have marked the response of all governments to Covid-19 will persist into the medium term, suppressing the prospects for growth worldwide. 

The optimist in me hopes for the former but, having begun this year with a bullish assessment of our prospects, I am loathed to make the same mistake twice.

3. Brexit

Another area I have been previously optimistic about are the prospects for a UK-EU trade deal, but even I have had my doubts in recent weeks. With just 11 days to go until the end of the transition period, a no-trade deal Brexit is now a very real possibility. What we are seeing from both sides in the negotiation is not the usual pre-agreed grandstanding to reassure domestic audiences, both sides are genuinely dug into their position. And the difficulty of the situation has now been compounded by the new strain of Covid-19, and the decision by various countries to block travel from the UK.

Many people assumed that, faced with the twin pressures of Covid and Brexit, and with his commanding majority in the House of Commons, Boris Johnson would compromise much earlier, to get a deal over the line in time for Christmas. But the Prime Minister takes his mandate from the referendum (and the 2019 General Election) to ‘Take Back Control’ of our laws and our waters very seriously.

President Macron has homed in on fishing, attempting to secure ongoing access for French fishermen to UK waters. But from a British perspective, the demand a fortnight ago that the UK would only be allowed to catch around 18 percent of the fish in our own territorial waters does not live up to Taking Back Control and, moreover, makes a mockery of the EU’s commitment in Article 184 of the Withdrawal Agreement to negotiate in good faith. It is not a demand that any other country negotiating a trade deal with the EU would accede to. 

The other sticking point is, of course, the level playing field, which always seems to be more about the UK having to following EU laws, rather than the EU adopting our higher standards on animal welfare and environmental matters. Whilst the Government is open to committing not to undercut existing provisions for environmental and social laws and the like, it is understandably unwilling to commit to mirroring future EU directives and regulations going forward. Afterall, it is hardly Taking Back Control if you agree to become a rule-taking to laws you have no say in. Non regression is very different to dynamic alignment.

Reading the runes of any EU negotiation from media reports, Twitter and other morsels at this time is like trying to decipher smoke signals in a hurricane. But unless the Prime Minister can declare in good conscience that the deal is compatible with us having taken back control of our borders, money and laws, then I think we will end the transition period without a trade deal. With just 11 days to go, the chances of a deal are no greater than 50:50. Even with Christmas coming up, the only deadline that matters is the 31st December, and 11 days is a long time when it comes to EU negotiations.

The consequences of Brexit remain to be seen, for both the UK and EU economies, and for the political make-up of the UK. The Scottish elections in 2021 will be a key challenge, with the threat of Scottish independence being another big cloud on the horizon for the Prime Minister and the country.

Conclusions

2021 is set to be as politically challenging as 2020 was, both for the UK and countries across the world. But I continue to have faith in the entrepreneurs and business leaders who make the economy tick and create the wealth to fund our public services. From the gin makers who turned their distilleries to manufacturing hand sanitiser, to the pub owners and restaurateurs who ensured that older folk and people self-isolating didn’t go hungry, the great British business community has stepped up to the plate this year. Their role – your role – in our prosperity is underappreciated but will be especially vital in the tough years ahead.

Matthew Elliott tweets @matthew_elliott.