World economy

Financing and funding

While the effect of the pandemic on the UK economy has been immediate and extreme, leaving the single market and customs union is likely to cause a slower, more permanent headwind to economic growth and state finances. In March, the Office for Budget Responsibility (OBR) assumed that a free trade agreement with the EU would lead to “around a 4 per cent loss of potential GDP over 15 years”, with around half of that felt within five years.

Particularly if a less close relationship with the EU than assumed by the OBR exists, this will mean an even greater pressure to control public finances at the forthcoming Spending Review and next year. This comes in the context of a level of deficit spending during the pandemic which has seen UK public debt exceed 100% of annual domestic product for the first time in 60 years.

Ministers have also committed to building “new hospitals” across England, implying higher capital funding for the NHS (shared with Scotland, Wales and Northern Ireland through the Barnett formula). This is likely to mean a very difficult context for other health budgets.

General public health funding has been cut by more than £1 billion in the past five years, something which former scientists and policymakers have said contributed to the UK’s lack of capacity to deal with issues like tracing and testing during the first wave of Covid-19. A small increase announced in March only very partially reverses this.

Social care accounted for a large proportion of cases and mortality of Covid-19 during the first wave. The Public Accounts Committee noted that “years of inattention, funding cuts and delayed reforms have been compounded by the government’s slow, inconsistent and, at times, negligent approach to giving the sector the support it needed during the pandemic”. The Nuffield Trust’s analysis of social care across the UK and overseas suggests that widespread reform is needed to create a stable market for companies that provide care, and certainty among the public about what support they can get. This will have significant funding requirements.

Addressing both of these underlying structural weaknesses in the UK’s ability to respond to future waves of a pandemic is likely to be made more difficult by the economic consequences of leaving the single market, although the case for action remains very strong nonetheless. Economists are almost unanimous that a deal, especially a more extensive one, would have a less dramatic effect than a no-deal exit.

Institutions and data sharing

The UK’s full departure from the EU legal order will change how data, research and intelligence about pandemics can cross the English channel or Irish border.

Within the EU, data about individuals can be shared freely across borders due to the existence of shared protections, most notably the General Data Protection Regulation (GDPR). This will include some of the information necessary for the conduct of research, monitoring and trials. Transferring data outside the EU requires either a decision by the European Commission that a country has “adequate” protections, or special contracts being drawn up. This decision will not form part of the negotiations on a trade agreement; however, many commentators including Centre for European Reform director Charles Grant have suggested it may be connected in practice. The overall cooperativeness of politics and institutions are likely to be relevant.

The UK will leave the European Centre for Disease Control (ECDC), which has provided more specific UK and EU intelligence on the pandemic. This will mean it no longer has access to the Early Warning and Response System (EWRS) which links ECDC to member states and institutions to share intelligence on outbreaks of infectious disease. Switzerland, not currently part of the ECDC, requested and was granted46 access to the EWRS during the pandemic. However, this was explicitly seen as part of negotiations across different sectors with the EU. Both the EU and reportedly the UK are considering some form of future cooperation after 31 December, though this cannot be full normal membership.

The EU is currently in the process, following long delays, of implementing a new system for the approval of clinical trials. This will take several steps towards making it easier to run studies across borders, including:

• Having a single portal for applications to get trials approved

• Having harmonised standards for the conduct of trials

• A system where one member state looks at whether the trial meets standards first, allowing this to then be transferred to others.