How economic optimism is declining amid Brexit

‘Get Ready for Brexit’ – we’ve all heard this government campaign over recent weeks telling people and businesses to prepare for Britain’s departure from the EU. The government has so far allocated £77m to help local areas prepare for Brexit. But the question of how to prepare, and what to prepare for, remains unclear. In our latest survey, council chiefs are saying that it is impossible for councils to make practical plans when they don’t know what type of Brexit they are preparing for. And this is all taking a taking a steady toll on economic

This month’s New Local Government Network Leadership Index report reveals that councils are even less hopeful about the impact of Brexit on their local economy than they were two years ago. The proportion of councils who expect Brexit to have a negative impact is now 71% – an increase of 16% since March 2018, while the proportion of those who expect a positive impact has halved to just 5.4%.

This is clearly having an adverse effect on overall confidence in the local business environment. Optimism in this area has been in decline for some time, but it has reached its all-time low since our first survey in March 2018, at only 55.5 (on a scale of 0 – lowest to 100 – highest) this quarter – a drop of 11 points from March 2018.

As well as threatening growth, Brexit uncertainty is already having a profound impact on local government’s ability to plan for the future, with 70% of respondents saying Brexit uncertainty has had a negative effect on their ability to develop strategies for economic development. The government’s announced plans to distribute ‘Brexit guarantee funding’ of £4.3bn rising to £16.6bn by 2029, in the event of a no-deal Brexit, appears to have done little to reassure council chiefs about the potential impact of the loss of EU grants on which many councils have relied. As a result, only about half of all councils believe that their economic development strategy and services are prepared for Brexit.

This lack of preparedness among councils is not a result of the lack of action in local government, but rather, lack of direction from the government. One respondent mentioned having to “fill in a lot of repetitive forms for national government without much in the way of practical guidance coming back to them”. Councils tell us they’ve sought to mitigate this by working more collaboratively, pooling resources and sharing information, with efforts geared particularly towards addressing concerns from the local business community.

Indeed, due to the negative impact councils are expecting Brexit to have on their local economy, it is not a surprise that ‘business resilience planning’ has featured as the top priority in councils’ preparation for Brexit. Many councils have proactively immersed themselves in setting up working groups and workshops to help familiarise SMEs with new customs documentation and linking them up with business enterprise agencies, as well as conducting numerous business impact assessments.

Clearly, significant resources have already been dedicated to planning for Brexit and the lack of certainty is putting even more pressure on councils, forcing them to carry out many more risk assessments than they would carry out under normal circumstances. Some councils admitted having to take a risk-based approach as they try to “mitigate the most severe risks” through what one called “endless scenario planning”. But this comes at a significant cost to local authorities. In fact, such all-encompassing attempts by some councils to prepare for every possible eventuality are taking away resources from key local service priorities, with potentially irreversible consequences for the most vulnerable in our society.

This was originally published in LGC’s morning briefing.

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