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Austerity Has Made People Less Prepared for a No Deal Brexit

Summary:
Yves here. Most commentary on the economic impact of Brexit has focused on the effects on trade, commerce, investment, the financial sector….with comparatively little on how it will affect ordinary people. By Duncan Exley, author of The End of Aspiration? Social mobility and our children’s fading prospects(Policy Press 2019) available here at a 20 per cent discount. He is the former Director of The Equality Trust. Originally published at openDemocracy The government is keen to reassure us that it is preparing the UK to withstand an — increasingly likely — no-deal Brexit scenario. Fridges are being bought to stockpile medicines, and arrangements made for troops to camp outside Kent’s prisons in case prison officers are prevented from getting to work by traffic gridlock. But the government

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Yves here. Most commentary on the economic impact of Brexit has focused on the effects on trade, commerce, investment, the financial sector….with comparatively little on how it will affect ordinary people.

By Duncan Exley, author of The End of Aspiration? Social mobility and our children’s fading prospects(Policy Press 2019) available here at a 20 per cent discount. He is the former Director of The Equality Trust. Originally published at openDemocracy

The government is keen to reassure us that it is preparing the UK to withstand an — increasingly likely — no-deal Brexit scenario. Fridges are being bought to stockpile medicines, and arrangements made for troops to camp outside Kent’s prisons in case prison officers are prevented from getting to work by traffic gridlock.

But the government isn’t preparing ordinary working families for the “short-term disruption” that even the most ardent Brexiters say we’ll experience before the “countervailing opportunities” arrive.

A sudden and substantial change to the prices and practicalities of international trade will inevitably cause some companies to lose contracts. (Non-UK businesses who want to avoid sudden rises in costs and logistical disruptions will already be looking for alternatives to their UK-based suppliers). Workers will lose jobs or working hours, the self-employed will lose clients. Some of those affected won’t have known they were part of the relevant supply-chain and therefore won’t have anticipated the consequences.

The government has, in fact, spent almost a decade making us lessprepared for sudden income shocks. If you lose your job tomorrow you’ll now have to wait five weeks until any Universal Credit payments arrive. As a result of (baseless) propaganda about ‘benefit scroungers’, the payments will be very low. If you have a third child born after 6 April 2017, you’ll receive no Universal Credit payments to cover their costs (which will, apparently, be your own fault for failing to anticipate a no-deal Brexit in family-planning decisions you made before the Brexit referendum ever happened).

This wouldn’t be too much of a problem if we all had sufficient savings to tide us over the ‘short term disruption’ until the ‘countervailing opportunities’ arrive, but we don’t. As a Resolution Foundation reportfound this month, “the sluggish recovery in incomes endured over the last decade has likely left low-to-middle income households more exposed to the effects of recession today than they were heading into the 2008 downturn… nearly 60 per cent of those on low-to-middle incomes report having no savings at all, up from just over 40 per cent just ahead of the financial crisis in 2007. There also appears to be less opportunity than there was previously for lower-income households to respond to an income shock by cutting back on spending… [because] the proportion of consumption allocated by that lower-income group to ‘essentials’ was 8 percentage points higher than prior to the financial crisis by 2017”. A financial shock is about to hit a country with worn-out shock absorbers.

Some of the implications of this are obvious. Large numbers of people will go into debt, or default on existing debts. Tenants will be evicted. Mortgagors will have their homes repossessed.

Other consequences aren’t so obvious. Advocates of Brexit promised us that >“cutting bureaucratic red tape would unleash entrepreneurialism” and the disruption would administer “a big kick up the arse”, that prompts us to “”. This school of thought (‘when the going gets tough, the tough get going’) is akin to that which become part of the mythology of the American Dream – with its tales of great businesses founded in the Great Depression. But as I discovered through researching my book (The End of Aspiration?) the mythology is largely a myth. The number of start-ups fell during the Depression, and later research showed that financial shocks actually reduce entrepreneurialism and our ability to grasp opportunities, with effects lasting for decades:

The effect of the 1920s and 1930s on most people was not a positive one in terms of mental attributes usually associated with upward social mobility. Economists who studied the financial behaviour of people who lived through the Depression found that the long economic trauma had made them less confident about the future, more risk-averse and less opportunity-seeking. This effect is especially strong on younger people, but the effect persists as they age.

The End of Aspiration? asks why the average Brit is more likely to be in a lower-status job than their parents had at the same age than they are to have a higher-status one, despite being better educated, and less likely to get a home to call their own. It draws on the experiences of people who have beaten those odds to achieve ‘ideas above their station’, and found that they “in their early years at least, overwhelmingly did not experience the feeling of being in financial free fall that traumatised people in the Great Depression… Some of my interviewees’ families experienced periods of unemployment, but the social security system in place at the time limited the financial distress”. Numerous academic studies show a similar phenomenon: we are much more likely to develop and pursue ambitious aspirations if we have stable household incomes and stable housing tenures.

The prime minister talks of “the opportunities of Brexit”, but even if these opportunities do materialise, the policies of the last decade have left us without the financial and psychological resilience necessary to grasp them.

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