Why businesses need to start thinking about Brexit again

By Conor Lambe, Chief Economist at Danske Bank

The coronavirus pandemic has had a striking impact on the Northern Ireland economy over the last few months. People and businesses have faced unprecedented levels of disruption and there is still much uncertainty about what the future holds. To add to that uncertainty, recent days have seen Brexit begin to move back up the political and business agenda.

Before turning to Brexit, it is worth emphasising the extent of the negative economic impacts brought about by the pandemic.

At Danske Bank, we recently published our Consumer Confidence Index for the first quarter of this year, which showed that confidence in Northern Ireland fell to its lowest level since 2013.

The claimant count measure of unemployment in Northern Ireland increased sharply, rising from just over 3 per cent of the workforce in March to just over 6 per cent in April.

And following the release of data showing that the UK economy contracted by 2 per cent in the first quarter of the year, modelling from the Economic Statistics Centre of Excellence suggested that the Northern Ireland economy experienced a fall of 3.9 per cent in output in Q1. This was the sharpest contraction estimated across all the UK regions.

These statistics reinforce just how challenging the economic environment currently is for businesses across Northern Ireland. For many firms, all their attention has, quite rightly, been focused on managing through this incredibly difficult period.

Prior to the pandemic, Brexit was the biggest challenge facing most businesses. And it’s important to remember that it is still a live issue. The Brexit transition period is due to conclude at the end of the year, with the 1 July deadline for agreeing to prolong it fast approaching. But the UK Government remains opposed to any extension. That means, as things stand today, the way trade takes place between the UK and the EU is set to change in just seven months’ time.

For local businesses, trade in some areas will differ compared with firms in Great Britain as a result of the Northern Ireland Protocol included within the Brexit Withdrawal Agreement. In recent weeks, the first steps towards agreeing how the Protocol will be implemented have started to be taken. The Specialised Committee tasked with working on the implementation held its first meeting on 30 April, and last week, the UK Government published a paper outlining its proposals for how the Protocol should be implemented.

This paper included a number of important points. One of them is the acknowledgement that there will be new processes required when some goods are moved from Great Britain to Northern Ireland.

The paper also sets out the UK Government’s proposals that there should be no new paperwork for local firms moving goods to the rest of the UK, that only goods either definitely or at substantial risk of entering the EU via Northern Ireland would be subject to tariffs, that the UK Government would take steps to refund tariff payments where it can and that businesses in Northern Ireland should be able to benefit from new free trade agreements that the UK Government strikes with other countries around the world.

Clearly, minimising new processes and tariff payments would help reduce the impacts of Brexit for local firms. However, it is important to remember that this is just a proposal document from the UK Government. The final arrangements related to how the Protocol will be implemented need to be agreed with the EU and there is no guarantee that they will accept these proposals in their current form. Indeed it’s quite likely that they will not but at least now those talks can begin to move forward, hopefully at pace.

However for local businesses, this document still leaves a lot of questions unanswered.

Which goods are deemed to be at risk of entering the EU, and therefore subject to tariffs upon entry to Northern Ireland is not yet clear.

For businesses that do have to claim a refund of tariff payments, how will they go about it?

Exactly what processes will firms need to complete to move goods from Northern Ireland to Great Britain or vice versa – as mentioned above, we’ll have to wait until the UK and EU reach an agreement before we know that for certain.

Will the countries that the UK secures new free trade agreements with be prepared to grant preferential access to local businesses if they see a risk that EU goods could be entering their economies via Northern Ireland?

And what about services trade between Northern Ireland and the EU – that’s not covered by the Protocol and will be subject to the wider UK-EU free trade agreement, assuming one is eventually reached.

There is also the issue of timing. Not only is there very little time for all of the above to be worked through and agreed at a political level, but businesses will need time to prepare and make sure they are fully ready to comply with any new requirements. That could take months to complete.

For many businesses, the coronavirus pandemic has probably brought about the most challenging period they have ever faced. Firms are not only having to work out how to manage through the current restrictions, but also how they will begin to open up again. There is very little bandwidth left to consider and prepare for other challenges.

However, Brexit is still a crucially important business issue and one that firms need to do as much as they can to prepare for. Dealing with the consequences of the pandemic at the same time means it won’t be easy, but with the clock continuing to count down to the end of the transition period, preparing for Brexit is once again becoming an important task for businesses across Northern Ireland.

This article was published in The Irish News on 26 May 2020.

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