Why Brexit could leave voters east of the Bann with that sinking feeling
The irony of the EU vote is that those who had most to gain from staying opted to leave, writes Ciaran McGonagle
In early August, the chief executive of Nissan issued a statement, warning that future investment decisions regarding the company's car plant in the north-east of England will depend on the outcome of Brexit negotiations. Sunderland, which houses a Nissan plant employing 6,700 car workers, was famously among the first areas to announce its electoral results on the morning of June 24, with an unexpectedly large 61% voting in favour of leaving the European Union.
In the weeks since the vote, Remain supporters in the south-east have spared no time in highlighting this incongruity, almost revelling in the schadenfreude of their northern neighbours engaging in such a seemingly incomprehensible act of electoral self-harm.
Although not immediately apparent, there exist some intriguing parallels with Northern Ireland. While the north of England as a whole was firmly in favour of remaining members of the European Union, the geographical split in the vote is instructive.
While the west returned a firm vote to Remain, for example in Foyle, where 78.6%, an overwhelming majority, voted to stay in the European Union, support for Remain in the more affluent areas to the east was more fragmented.
In contrast to the rest of the UK, the evidence appears to suggest that those living in more prosperous areas were more likely to vote to leave the European Union.
Attributing a reason for this is difficult, as, despite the binary nature of the referendum question, it has become increasingly apparent that voters' motivations were diverse and multi-faceted. What is clear, however, is that, in common with the rest of the UK, the economic impact of the decision is likely, at least in the short term, to disproportionately impact upon those who voted to Leave.
The post-Brexit environment in Northern Ireland has been one of uncertainty. Immediate concerns have centred around the potential re-introduction of border controls, while the prospective loss of EU funding, which has proven so vital in providing economic support to both local agriculture and to projects aimed at promoting peace and reconciliation in the region, is likely to prove challenging in the medium term.
The deteriorating economic prospects for the region also raises concern.
The precipitous drop in the value of sterling is broadly indicative of the lack of business and investment certainty. The prospective negative outlook for GDP growth is likely to lead to decreasing tax revenues and constrained economic growth in the longer term, with inevitable adverse consequences for public sector employment and investment in Northern Ireland.
A re-evaluation of the block grant made available to fund devolved public expenditure may also be imminent.
Were a material reduction imposed, any reasonable expectation that Stormont would be able to deliver upon their promise of harmonising the rate of corporation tax with the prevailing, much lower rate in the Republic would likely be dashed for the foreseeable future.
The operating environment for the local banking sector is likely to prove particularly challenging. Despite ever-expanding central bank support, in the face of such economic uncertainty balance sheet protection is likely to be priority. In Northern Ireland, the retail banking sector is heavily reliant upon foreign investment (for example, Danske Bank).
Should the Irish economy contract significantly in the wake of Brexit, doubts would inevitably be raised as to whether Bank of Ireland, or AIB/First Trust, would continue to have sufficient capital and liquidity, much less the risk appetite, to continue to support lending into Northern Ireland. Similarly, renewed calls for a referendum on Scottish independence are likely to present an increasingly challenging environment for Edinburgh-based (and taxpayer-owned) RBS, raising concerns over Ulster Bank and its ability to continue servicing clients on both sides of the Irish border.
Constrained lending, particularly to sectors historically reliant on EU trade, as well as decreasing demand from those sectors most exposed to a weakened UK economy, are likely to prove a drag on revenues. However, the announcement last week by Fujitsu that they will seek to cut 1,800 jobs in Britain, several hundred of them based in Belfast and Londonderry, should give some indication of the more immediate problems facing the Northern Irish economy.
Fujitsu executives, who warned prior to the referendum that future investments in the UK would be reconsidered in the event of a vote to Leave, have claimed that this "transformation programme" is not related to Brexit. However, it is difficult to see how the Brexit vote will present anything other than a difficult environment for foreign companies who may previously have been considering investing in Northern Ireland.
Herein lies the inherent difficulties for the region and for the Executive's future economic strategy.
Since its establishment in 1999, the overriding economic policy objective of the Executive has been to seek to preserve Northern Ireland's attractiveness as a destination for foreign direct investment (FDI).
Offering a skilled local workforce and a predictable and broadly facilitative local legal and regulatory framework, while leveraging central Government support through regional development agencies such as Invest NI, FDI in the region has been responsible for the creation of thousands of jobs, with a particular focus on roles in IT (such as those with Fujitsu) and professional and financial services.
The bulk of investment has tended to concentrate in the east of the country, with multinational firms, such as Citi and Allen & Overy, establishing offices in Belfast.
Brexit is unlikely to improve the prospects of this strategy. Generally speaking, for an economy placing an almost existential dependence on inward FDI, the imposition of new trade and customs barriers, a retreat from globally harmonised regulatory frameworks under which the UK's financial and professional services industries operate and, indeed, any move to restrict, or impede, such investment, should rightly be seen as detrimental to the future economic prospects of the north.
The loss of financial services passporting and uncertainty around regulatory equivalence determinations are likely to pose particular difficulties for financial services firms, such as Citi, which has 1,500 employees in Belfast.
And therein lies the irony. That the east of the country is generally accepted to have received an outsized proportion of inward investment, certainly relative to the north-west, and that it elected to disengage from a privileged position within the world's deepest and most comprehensive trade deal and largest market, is a matter of some curiosity.
The people of post-industrial north-east of England perhaps have some excuse. Deprived of investment and largely ignored by the political classes of Westminster for decades, they placed their reliance on the false promises of extra NHS investment and the return of heavy manufacturing.
The justification of those living east of the Bann choosing to Leave is much more difficult to fathom.
- Ciaran McGonagle is a London-based financial services lawyer and commentator. He blogs at www.ciaranmcgonagle.com