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John Simpson: Expect negative results if no deal reached on Brexit



A truck passes a former customs post on the northern side of the Irish border in County Armagh (Niall Carson/PA)

A truck passes a former customs post on the northern side of the Irish border in County Armagh (Niall Carson/PA)

PA Archive/PA Images

A truck passes a former customs post on the northern side of the Irish border in County Armagh (Niall Carson/PA)

In the next three to five years, Brexit is expected (if there is no agreed postponement) to have unwelcome effects on the Northern Ireland economy. That conclusion is neither a surprise nor unexpected. The many strands of professional assessments point to immediate challenges.

Those who reject the forecasts that emerge from the application of the 'dark science' of economic statistics can cling to the inadequately based optimism that substitutes for the voice of experience. Evolving events will allow retrospective judgement.

As a contribution to a better assessment of the coming impact of Brexit, the Department for the Economy has commissioned professional advice which is informing the local civil service as our local administration prepares to cope with the possible outcomes.

Unhappily, NI must contemplate a range of outcomes ranging from the implementation of the Withdrawal Agreement, as agreed between the United Kingdom Government and the European Community (which would allow a near-seamless transition until the end of 2021), to a more immediate crash exit where trade and commerce will not have a transition agreement and on 'day one', April 12, the borders of the UK and the EU could become a major nightmare.

With little effort to ensure that this professional advice is widely understood, the Department for the Economy has quietly published on its website a group of documents making a best effort to assess the impact of Brexit either accompanied by a Free Trade Agreement or with no deal, using World Trade Organisation assumptions.

The department deserves credit for commissioning and publishing this evidence. However, it also merits a critical response because it has made available highly technical documents with little explanatory material for lay readers.

If the aim is to contribute to a better understanding of a complex series of changes which affect fundamental aspects of the functioning of the UK, NI and Ireland economies, the department is unhelpfully sheltering behind technical terminology which may be fully understood by only a small handful of readers.

It has published the results of a study by the Economic and Social Research Institute estimating how Brexit will hit the attractiveness of the UK for foreign direct investment (FDI) in manufacturing and services and, in addition, shows what the effects might be for NI.

There is no surprise that, for the UK, Brexit is expected to have a negative effect on incoming jobs.

Under an agreed Free Trade Agreement, incoming jobs would be 1.9% lower each year.

Under World Trade Organisation assumptions, jobs would be 3.3% lower.

The study goes further and considers how the level of UK corporation tax might need to be reduced to offset the Brexit effects, or how large an increase in education and training budgets might be used to generate the skills to try and overcome its effects.

For NI, the study concludes that, relative to a 'no Brexit', the attractiveness for FDI will be reduced for all types of FDI where NI trades on the same terms as the rest of the UK.

If, however, NI were to remain in the EU Customs Union and Single Market for goods and services (the back stop assumption) then NI's attractiveness for FDI would be increased. This shows that the negative effects for the UK would be converted into a positive gain in NI.

A specific additional feature of the study adds that 'a corporate tax rate of 12.5% in NI would more than compensate for losses of attractiveness for FDI and related job creation associated with any Brexit scenario.'

This reference to a possible corporation tax rate change reawakens this proposal.

However, it then stops short of any consideration of the knock-on effects of this change on the rebalancing of the Stormont budget to offset the reduced tax revenue.

Brexit is proving even more complex than was originally envisaged.

Postponement simply avoids the critical questions.

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