Belfast Telegraph

Dr Esmond Birnie: There may be some extra money for us, but UK-EU trade deal remains up in air

Extra money looks like an unqualified blessing, it might even help persuade the two largest NI parties to get back together in government at Stormont but there may be challenges
Extra money looks like an unqualified blessing, it might even help persuade the two largest NI parties to get back together in government at Stormont but there may be challenges

By Dr Esmond Birnie

In terms of the funding for public expenditure in Northern Ireland, the general election result could turn out something of an early Christmas present.

To the extent that the incoming Johnson government does fulfil its pledges, there will be a positive Barnett consequential as the purse strings continue to loosen somewhat.

However, this result will not really banish economic uncertainty and Brexit, notwithstanding some signs of increased confidence in the foreign exchange market.

We probably shouldn't expect a tidal wave of private sector investment in Northern Ireland.

It is not the cash cascade that Corbyn's Labour promised but the Conservative manifesto did indicate a £25bn increase in annual UK public spending by the end of the Parliament. A "modest" Barnett share of, say 2.5% of that would imply annual public spending here increasing by over £600m annually.

That would be greater than the roughly £500m annually of extra spending for two years which occurred during the confidence-and-supply agreement.

Extra money looks like an unqualified blessing, it might even help persuade the two largest NI parties to get back together in government at Stormont but there may be challenges: does the NI public sector/Civil Service have enough capacity to process a sudden growth in activity? The RHI experience shows how the provision of "free money" from Westminster can sometimes have unintended and negative consequences.

The confidence-and-supply experience showed how difficult it was to allocate monies to long-term investment in transformation when so much fire-fighting and crisis management is going on.

Notwithstanding Johnson's claims that his Brexit deal is "oven ready" and should therefore help to restore confidence in the UK economy, a lot remains to be determined in terms of the impact of the arrangements for Northern Ireland (NI) (the NI Protocol).

The future seems to be one with large lorry parks in Stranraer and Liverpool where cargoes and containers bound for NI are screened to try and work out how much "through trade" might be moving on to the Republic. The cross-Irish Sea and North Channel arrangements are likely to add to business costs, so expect some impact on prices of goods brought into NI to sell in our shops.

Expect, also, a cost burden on the flow in the opposite direction as NI manufacturers find components brought in from GB for processing become more costly.

Johnson will no longer be constrained by the arithmetic in Parliament but he may find the EU27 tough negotiators.

From an NI point of view the dilemma will be how to reconcile the Conservative government's apparent desire for a clear Brexit separation alongside limiting the regulatory and customs difference between Britain and the EU27.

To the extent that difference is kept small then the economic frictions on the Irish Sea will be smaller.

Several ideas may be helpful. First, the proposal put forward by some German economists that the EU and the UK should form a combined customs area where each party is an equal member. Second, in the recent Japan-EU trade agreement it was accepted that regulations did not necessarily have to be identical but they could be "deemed equivalent".

For sure, we cannot be confident that the long-term trading relationship between the UK and EU27 will be settled by this time next year.

Deja vu may be back before Christmas 2020.

Dr Esmond Birnie is a senior economist

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