Outside the Belfast bubble

Oct 29, 2019

Sunday Business Post, 27 October 2019

The road from Belfast to Dungiven is festooned with roadworks, but such public sector development seems to be less prominent of late the further west you travel in Northern Ireland.  Outside Belfast, larger industry exists only in pockets, and problems for smaller businesses which have been perennial since the downturn – a lack of investment coupled with difficulties sourcing bank financing - have become endemic.

The new Brexit protocol for Northern Ireland, currently on life support, is being met with some confusion and scepticism.  It's as if Brexit is being blamed for everything, one businessman told me in Derry this week. 

There are indeed genuine concerns among Northern Irish business for the additional paperwork of the proposed new arrangements in Johnson’s proposed deal.  These concerns are well founded.  Brexit Minister Stephen Barclay's slip, to a House of Lords committee, that customs documentation and declarations will be required between Northern Ireland and Great Britain were confirmed and amplified by the acting head of HM Revenue and Customs, Jim Harra, in his evidence to a Treasury select committee on Monday. 

According to Harra there will be some documentation “both for regulatory purposes and for fiscal purposes” on goods moving east-west.  For regulators such as HM Revenue and Customs there are three main areas of concern; customs controls, VAT collection and the enforcement of standards.  These translate directly into paperwork for business, the kind of paperwork that most businesses in Northern Ireland have forgotten how to do since the Single Market opened up in 1993.

Most types of tax enforcement rely on a declaration of some description – an attestation by the taxpayer that the details on the tax return, VAT return or customs document are true.  Without a declaration, it is very difficult for a revenue authority to make a charge or a prosecution stick.  That’s particularly important when new regulations are being introduced, and new regulations are an inevitable consequence of Brexit in whatever form it finally takes.

This explains Harra’s focus in his evidence to the House of Commons committee on declaration procedures which are currently made electronically, and the vast majority of which are cleared electronically by the UK tax authorities.  Their current practice is to carry out checks on about 4% of all declarations, but that relatively small number of verifications doesn’t lessen in any way the compliance burden for business of assembling the declarations in the first place. 

A key aspect of the new Brexit protocol for Northern Ireland is that customs duties will be charged when goods move from Great Britain to Northern Ireland, with rebates available if the goods remain in Northern Ireland rather than being transported onwards to Ireland or elsewhere in the EU.  Customs declarations involving such goods are bound to receive particular attention.  This is because they are critical to securing trade controls in the absence of a customs border on the island of Ireland, and because they will determine the amount of customs duties businesses in Northern Ireland will pay on imports from Great Britain. 

There is a knock on effect too on customs duties collected by the Irish Revenue on imports from Great Britain.  Will British exporters prefer to ship through Northern Ireland to Ireland and pay tariffs to HM Revenue and Customs, or ship directly to Dublin and pay the tariffs to the Revenue Commissioners?  Only a future free trade agreement between the UK and the EU could resolve that particular headache.

Brexit, however, is not the whole story in Northern Ireland.  There is a widespread attitude that the underlying commercial malaise stems from the lack of government from Stormont.  Business weariness with Stormont inactivity is outweighing weariness with Brexit. 

Because Northern Ireland is so heavily dependent on the public sector, any slowdown in public sector procurement or investment has an immediate effect on the economies and livelihoods in the provincial towns and cities like Omagh and Derry.  Sites earmarked for projects like new schools remain idle and undeveloped, because of the absence of political go ahead. 

Brexit and the lack of government at Stormont are acting almost in a pincer movement on the private sector, the element of the Northern Ireland economy which is already smaller relative to the public sector than it should be.  From a purely economic standpoint a Brexit deal which gives Northern Ireland a special status must be urgently accompanied by the re-establishment of the Stormont executive.  The traditional resilience of Northern Ireland business is being tested to its limits. 

 

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland