Taking off the gloves

Jul 01, 2019

Sunday Business Post, 30 June 2019
The Summer Economic Statement (SES) was published last week.  The SES is the first element in an increasingly labyrinthine Budget process, and it is (like all the summer economic statements before it) short on detail.  You won’t find next year’s tax rates here.  Rather, it’s broad brushstroke stuff – an assessment of how the economy has performed and how it might be expected to perform in 2020.  

But this SES differs from its predecessors in one significant regard, in that it puts forward two Budget Day scenarios.  One scenario projects what 2020 might look like with an orderly Brexit, and another what the economy might look like after a disorderly Brexit. 

‘Orderly’ and ‘disorderly’ in this context mean very specific things.  An orderly Brexit refers to the UK having signed up to the Withdrawal Agreement and the Backstop, and all the other paraphernalia that ultimately cost Theresa May her job.  For us, an orderly Brexit therefore means that the Ireland/Britain trading relationship more or less continues on as before until December 2020, because under the terms of the Withdrawal Agreement, the UK remains a de facto member of the European Union until then.  There would be no tariffs or quotas on our imports from or exports to Britain next year, no border controls and no restrictions on the movement of people.  For 2020 therefore, an orderly Brexit, while not business as usual, would be something very close. 

That’s not to say that an orderly Brexit would not involve disruption.  As we’re already seeing this year, many businesses are making preparations or deferring investment decisions in anticipation of the UK’s departure from the European Union. 

Contrast, however, an orderly with a disorderly Brexit.  That's the scenario where the UK leaves the European Union with on 31 October without an agreement with the EU.  Tariffs begin to be charged on 1 November 2019 and restrictions on access to the EU single market kick in.  Clearly, the orderly Brexit situation is considerably more favourable to the economy of this country than this disorderly, no deal scenario.  The SES figures sharply illustrate that. 

Yet neither scenario tells the whole story.  For all kinds of reasons, we don't do multi-annual budgets in this country.  If ever there was a year where multi-annual budgets might be useful, this is one of them.  Brexit is not just for 2020; it’s for keeps. 

The orderly Brexit withdrawal scenario just gets us to the end of 2020.  What lies beyond December 2020 is down to whatever can be agreed between the EU and the UK on the future relationship beyond December 2020.  Recent evidence that any comprehensive agreement can be secured in a reasonable time frame is not good.  A multi-annual version of the SES, including 2021, would show that the 2021 picture for an orderly Brexit and a disorderly Brexit would be very similar, I suspect.  

Short of the UK revoking its Article 50 notification and deciding to remain within the EU after all, there really is no circumstance in which Brexit will not have a lasting detrimental effect on the economy of this country.  The extensive trade between our two nations will be circumscribed by import and export tariffs, and quotas, which are fundamentally designed to thwart cross-border trade rather than facilitate it.  We will lose shared permissions, standards, regulations and licences that facilitate cross-border trade in services, and on the face of it as soon as 31 October next.  

That gives the timing of Budget Day, being October 8, a significance beyond what is usual.  (The date of October 8 is a creature of EU law, which mandates that Budget Day cannot be later than 15 October.)  Budget Day is a mere three weeks away from hard Brexit Day.  In the course of the National Economic Dialogue, a meeting of civil society groups and government ministers and officials this week, it became apparent that the Irish Budget will not just set the fiscal agenda in Ireland for 2020, but will also be a statement of intent to our EU partners about how we handle the UK’s departure. 

We have all acquired Brexit fatigue over the last several months.  The SES presents a real message now that Brexit will have deadly serious consequences for the future of the Irish economy.  The gloves are coming off. 

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