Category Archives: Economy

What exactly is wrong with the UK’s current trade deals?

One of the main “Leave” claims during the referendum campaign was that leaving the EU would enable the UK to “do its own trade deals”.

To be specific, leaving the EU Customs Union (which is not obligatory even if the UK leaves the EU) would mean this.

However, that raises an obvious question. What precisely is wrong with the trade deals the UK currently has as an EU member state?

(I notice, by the way, that no one attempted to answer last week’s question, which was: What happens if the other party in the trade deal with the UK simply breaks it unilaterally?)

Northern Ireland must prepare for sovereignty

David McWilliams was making mischief again in his recent article on the simple fact Northern Ireland does not pay for itself.

I do not agree with all of his working, but I do agree with his ultimate conclusion – not only does Northern Ireland not pay its way, but there is an ever dwindling number of people willing to pay for it.

This is yet another reason the DUP was so foolish to play footsie with English Nationalists six weeks ago; and why it is so ludicrous that Irish Nationalists cannot (indeed, refuse to come up with) a workable plan for Irish unity. In other words, public opinion is shifting against, both in the jurisdiction which does pay for Northern Ireland and in the alternative one which would.

After all, when there is an ever decreasing amount of money to go around, it does not matter who you are, why would you hand it to another jurisdiction for no apparent gain?

The DUP and other idiots completely forgot to ask why anyone would pay £200m a week to Northern Ireland (particularly when you have just voted to stop paying exactly that amount to the EU)? Would that money, currently raised from English taxpayers, not be better spend on the NHS in England? Most residents of England would not take too long to give a decisive answer to that one!

So Northern Ireland can no longer reliably depend on England’s taxpayers’ money; nor on southern Ireland’s. It is going to need to move towards a position where public spending and welfare in Northern Ireland is allocated on the basis of revenue (taxes) raised in Northern Ireland.

In an increasingly crazy world, Northern Ireland needs to prepare to look after itself. It needs to prepare for sovereignty, in other words.

About these “Trade Deals”…

… if the UK does “its own Trade Deal” with, say, the United States or China, tell me this: what happens in practice if the United States or China simply doesn’t adhere to it?

UK should negotiate new relationship, not “Brexit”

I am increasingly perturbed by the number of people coming up with all kinds of technical ways to try to stop “Brexit”, up to and including a weird and wonderful (and utterly ludicrous) plan by one academic for Scotland and Northern Ireland to remain in while England and Wales left.

I am perturbed because we should not waste time with technical (and actually ludicrous) ways to try to stay in the EU, when there are perfectly reasonable cases to be made for doing so. (And it is perfectly democratic to make them – just as it was for Leavers to continue to argue their case after a resounding referendum defeat in 1975.)

A month ago there was a referendum and, albeit by a narrow majority, the UK electorate backed the motion “the UK should leave the EU”.

That means those who want to leave the EU get first try, and the new Prime Minister has wisely accepted this. Some big beasts of the Leave campaign now occupy all the relevant “Brexit” ministries, giving them the chance to come up with a coherent plan whereby leaving the EU is better than remaining in it.

However, the fact is they wil almost certainly fail. After all, what were the main reasons for leaving the EU?

  • We now know there will not be £350 million a week extra for Health, or anything like it, so that key argument for “Leave” no longer applies;
  • We now know that Turkey will not be joining the EU, or anything close to it given what happened last week, so that key argument for “Leave” no longer applies;
  • We now know that, far from “being able to do our own trade deals”, the UK will in fact have no trade deals at all even in formal negotiation (far less complete) on the day it leaves the EU, so that key argument for “Leave” no longer applies either.

Of all the key arguments for leaving the EU, that leaves just one intact – immigration. Objectively, that key argument for leaving the EU may still apply, even if it is worth emphasising that it also means leaving the Single Market altogether (which wasn’t actually on the ballot paper).

So it is obvious what should happen now. The UK should start discussions with the EU, as a member state whose population wishes currently to leave, around immigration. The UK could indeed argue that it has a unique status – given additional favourable status for people coming from the Commonwealth; the generosity it showed to citizens of new member states immediately upon the 10-member expansion in 2004; and the fact that it is geographically isolated. But it could also argue more broadly that absolute free movement of the scale currently in place across the EU (actually, the EEA) does not work and is in fact leading to hostility to the whole Single Market project across the continent, not just in England and Wales.

The underlying point is obvious. If the EU refuses to heed the warning from the UK electorate on immigration, the UK will have to find its own way somehow but it probably will not be the last to go. On the other hand, if the EU is willing to listen (and every national election which takes place across the continent will only make it more willing to) and to rethink just how absolute “free movement” has to be, then all options including maintenance of the UK’s membership remain on the table. If, after all, the EU proved willing to meet the concerns of those who voted to leave it last month, why actually leave?

The case for leaving the EU is just as poor now as it was a month ago. However, that does not mean that many of the concerns of those voting to leave were not legitimate. If we really wish to remain in the EU from this inauspicious political position, we have to address those very real concerns, not just bleat about academic technicalities.

Brexit and the border

One of the issues which was deliberately confused by the Leave side during the referendum campaign was the border; and specifically the issue of “movement”.

There are three distinct things here, about which the Leave side on occasions overly lied.

There is movement of people; movement of labour; and movement of goods and services.

Movement of people is handled by the Schengen Agreement, which applies to 22 EU member states plus Switzerland, Norway, Iceland and some microstates (Andorra, San Marino, Monaco and Liechtenstein). This means that a single entry visa qualifies a person for entry into any of the territories covered, and there are ordinarily no passport checks on people travelling between them (although these may be instituted in emergencies). Notably the UK and Ireland are outside this Agreement; they have their own arrangement, known as the Common Travel Area, whereby each country treats the other’s citizens as their own (with some very minor exceptions concerning voting rights of UK citizens in Ireland).

Movement of labour is covered by the European Economic Area (EEA), which is the entire EU plus Norway, Iceland and Liechtenstein (strictly speaking the most recent EU member state, Croatia, is not yet a full member of the EEA). This means that any citizen of any of those states may seek work in another, and may not be discriminated against on the basis of nationality.

Movement of goods and services is covered by the European Union Customs Union, which is the entire EU plus Turkey, three microstates (Andorra, San Marino and Monaco) and all other UK territory in Europe (including the Isle of Man and the Channel Islands).

All EU member states are members of the European Economic Area (EEA) guaranteeing free movement of labour, and of the European Union Customs Union guaranteeing free movement of goods and services; but no non-EU state is a member of both.

If the UK were to leave the EU, it would need to decide if it wished to remain within the EEA and/or the Customs Union. If it remained within the EEA, there would be no restriction for UK or EU nationals working on either side of the Irish border and probably no passport checks, but there would be customs checks (that is the case, for example, between Norway and Sweden). If it remained within the Customs Union but not the EEA, there would be no customs checks but working rights would be restricted on either side of the border and, notwithstanding the Common Travel Area, there may need to be passport checks (that is the case between Turkey and Greece). The exact outcome depends on how strict the UK (or EU) wished to be on immigration; and on whether Northern Ireland attained any special status.

Legally, therefore, there is much to concern those of us who wish the Irish border to remain relatively open to a free flow of people, labour and trade. In practice, I do not doubt something will be worked out to enable, at the very least, free flow of people and access to employment for Irish citizens in the UK.

Brexit Op-Ed

Full text of an Op-Ed for the Belfast Newsletter.

The Newsletter has right led the way on demanding devolved institutions in Northern Ireland prepare themselves for a changed future in the light of last month’s referendum on the UK’s withdrawal from the European Union.

It is absolutely correct to say that this is no time for our Executive Ministers and public servants to be treating themselves to a two-month holiday. Having evidently failed, disgracefully, to come up with any contingency for a Leave victory, despite the fact one of the Executive parties was advocating one, sacrifices will have to be made so that the business of government can proceed smoothly from September.

Firstly, as the Newsletter has rightly suggested, Committees should be continuing to meet – even if by allowing deputation of members by party colleagues in some cases. These meetings should have the specific initial objective of assessing exactly what the exposure is of each Department to the European Union. Are there funds, information streams, knowledge exchanges which are endangered by leaving?

Once this work is done (and there is no reason it should not be by early August), the Executive should then assess which aspects of our relationship with the EU are essential, and which can be replaced. This will then determine the position the Executive takes in advocating for Northern Ireland when the UK/EU negotiations take place. How important is it to our young people’s futures that our further education institutions (and students) are treated as if they were in the EU; to our small businesses trading across the border that we remain within the Customs Union; to our exporters that we remain within the Single Market? What exactly do we need to do to maintain access to European Clinical Trials, pan-European medical research and interventions for rare conditions? What do we propose to do about the European Arrest Warrant, access to shared intelligence and hot pursuit protocols which will keep us safe from international crime and terrorism? Is there even a case for Northern Ireland-only work visas, EU customs access or reciprocal health care arrangements?

Having established what aspects of EU membership are vital to Northern Ireland’s future, we can then pursue our case. We may be able to make common cause with Scotland, or even Gibraltar or London, on many of these issues. We should almost certainly be arguing for a UK Constitutional Convention and an all-island Civic Forum to help this work and ensure compromise in key areas. The Executive Office in Brussels should long ago have been building bridges with other European regions in similar positions to add to pressure across the EU for a “Special Access Arrangement” for Northern Ireland, given its unique constitutional status and geographical location. We also need to consider implications for corporation tax, infrastructure investment and skills development – but this must be done as part of an overall strategy, not in isolation.

The issues, for households, businesses and service deliverers across Northern Ireland, are far too important to be ignored for two months. Contingency plans must be put in place now, and delivered upon immediately in September.

Case to European Movement UK

I thought it worth sharing, exceptionally, the case I took to the UK Council of the European Movement earlier this month (a distinct version of this piece may appear elsewhere this week). It is predicated on two things – the constitutional and practical implications of the referendum result.

Constitutionally, it is important to reflect that the UK (incorporating in effect, for this purpose only, Gibraltar) is the member state of the European Union and that it voted by majority to leave the European Union. That is the preference (I am going to return to that word) of the people of the United Kingdom taken collectively and no one should attempt to ignore that fact. Nevertheless, it runs up against the constitutional reality that the vote was in four separate legal jurisdictions. Only one of them, England & Wales, voted to leave the European Union. The remaining three – Scotland, Northern Ireland and Gibraltar – have each clearly and freely expressed their preference both for remaining within the European Union by a greater margin that England & Wales voted to leave it; and for remaining within (or associated with) the United Kingdom at recent referendums in which both the turnout (at over 80%) and the margin of victory (at over 11 points) was greater than the Leave vote in England & Wales in each case. Thus, although no one should doubt the validity of the overall result, there is a constitutional reality that three out of four jurisdictions voted Remain to a greater degree than one voted Leave; in any true federation, this would be a problem (for example, Australia requires not just a majority of votes but also a majority of votes in a majority of states for a referendum to pass).

I have already recommended a solution to this – the Convention could be by random appointment, or a Royal Commission, or indeed even a Lords Committee.

Practically, there is another obvious problem. Again, the validity of the vote should not be denied – the motion “the United Kingdom should leave the European Union” was passed by majority of those voting, and the United Kingdom is the member state. The UK Government should re-negotiate its relationship with the other European Union member states (“EU27”) with regard to the preference expressed that it should leave the European Union. However, it is not only the constitutional implications of this (the defiance of the clearly and democratically expressed will of the people of Scotland, Northern Ireland and Gibraltar) which should be considered. There is also the straightforward practical implication that if the UK Government takes the referendum result as an absolute rather than as a preference, it will be entering into negotiations with one hand behind its back and will thus find it impossible to negotiate the best deal for the people of the United Kingdom in line with the views they expressed. Put simply, “invoking Article 50” invites the EU27 to sit on their hands for two years and wait for the UK to exit the EU with its economy in recession and without a single trade deal in operation to help it back on its feet – a route which would potentially appeal to the EU27 to warn others against taking the same course. It is thus simply impractical for the UK Government to invoke Article 50.

The solution here is to be frank about the context in which the referendum took place. Positions were adopted by leading campaigners on each side after the renegotiation of the UK’s membership, which concluded in March. That some Leave campaigners only opted for that side of the debate after the renegotiation is a clear indication that a different outcome may have resulted in them adopting a different position. Put another way, at least some of those campaigning for and voting Leave were doing so specifically to express opposition to the outcome of the renegotiation; had the outcome been different, they would have considered voting Remain. Their opposition to EU membership is thus not absolute; it is opposition to membership under the current conditions (i.e. those negotiated between December and February).

That leaves at least open the possibility that in negotiations with the EU27, the UK could achieve an outcome which is acceptable to enough Leave campaigners (in addition to the Remain side), but which maintains (or is even in return for) the UK’s “special” membership of the European Union. Simply by way of example, the new UK Prime Minister may wish to negotiate an arrangement, suggested by many Leave campaigners, that the UK maintains access to the Single Market but restricts free movement of labour so that EU nationals are only be allowed to come to the UK to visit for a limited period or to take up a pre-existing offer of work (or in certain other circumstances determined by Parliament). There is simply no chance of the EU27 allowing that in return for absolute Single Market access (EEA membership). However, presented with that choice alongside the option of keeping the UK within the European Union (thus reducing the prospect of other member states opting to leave), perhaps thus clarifying that absolute free movement of labour would apply only to the Schengen Zone (of which the UK has never been a member), it may at least offer the basis for negotiation. Why should the Prime Minister be denied all the cards available to negotiate an outcome which would be acceptable to many, quite possibly even a majority, of Leave voters?

In conclusion, I return therefore to the word preference. The preferences of the population – for maintenance of the constitutional integrity of the UK (and Gibraltar’s association with it), for membership of the EU, for membership of the Single Market, for greater control of the UK’s borders – all have to be balanced. It is important to reflect and record all preferences fairly and to attempt to implement them all to the greatest possible degree. However, it is ludicrous, both constitutionally and practically, to place one preference above all others simply because it is the one most recently expressed, particularly when it was expressed by the tightest margin.

How NI might make most of #Brexit

For all my desire to keep the UK in the EU, it is at best a long shot and the relationship will never again from my point of view be ideal.

So, if it comes to it, what should the NI Executive be looking for out of “Brexit”? Just a thought on how what I have termed a “Special Access Agreement” for Northern Ireland with the EU may yet be played to our advantage.

What might such an Agreement entail?

  1. Maintenance in Northern Ireland for devolved issues of the European Communities Act, maintaining EU law in Northern Ireland so that investors know that trading standards, employee rights and environmental regulations are the same here as they are in the EU;
  2. Negotiation with EU of a Special Customs Arrangement, meaning that goods and services travelling between Northern Ireland and the Republic of Ireland are not subject to customs – customs posts would be at the ports and would apply only to goods travelling between Great Britain (or perhaps England/Wales if Scotland wished to try to negotiate the same) and the Republic of Ireland;
  3. Negotiation with the UK of maintenance of separate vehicle registration – vehicles registered in Northern Ireland would have to carry Northern Ireland plates regardless of original registration, and likewise in Great Britain, enabling recognition of Northern Ireland vehicles within the Special Customs Area (for example, they would be treated as EU vehicles at ports travelling between France and Ireland);
  4. Negotiation with EU to maintain all reciprocal Health Agreements – EU citizens would be entitled to Health Care in Northern Ireland, and residents of Northern Ireland registered with a GP in Northern Ireland would be entitled to the reciprocal arrangement (with the added confidence given by maintenance of EU Law);
  5. Negotiation with Ireland that all “people of Northern Ireland” are entitled to Irish citizenship (and passport) and that this specifically includes qualification not just by birth but also by residence (of reasonable length) in Northern Ireland;
  6. Negotiation with the UK that all VAT raised additionally in Northern Ireland be kept in Northern Ireland (this is similar to arrangements which exist in Germany), designed to encourage Northern Ireland’s Executive to encourage business because it will be in its interest to do so;
  7. Negotiation with the UK that corporation tax and all taxes devolved to Scotland also be devolved to Northern Ireland enabling corporation tax potentially to be set at zero (noting that, if the UK rate is 15%, the cost of doing this will be lower than the cost of setting it at 12.5% when this was originally proposed in 2010);
  8. Negotiation with the UK that any leftover funds not spent by NI departments should remain available for spending in NI the following year, giving an additional lever to save funds to enable reduction of taxes to increase attractiveness to investors and maximise the new arrangements; and
  9. Negotiation with the EU that Northern Ireland universities and colleges be considered to all intents and purposes EU institutions (including for funding and student exchange).

Of course, this is quite a wish list and it may be that the NI Executive would have to agree to contribute a sum to structural funds in order to achieve it (as well as paying for any gap in corporation tax as per existing agreements; these in fact had more to do with existing UK convention than EU law). However, by agreeing to maintain EU law as far as it can, noting that its citizens are entitled to EU citizenship, and noting that the people of Northern Ireland voted to remain in the EU, there is a strong case to be made (with little disadvantage to the EU in showing good will and going along with it).

The essential point here is that Northern Ireland already is a special case by virtue of its people’s joint citizenship (as per the 1998 Agreement), the requirement to maintain certain laws by international treaty (such as the ECHR), and its geographical location with a land frontier to the Eurozone/EU. Such a “Special Access Agreement” would maintain the key advantages of EU membership, while also enabling the use of some fiscal tools which are not currently realistically available.

If it comes to it, let’s go for it!

EU Op-Ed (News Letter)

Full version of my Op-Ed in Thursday’s Belfast Newsletter:

Many people are asking now what the vote to leave the EU means to them. Of course, the answer is always “It depends” – on what the UK’s new relationship with the EU is, on when it is resolved, and on what exposure households and organisations have to the EU.

One point needs clarification: the EU is an association of 28 member states. If one member state decides to withdraw, then all of its territory ceases to fall within the EU, and its citizens cease to be EU citizens. What precisely this means depends on the exact nature of the relationship subsequently negotiated, but we should be in no doubt that if the UK proceeds to leave the EU, the only way for Scotland and Northern Ireland to remain within the EU is to leave the UK.

It should not be doubted either that the UK-wide vote will be taken as an instruction by the new Prime Minister to begin negotiations on withdrawal from the EU. It is anyone’s guess how these negotiations will be carried out, or what outcome they will arrive at. We are hearing much about ‘Article 50’, which may be invoked by the Prime Minister as the most obvious means of withdrawal. However, this gives the UK and the EU only two years to negotiate terms. Thus, such a move would instantly weaken the UK’s negotiating hand, as it would be out at the end of two years even if nothing had been agreed.

A disproportionate number of people in Northern Ireland will be exposed in some way to EU funding. In an extreme case, that the UK leaves the EU relatively quickly with no subsequent trade deal in place, this funding would simply disappear. This possibility has to be considered, but is unlikely.

Another possibility is that the UK will leave the EU but remain in the EEA (the so-called “Norway Model”), thus maintaining free movement, a contribution to EU budget (but also access to Structural Funds) and a requirement to implement some (but not all) EU Law. This would mean that some current funding (e.g. PEACE) would probably be secure, and that there would be some chance of maintaining access to specific other funding streams, albeit at a reduced level (e.g. for business R&D or infrastructure).

Unfortunately, the downgrade in the UK’s credit rating alone had the effect of requiring the UK now to pay more merely to service the interest on its debt than it pays into the EU budget. Notably, even in the EEA, there is no access to Rural Development Funds (such as CAP), which will now in effect have to be replaced from within Northern Ireland’s devolved budget.

It remains possible, though unlikely, that the UK will remain within the EU in the end. An incoming Prime Minister, faced with economic recession and constitutional chaos (and, thus, a tarnished legacy), may seek a new EU deal and put it back to consultation with the people. However, even this may mean some withholding of EU funds and continued economic uncertainty during negotiations.

There is opportunity is every risk, however, and now may be the time to engage in real reform of public services and in appropriate consolidation of provision within the voluntary/community sector.

EU funding advice in Northern Ireland

I was on BBC Good Morning Ulster on Wednesday to try, against all the odds, to explain what will now happen to EU funding in Northern Ireland. Fundamentally, this is a matter of risk analysis.

To explain, before moving on to funding, there are fundamentally two ways the UK could commence the process of leaving the EU; first, it could “invoke Article 50” giving itself two years to negotiate exit terms; second, it could withdraw by extracting itself from all EU treaties. The first is much simpler, but arguably puts the UK in an extraordinarily weak negotiating position, so it is unclear which (if ultimately either) will be attempted.

Firstly, whatever agency or department or organisation or group or business you are working with, you need to check what funding you receive from the EU. This seems obvious, but it may not be. For example, if you are receiving project funding from your local Council, you may perceive this to be “Council funding”, but in fact it may come via the Special EU Programmes Body (which you may regard as “cross-border funding”) which itself comes from the EU (and is thus actually what is commonly referred to as “European funding”).

Secondly, once you have established what is “European funding” and what is not, you need to carry out a risk analysis. The likeliest scenario is that the United Kingdom will leave the European Union but remain within the European Economic Area (EEA; often referred to as the “Norway Model”) in early 2019. But there is a wide range of scenarios to place on that risk assessment: three key ones would be a quick exit from the EU (possibly switching, at least in effect, to the EEA from the end of this year); a slow exit from both the EU and EEA; and no exit from the EU at all. All of those, even the last, may have an impact on the EU’s potential to fund projects within the UK.

Thirdly, if we take the likeliest scenario, any programme funding already agreed (even if it is not already drawn down) should generally be safe until the end of 2018; most programme funding runs to 2020, and it is probable but not certain that will be honoured. Membership of the EEA would mean the UK continues to contribute to EU funds but also has access to some of the programme funding, such as for business R&D or academic research. Capital investment from the European Investment Bank (EIB) is also possible in the EEA, but becomes more difficult; existing agreements (such as the underwriting of Ulster University’s move from Jordanstown to Cathedral Quarter) should be honoured, though again it is not certain. There remains a significant risk around any future applications for EU funding for projects, programmes or businesses in a member state which is negotiating withdrawal from the EU; certainly it should be assumed any of these will be unsuccessful once Article 50 is invoked or the UK starts extracting itself from EU treaties.

A very significant issue with membership of the EEA outside the EU is that the UK then falls outside EU Law for agriculture and farming, rendering maintenance of rural development programmes highly unlikely. Most relevantly, this would mean the UK falls outside the Common Agricultural Policy, with (in Northern Ireland) responsibility for agricultural subsidies passing to the Northern Ireland Executive. The vagaries of the Barnett Formula (assuming it remains in place) mean there would be a shortfall, so that maintenance of funding at current levels would mean taking tens of millions from other departments such as Health and Education.

Fourthly, there is a significant issue if the UK also leaves the EEA, which is no doubt the position UKIP will come to adopt (with the risk that this will force other parties to move in its direction). A clean “out is out” would mean all EU funding were lost, almost certainly immediately at the moment of exit (two years from invocation of Article 50, or whenever the UK extracts itself from all EU treaties, whichever is first).

The whole issue will require careful monitoring. While the betting is currently on an EEA deal, UKIP pressure may force the UK Government towards a more “out is out” position, although in that case it is possible that would result in electoral defeat by a pro-EU coalition. For now, the key is to ensure what is EU funding and what is not; and to assume funding is safe to 2018-20 but that any new attempts carry high risk. Farmers in particular must prepare for withdrawal of CAP money, with the potential for it to be replaced by a much less favourable Northern Ireland-specific system.

All of this does mean the third sector will have to move towards greater collaboration, and farmers will have to diversify. This is not necessarily bad news in the medium to long term – in every risk there is opportunity!

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