Category Archives: Economy

If State Aid rules were broken, is the State not responsible?

Away back in February, I explained why the Irish Government is quite happy to let a huge, wealthy corporation like Apple not pay any tax. The previous January I noted that this was not without penalty to the humble customer.

This August, the intervention came. Let us assume that the European Commission is right and State Aid rules were breached by Apple’s rather favourable tax arrangements in Ireland (even though I make no such assumption, personally).

Who established those tax arrangements? Was it Apple, or Ireland?

Quite obviously it was Ireland. And this is not a victimless crime. Who is to say that Apple would not have preferred the lower labour costs available in Northern Ireland, were it not for the fact that it could enjoy such favourable arrangements South of the border? In effect, Ireland applied tax arrangements which were tantamount to “cheating” within a Single Market in which other jurisdictions compete for business such as Apple’s. That is why State Aid rules exist.

So, er, why exactly is the effective fine being applied to Apple and not to Ireland?

How will the UK leave the EU

After last week’s post on “Brexit” we can now safely say Brexiteers have no idea. Literally, at least with regard to those reading this blog. Asked to come up with a proposal, none responded. Interesting, but unsurprising.

So, never mind how the UK should leave the EU (which, of course, it shouldn’t), how will it?

This is the scary bit. At heart the problem with referendums is they imply that 50%+1 get all they want and 50%-1 get nothing. As politics moves to the “right” while Labour simply leaves the field of play to others, this will only be even more markedly the case with regard to the means of exiting the EU.

David Davis may “want” an open border, but then Neville Chamberlain “wanted” peace. The fact is, as a consequence of his and his mates’ actions, the reactionary right-wing view on immigration won a referendum and will now expect its victory to be recognised before the next election. In this twilight zone of a post-factual world, that means absolutely controlling the border by May 2020.

And that is what will happen. It will make no difference at all to immigration, of course; nor will it bring down housing waiting lists, make it easier to see the GP or reduce traffic on the M25 and M6. But apparently what the people want they must get – and they will.

The consequence, of course, of “taking back control” will mean that the UK loses free and direct access to the Single Market. With absolutely no trade deals in place, there will then be only one option open to the UK – to become a “large Guernsey”.

Using its “control” of its border, the UK will choose rich and skilled immigrants, attracting them with low taxes (immediately, for example, it expressed an interest in bringing in Apple from Ireland, implicitly on the basis of it not having to pay Corporation Tax in the post-Brexit UK). This will also be a way to protect the Finance Sector, which will lose some business but also gain some from the wealthy incomers. As a consequence, property prices will rise, meaning that those who already own property will become apparently even richer and another consumerist binge will take place, creating (an illusion of) considerable economic growth, but all while the low-tax regime strains government revenues which are increasingly being eaten up in paying pensions rather than providing services or working-age welfare.

I can see how some on the traditional “right” were and are attracted by this vision. Quite how anyone on the “left” is, is beyond me, yet they seem disinclined to do anything about it (prioritising instead the big issues like, er, post-work drinks).

I don’t suppose it’s great news for Guernsey either…

 

Focus on Tourism is misplaced

I was invited on to BBC Nolan this week on the back of a perfectly innocent comment that the focus of the new flight from Belfast to Berlin, contrary to media reports, should not be “tourism”.

This quite obvious point, to which I added that Tourism is almost universally an industry of low value added and consequently low wages, caused some debate. That debate is important, because it is at the core of Northern Ireland’s economic failings.

Let us firstly be very clear that low wages are a problem. It is staggering that we should have to be clear about that, but it appears some people have forgotten. Low wages do not just mean that people struggle to get by, but also that they are more vulnerable to external shocks – such as the decline of Sterling putting up the cost of living or removal of tax credits. Given that their time is already taken up working, and they will generally lack transferable skills due to an educational system which does not value vocational training sufficiently, they have no flexibility to deal with such external shocks, and are thus thrust towards serious debt (and, in too many cases, real marginalisation). Northern Ireland has the lowest wages in the UK, and low wages are, in other words, the single biggest scourge in Northern Irish society.

To make an obvious point, therefore, all our economic efforts should be placed into increasing wages. However, this cannot be an artificial thing. You increase wages by increasing the value of what the economy produces. To make again what should be an obvious point, if you provide services and products of high value, people will pay you more for them, enabling you to pay higher wages. That ultimately, for example, is how a country like Denmark ends up paying its workers higher wages than even the UK as a whole (even when Sterling’s exchange rate is favourable), despite the fact they work fewer hours.

In the industrial age, Belfast was very good at the high-end stuff, of course. We know, from past generations, that high-value industries inevitably deliver higher-value output and thus the ability to pay higher wages. But that was then and this is now.

Another peculiarity to point out a week after results came out is that Northern Ireland has the best qualified school leavers in the UK (excluding Scotland, admittedly, which cannot be meaningfully compared), yet has the worst qualified workforce. Let us ask an obvious question: if Northern Ireland were a land of high-value industry paying high wages, would this be so?

So, it is established that Northern Ireland has a serious brain drain, and that it has the lowest wages in the UK. Surely no one disputes this is a problem?

Tourism is of course a useful by-product of direct links to places like Berlin. However, it is in generally a low-value-added industry (primarily because it does not require bespoke skills in the way that computing, finance or manufacturing do). Therefore, it pays low wages. This is not an “insult” and it is not specific to Northern Ireland – it is true of the tourism industry everywhere. Countries and regions which focus on tourism, such as in Southern Europe, experience their own problems with low wages and a brain drain. Countries which focus on other industries, such as Denmark above or, to use another obvious example, Germany itself, enjoy higher wages.

So, to make an obvious point again, a direct link from Belfast to Berlin should not be and is not primarily about tourism (although, to emphasise, that is a useful by-product). It is primarily about creating a direct link to a growing economy, in association with which we may be able to create considerable wealth to create high-skilled, high-wage jobs right here at home – perhaps most obviously in this case in the creative industries and all associated aspects (which potentially even include computing for animation, finance for project management, and bespoke manufacturing for things such as the tools in Game of Thrones), to use a really obvious example.

There are lots of really obvious examples and really obvious answers there! The key to creating air links to Germany, promoted countless times on this blog, is not for Northern Ireland to remain a peripheral low-wage economy. It is for Northern Ireland to become more central, more innovative, more skilled, and fundamentally wealthier. To set a really obvious objective…

A guest blog will follow explaining why much of what I have written above is nonsense…

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.