Category Archives: Economy

Brexit not UK’s biggest problem

An Irish diplomat was recently reported as noting that the UK Government has worked out just what an economic catastrophe Brexit is.

That is bad news.

If you pay attention to nothing else ever on this blog, pay attention to this, however – there is worse news.

Manic car buying on credit… frankly crazy mortgages… mass credit card debt… pay-nothing-up-front consumer booms… that was exactly where the UK was in 2007. We all know what happened.

Yet it is also exactly where the UK is now. In fact, the UK’s credit card debt ratio and car buying spree is in fact considerably worse than it was then.

Now, as then, all these debts (and leases) are being packaged up and sold in bundles, the majority of which constitute relatively solid loans and are thus packaged as “AAA” (the highest possible rating). Now, as then, banks simply do not have enough money in their vaults – too much of it has been lent out. Soon, as then, the minority of the debts and leases which are plain junk will bite, will cause a run even on the safe loans, and financial institutions will fall.

The result will be another financial catastrophe. House prices in England will plummet, lending will become impossible, government revenues will crumble.

Peculiarly, Northern Ireland will suffer least from this because house prices and car sales have remained at a relatively sensible (i.e. fairly depressed) level, although credit card debt is a serious concern as will be the inevitable “austerity” which affects what is still an overwhelmingly large public sector (though not as comparatively large as a decade ago thankfully).

In England, where the average house price exceeds £300K and car sales are the comparatively fastest in Europe, however, there is the real prospect of a calamity worse than the first “Credit Crunch”.

The simple fact remains, as it did 10 years ago, that the UK does not pay its way in the word. Its trade deficit, contrary to Brexiteer fiction, is actually a monumental disadvantage because it means the economy (and thus the whole of government finances for Health, Education, Defence etc) runs in deficit and thus on credit – which means when there is no credit (as there soon won’t be) the country is essentially bankrupt.

No one will heed this warning, of course, any more than they will heed the warnings about the insanity of leaving the European Single Market or the EU Customs Union. It is part of the human condition that we do not learn from negative memories, even if comparatively recent. Mark my words, however: we will soon regret that flaw…

Unionists need to realise what suits England does not suit NI

It was the shrug of the shoulders as David Davis said the agriculture industry would now face tariffs of at least 40% which worried me. The fact was, after all, already known to those (albeit seemingly a minority) who had been paying attention.

The agrifood industry is perhaps Northern Ireland’s most successful and important sector. The fact is it often competes with or indeed cooperates with the Republic of Ireland’s. Now, the Republic of Ireland’s industry will have access to the European Single Market with no tariffs applied, and Northern Ireland’s will face tariffs of 40%+. I will leave it to readers work out whether that is good news for the Northern Ireland economy…

But it was already known. Frankly, Northern Ireland’s agrifood industry should have been far more outspoken before 23 June, but it was running scared of the DUP. There is no saving it from here – there is no precedent even for special arrangements (such as Norway’s) to allow anyone outside the Common Agricultural Policy tariff-free access to the Single Market within which that policy operates.

It is too late to recover the damage, although it would still do no harm to point out it was DUP policy to inflict that damage on Northern Ireland’s economy and on its rural community. One thing we should do is learn from it.

So just by the way, David Davis’ shrug of the shoulders should tell us something fairly obvious – what suits England does not always suit Northern Ireland. The DUP is now getting very excited about the prospects for future trade deals – but at least now let us learn the lesson. A trade deal which suits England (and is therefore entered into by the UK) will not always suit Northern Ireland.

Frankly, I rate the UK’s chances of trade deals as extremely low. I can think of only one which is likely – New Zealand. What would such a trade deal consist of? Well, how about exchanging the UK’s financial know-how for New Zealand’s advanced agricultural products? Such a deal would make sense for England. But it would decimate Northern Ireland’s economy by inflicting on it competition on top of removing from it access to its key market.

Some people seriously need to wake up. And not just David Davis.

NI Civil Service must review Audit procedures

This blog post clearly did not convey the intended message with anything like sufficient clarity, so I will simply let the two comments below stand (as they do a much better job of making the point I was trying to make!)

There is no reason anyone would have been negatively affected by it, but sincere apologies for any misunderstanding, the responsibility for which (as ever in my publications) is entirely mine. 

Business has to think again about NI political preferences

A few months ago I appeared on Nolan to argue that the retail sector can only go so far in delivering jobs and growth, and that the focus needs to shift somewhat towards real exports. Understandably there was an opposite number from the retail sector arguing his case – but then, rather less understandably, he went on to heap praise on the DUP/SF Executive (in a kind of ‘I haven’t always agreed with them in the past but now they’re wonderful’ way).

It continued to be striking subsequently how few organisations, particularly though not exclusively in business, would dare criticise the Executive after it was formed in late May. Private conversations sometimes revealed some wariness, but this was always followed by a ‘But you have to understand…’

Well no actually I don’t have to understand. For example, all business organisations who polled their members found them majority opposed to Brexit in Northern Ireland (this went as high as 81% in one case), yet in the face of the DUP no outright campaigning was to be seen at all. ‘Ah but corporation tax…’

Ah but nothing. Left to its own devices the simple fact is, by a selfish determination to protect its Leader at all costs and a distinct lack of grace towards others, ‘Arlene’s candidates’ have taken just eight months to deliver catastrophic instability – at just the very time business (including retail) could not afford it.

Business organisations have a stake in Northern Ireland and now they must finally find a voice. The unstable situation brought on by the current Executive is intolerable; businesspeople have a vote; and they must use that vote to punish those who brought it about.

After all, that’s how democracy is supposed to work.

Brexiteers’ BMW farce

How anyone with a knighthood can repeat the total economic nonsense that the Germans will not foist a “Hard Brexit” upon us because “we buy BMWs” is cause for serious alarm about the state of democracy.

Firstly, this depends on trade – if the UK has nothing to sell, it will not be able to earn money to buy.

Secondly, if you wish to remain in a free trade zone, you need to abide by its rules – including its trade descriptions, trading standards and so on.

If people don’t want to leave the Single Market, frankly, they should not be advocating leaving the body which sets those rules – namely the EU.

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.