Richard North, 29/07/2020  
 


For all its spiffing plans to create a "best in class" border, it seems that our government hasn't even got round to sorting out the one for Northern Ireland yet.

This has been picked up by The Independent, which is reporting that, six months after we formally left the EU, and a mere five months before the transition period ends, Northern Ireland customs rules are still not settled.

Furthermore, Northern Ireland minister Robin Walker says that government cannot be expected to provide businesses with all information it needs 'from day one'.

Walker defends this situation saying that the specifics of how goods moving between Northern Ireland and Great Britain will be treated have still not been agreed with the EU. The implementation of the Northern Ireland protocol is subject to negotiation by a "joint committee" between the EU and UK.

However, it seems that the problem is at least in part self-inflicted. The UK is arguing that it should not have to apply some customs controls it agreed to as part of the Withdrawal Agreement. Effectively, therefore, HMG seems to be pulling a fast one, expecting a back-door fix to an international treaty.

Walker has been talking to a House of Lords select committee, largely – as they tend to do – making statements of the bleedin' obvious. "I absolutely recognise that business will always want as much detail as possible as early as possible", he told the noble Lords, "and that this is a process where we cannot necessarily provide all the detail that everyone would like on day one".

And I'm sure a lot of people felt comforted by his statement that, "We do have to ensure that the voice of business is heard and fed into the process", with the proviso that, "we also have to make sure we don't give any misleading information in terms of things that haven't been fully bottomed out and agreed".

Where he was being somewhat economical with the actualité, though, is in failing to disclose that such things were agreed – have been agreed. The reason for the delay is that the UK has resiled on its agreement and is looking for a better, or different deal.

The point apparently at issue is exit declarations for Northern Irish goods going into Great Britain, which seem to have been caught up in the fine print of the EU's Customs Code, which will continue to apply to the province. The UK government doesn't think the declarations should be required, because it applies to trade within the UK's internal market.

However, this is part of the "fantastic" deal that prime minister Johnson so cleverly agreed – the one he had said earlier that no British prime minister would ever accept. But now officials are looking in detail at the small-print, they are not liking what they see. One suspects that this is not the last quirk which will show up.

There are also clues that the UK seems to want to go much further than ironing out complications with red tape. Discussion about the Northern Ireland protocol are running in parallel with the "future relationship talks", from which an agreement is supposed to come, to take effect by the end of the year.

Not a lot has been said about this, but if the UK really is trying to fold a renegotiation of the Northern Ireland Protocol into the current talks, then we could be in even bigger trouble than already indicated.

One can see why HMG is so concerned though – even if an element of thought might have been appropriate before Johnson agreed the deal. The Lord Kerr, who was one of the panel questioning Walker, is suggesting the red tape which will accompany sending goods from the mainland to the province may deter some companies from trading there – the name "Tesco" was mentioned.

It is all very well asking Walker about such things, though, but we're not hearing from the other side – the EU. If it insists on sticking to the letter of the agreement, and the UK government fails to implement it, then it is technically in breach. That could make life even more difficult for traders, both within Northern Ireland and the mainland.

Even as it stands, there can hardly be anyone (and certainly no-one serious) arguing that the uncertainty is helping business. And that is before the realities of the current Brexit scenario take effect.

Those "realities" have now been explored by the London School of Economics Centre for Economic Performance, which, in good academic style, has laboured long and hard to come up with the same answer that most everybody has been aware of for months.

Perhaps, without being too cynical, it is adding a few twists to our stock of knowledge, asserting that a Brexit hit is looming for sectors that have emerged relatively unscathed from the Covid-19 pandemic.

Certainly, there is nothing at all new about its more general finding that Brexit, alongside Covid-19, will deliver a "double shock" to the economy - whether Johnson secures a deal with the EU or not. I think we had already guessed that.

This time, though, the Centre for Economic Performance has put some figures on its guesses, using information from a monthly survey of Confederation of British Industry members.

I've replicated one of the charts above but, to be blunt, I don't entirely understand the figures (but see the James McLeish comment below). What they are supposedly showing are the changes in business volume, for different sectors, in the first column due to Covid (between April and June) and in the second the predicted Brexit changes.

In the April to June period, we've presumably seen some economic recovery, so don't see how retail trade should have declined 41.5 percent, and I don't see how any business can decline 123.7 percent, much less the rubber and plastics sector. One would have thought that a 100 percent decline was the maximum, bringing trade to zero.

What does come over is that, relative to Covid-19, the Brexit effect is modest, although I again have problems with this. I don't see how the Covid and Brexit effects can be so easily separated.

Not least, there must be some interplay – for instance, those sectors which have already been badly damaged and have shown limited recovery may be relatively untouched by Brexit (TransEnd) because the damage has already been sustained. Some of those businesses which recover best may be hardest hurt.

There also seems to me to be an element of superficiality here. Apportioning a 0.2 percent Brexit effect to the hotel and restaurant sector is probably an under-estimate. Traditionally, if the economy goes into recession, hospitality is hit first and hardest, as customers employed in other sectors suffer from reduced disposable incomes.

When all is said and done, though, these are just guesses. And when we're dealing with an unprecedented situation, made doubly complicated by the Covid-19 pandemic, figures produced by any modelling are more likely to be WAG than ROM, even if the LSE thinks its modelling is "state of the art".

However, the LSE report does urge that the government put in place an industrial strategy that reflects the cold reality of "being in a post-Brexit UK which is placed in a post-Covid world economy". This is one in which global trade shrinks – but it is also one where the domestic economy also shrinks.

That sort of change must be impossible to model, as the overall impact will reflect the outcome of millions of personal and thousands of corporate spending decisions, the nature of which at this stage are impossible to assess accurately.

On the old-style maps, before the world was properly charted, the edges of the known world were often marked with the legend "here be dragons". In economic terms, we are dealing with uncharted waters. And the dragons may be real.

Also published on Turbulent Times.






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