Brexit budget report sets alarm bells ringing
The budget last week was a bland and pallid affair, designed to try to create an illusion of prosperity, a Potemkin Village of a performance.
Brexit is rolling along. With every passing day the outlook becomes clearer and clearer. It is clear that the UK government has no coherent approach to how it is going to manage the transition.
It is clear that the UK is deluding itself that the wilderness of tariffs and non-tariff barriers of the World Trade Organisation will somehow make it wealthier. It is clear it is heading for a hard Brexit.
The UK is rapidly becoming poorer. With sterling plunging to lows not seen since the early years of Queen Victoria, its costs are soaring.
Businesses are edging towards the door. Demand for EU passports has hit record levels. Scotland seems keener than ever to depart the UK. And the status of the North remains unclear.
The budget misses an opportunity to truly Brexit proof the economy.
This is all the more startling when one realises that there was a truly excellent publication on budget day on exposure to Brexit, published by the Department of Finance and written by economists from the Irish Government Economic and Evaluation Service.
This body has been producing excellent analyses for some time.
Curiously, the report has a disclaimer: “The analysis and views set out in this paper are those of the authors only and do not necessarily reflect the views of the Department of Finance or the Minister for Finance.”
The report makes fairly depressing reading. The greatest exposure is outside Dublin, for manufacturing.
Those sectors, including pharmachem, food and beverage, traditional manufacturing , materials manufacturing and electrical equipment, account for over 75% of total manufacturing and for close to 100,000 jobs.
Apart from pharmachem, the department notes that “the exposed sectors are mostly Irish owned, regionally based, have relatively low-profit levels and have a greater share of small medium-sized enterprises.
“In addition, they have a relatively high multiplier and account for a relatively high share of employment in regions which have experienced a slower labour market recovery since the financial crisis period”.
Brexit, in other words, has the potential to knock the stuffing out of a large chunk of domestic industry outside Dublin. The outlook for services is no better.
The largest exposed sector, tourism and travel, employs over 100,000 people and relies on the UK for 40% of its business.
Some fairly clear suggestions emerge from the analysis. The lack of development of large markets outside the UK.
A marketing and sales support scheme in the EU and overseas would repay massive dividends. We need to break the habit of the UK being the first port of call for SMEs.
On imports, we need to shift from the UK to the EU. The supply chain relies on the UK in large part due to cultural and linguistic inertia.
Improved facilities at Rosslare and Cork ports offering freight traffic direct access to the continent would greatly reduce our reliance on the UK. Again, we see nothing on this in the budget.
Brian Lucey is professor of finance at the School of Business at Trinity College Dublin.
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