How do you calculate the likely impact of Brexit for you, your job, your pocket and your prospects? Doing this with any accuracy is still very difficult, because no one yet knows how Brexit will work out. But there is enough research now done to outline the likely scenarios and what they will mean for us all as consumers and employees.
Brexit is, on balance, a negative for the Irish economy. There will be pluses – for example new jobs in banking – but they won’t offset the negatives. But the degree of the hit to Ireland – and thus to our pockets and prospects – is crucially dependent on what kind of Brexit emerges. The rule of thumb is that the harder the Brexit, the worse the hit, with a “no-deal” Brexit ,under which the UK crashes out next March without a withdrawal agreement, the worst possible outcome.
On most estimates the size of the Irish economy would be smaller in a few years time than would have been the case without Brexit. Estimates vary from a hit of 4 per cent to one of 7 per cent over the next decade, with the bulk of the cost in the earlier years. However the size of the hit – and its timing – remains unpredictable.
For 2019, the key factor is whether the proposed transition period comes into force when the UK leaves, effectively meaning a standstill – and a postponement of any economic hit – until the end of 2020. Beyond that, it would depend on what new trading arrangements were put in place.
Here are the main areas where Brexit will affect you.
1. The no-deal option – delays,disruption and uncertainty:
In the worst case scenario, a no-deal Brexit under which the UK leaves the EU with no withdrawal agreement, the costs of Brexit to Ireland would increase – and would happen sooner.
It could lead to a somewhat chaotic period from next March, with uncertainties about trade,the possibility of short-term disruption to the supply of products to us from the UK and even possibly to airline flights between Ireland – and the rest of the EU – and the UK.
For example, a paper by economists John FitzGerald and Edgar Morgenroth for the Institute of International and European Affairs (IIEA) pointed out that approximately two thirds of the products on our supermarket shelves have either been manufactured in the UK or transited through the UK for delivery to Irish shops, with particularly large reliance in areas such as cereals and biscuits.
Any delays arising from Brexit could affect availability in Irish shops, the paper warned, particularly in an era where most firms supply products to UK and Irish shops through one chain. The supermarket shelves will not be empty. But a no-deal Brexit could lead to delays in some products – at least for a period – the disappearance of some lines from our shelves and higher prices for many others.This is a key part of the economic cost.
Ireland also imports significant amounts of medicines and pharmaceutical products from the UK, where again companies tend to treat the UK and Ireland as a single market. Post-Brexit, the UK will leave the EU pharmaceutical regulation regime, unless an arrangement is reached for it to remain inside, meaning new regulatory arrangements are needed for UK goods sold here. The industry has been working with the Government and regulators and all sides express confidence that there will be no shortage of vital medicines. In some areas stockpiling may be needed as a precaution to ensure that this is the case.
In broad terms, the no-deal would create potential confusion and uncertainty and would mean that the estimated costs to Ireland of Brexit would happen much more quickly than had been anticipated. This would hit growth, incomes and tax revenues in 2019 and lead to a lowering of living standards in the early years of Brexit compared to what they would have been.
2. Your pocket:
More than one quarter of our total goods imports come from the UK. New trade barriers would make these more expensive – and this is one area where the significant cost of a hard Brexit can be seen, versus the less significant costs of softer forms of Brexit.
Research for the ESRI by Martina Lawless and Edgar Morganatic put some numbers on it. They looked at the possible impact on prices to consumers of tariffs, special taxes on imports which would apply if the UK leaves the EU trading bloc and no free trade deal is done. They also looked at the even greater potential impact of what are called non-tariffs barriers,the potential costs of delays, increased bureaucracy and regulations which would follow if the UK leaves the EU single market and customs union, as it says it will and there is no agreement to align regulations and standards in future.
In the worst case scenario of a no-deal Brexit, or a failure to sort out a future free trade deal, the researchers estimate this would add 3.1 per cent to consumer prices, equivalent to €1,360 per average household per annum, combining the cost of tariff and no-tariff barriers. If there was a deal which meant there were no tariffs, but still delays and cost due to no-tariff barriers, they calculate that prices would rise by 2 per cent, or €892 in cash terms.
There are a few things to note here. First, the timing and extent of the impact on prices remains uncertain. If there is a transition period, then prices should not rise immediately after the UK leaves. but could do so after 2020. If a transition period is followed by some kind of free trade deal, this would also lower the hit to prices. The more freely trade can flow, the lesser the price hit and the less disruption to our current retail arrangements.
Second, a significant part of the impact comes from food prices, a major consumer import from the UK. Because less well off households spend a higher portion of their income on food, they would face a higher percentage increase, equivalent to €634 per annum, or around €12 a week in a worse case Brexit scenario. For them this represents a 4 per cent price increase in their shopping bill.
Again in a worst-case scenario, middle income earners would face a cost of €1,200 to €1,500 a year extra, rising to just over €2,000 for richest households. This is higher in cash terms,but because these groups spend much less of their total income on food, the percentage total price increase in their shopping bill are lower.
The final point to note is that currency moves will be a factor in prices, too. A hard Brexit may take sterling lower. This would cut the cost of imports in euro terms and might offset some of the initial hit from new trade barriers.
It would also, on the face of it, make cross-Border shopping more attractive, with prices in the North looking cheaper. However it remains to be seen what rules will be put in place in terms of the amount of goods that can be brought across the Border – and what taxes might be due on them.
If the UK becomes what is called a"third country" – outside the EU trading arrangements – then, unless some other deal is done, Dr Vincent Power a partner in A&L Goodbody specialising in EU law, says that " a shopping trip to Newry will become like a shopping trip to New York."
At the moment you are allowed to physically carry in goods to the value of €430 from outside the EU, but once imports go above this value, customs and VAT become payable. There are separate limits relating to tobacco and alcohol – for example you are allowed to bring in 200 cigarettes or one litre of spirits from outside the EU.
An illustration on the Revenue website of an €800 dress brought in from outside the EU showed how customs and VAT of over €300 would be due on it when imported.
In the event of the UK leaving the EU trading bloc, how this will be policed in terms of goods crossing the Border form the North, is not clear. If the North remains in a single customs areas with the Republic, as the EU has suggested it might, the cross-Border problem within Ireland would be avoided, though customs duties could then apply between the North and Britain.
If the North does not have the same customs and regulatory regime as the Republic, then this becomes a problem. Any self-assessment system for shoppers going North would be likely to be widely ignored. Yet all sides say they want to avoid any border checks. As well as controlling what day-trippers bring, the obvious issue of controlling smuggling arises.
Some special solutions may be consider – for example larger allowances – but these then create other anomalies. We now read that Theresa May has sent up a group of senior officials to look at how customs checks can be avoided after Brexit on the island of Ireland. But it remains the case that if the UK leaves the EU trading bloc, then there will either be a border on the island or in the Irish Sea.
A harder version of Brexit would also mean new costs on goods bought online from the UK. BDO partner Carol Lynch warns that this could be very significant for those buying goods online from UK retailers. Any item valued over €22 and coming from outside the EU is now liable to VAT and any item over €150 is also liable to customs, chargeable on some products – notably clothing. Again, this is what will happen post-Brexit – unless some way is found to avoid it.
Irish shoppers will hope that retailers set up hubs in the EU to avoid this.
A final point on shopping after Brexit is that it will make importing used cars from the UK much more expensive – again assuming some kind of harder Brexit – as purchasers would become liable for VAT at 23 per cent. This would wipe out the financial attraction for individual purchasers and for dealers buying cars in the UK to sell them on in the Republic.
3. Your job:
Brexit is already shaking up the jobs market – and there is more to come. The extent of change will depend crucially on negotiations over the next few months, in particular in relation to financial services.
There has already been an upswing in financial hiring, particularly in areas like funds administration and asset management, some areas of banking and insurance, though the latter may be as much related to increased business volumes in Ireland. Trayc Keevans, head of FDI at recruiters Morgan McKinley, says that specialist areas of fund administration and asset management have been among those in most demand. Tara Sinclair, economist at recruitment website Indeed said it had seen a 15 per cent rise in financial services roles being advertised, identifying areas such risk management, investment analysis and portfolio or funds management.
Keevans says that many big London-based institutions have still to finalise their post-Brexit plans, with the industry still hoping that the negotiations will lead to an outcome which will allow them to continue to serve EU markets from London. Some are hedging their bets, she says, and have set up smaller operations here, adding to demand in areas like risk compliance and asset management. In the event of a harder Brexit under which financial firms cannot service EU markets from London, these operations will grow, she says, potentially creating a significant number of jobs below the senior management positions already filled.
However Keevans believes Brexit has been a key factor in a trend having an even bigger impact – moves by big pharma and tech players to locate or expand here, driven by their desire to retain access to “talent” from across the EU post-Brexit, when immigration to the EU will be limited. This has created jobs in areas such as biologics, medical devices and mainstream pharma, as well as across the board in tech.
In turn this inward investment trend – and moves here by international law firms – has led to huge jobs growth in professional services, with accountants, lawyers and consultants in strong demand.
This is the Brexit upside for the jobs market. Is there a downside? Well lower growth would certainly take a toll on the wider economy and on spending. Assessments by the Department of Finance and the ESRI have indicated that rural areas are particularly exposed, due to their reliance on exposed food companies and SMEs.
Also, parts of the retail sector could be exposed if Brexit does lead to higher prices and the need to restructure supply chains. It remains to be seen what this means for the investment of the big UK players here and how they manage their operations.
The biggest direct threat to jobs is probably in the food sector, with areas like beef – where 50 per cent of exports go to the UK - hugely reliant on that market, For this sector a transition period and a decent post-Brexit trade deal is essential to lower the pain. On the other hand a no-deal Brexit could mean real and immediate threats to jobs.
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The bottom line is that any harder version of Brexit stands to have a big enough impact on living standards and jobs and a “no-deal” scenario could bring the costs forward, starting from next March. Remarkably, little more than six months before the UK is due to leave, we still don’t know how hard a Brexit it will be.
Smart Money is a weekly Subscriber Only column looking at how the big economic trends and events affect you. Next week: We are told inflation is low, so why are the price of so many things going up?
