Brexit impasse highlights need for decisive action in Budget
Ibec, the group that represents Irish business, today said the frustratingly slow progress of Brexit negotiations reinforces the need for decisive action in the upcoming budget to prepare for a potentially damaging UK exit. The group set out a series of targeted measures to address Brexit-related economic risks, including comprehensive supports to help companies trade through any period of disruption, adapt and succeed into the future. Ireland's competitiveness must be safeguarded and decisions that would adversely impact labour and other business costs must be avoided.
Ibec Head of Tax and Fiscal Policy Gerard Brady said: “Negotiations have yet to provide any clarity as to what future EU-UK relations will look like. While we must work to ensure a close, positive relationship into the future, the risk of a divisive divorce is very real. We cannot afford to simply wait to see what happens. The government must introduce a range of measures to ensure the economy is prepared for all eventualities.
“Brexit involves an unprecedented fracture of the Single Market, with Ireland particularly exposed. It is vital that both EU institutions and our own government fully appreciate the potential for economic disruption and take decisive steps to offset such risks. In order to support businesses during this difficult period, funding should be provided over a three year period to help companies adapt. Funds should be targeted at supporting innovation, market diversification, upskilling and capital expenditure in equipment and machinery.
“A strategy solely based on diversification will not be sufficient to get companies through any period of disruption. Loss of UK market share, where it occurs, is likely to happen relatively quickly whilst building new markets abroad can take years and even decades. Diversification also involves considerable risk and expense. Even within the single market companies face barriers in establishing commercial relationships, adapting supply-chains, building cash-flow, tailoring product and marketing to consumer tastes and overcoming administrative barriers to dealing with new tax and regulatory regimes. Even in a best outcome scenario margins will be tighter in new markets and cash-flow needs will increase. Many companies which may be viable in the long-term may not have the cash-flow to survive the transition. This will require government support.”
It is crucial that Budget 2018 sees the government put in place a multi-annual framework for funding Brexit mitigation; including:
- · Trade support measures, including export trade financing and export credit guarantees to support continued development of international export markets.
· The extension of low cost finance under the Cashflow Support Loan Scheme from farmers to firms to allow firms to re-finance
· Increasing in-market and domestic supports for market diversification for Irish companies
· Introducing additional marketing and innovation supports for companies looking to reformulate, re-package or innovate their product lines for new markets
· Introducing direct supports for companies looking to re-tool and re-invest in plant and machinery in order to produce product lines for new markets. This should include accelerated capital allowances where appropriate
· Preparing a broader suite of measures to allow firms up-skill and develop the internal capacity to deal with any potential customs arrangements
· Continuing to make the case for the temporary State Aid regime allowing for an enterprise stabilisation fund for viable firms in the event of a hard Brexit. This would enable short-term financing similar to the supports that were introduced in 2009 that helped firms through the financial crisis and an increase in ‘de minimus’ levels of State Aid
Background - The case for State Aid derogation: In 2009, the European Commission adopted the Communication ‘A European Economic Recovery Plan’. This emphasised providing maximum flexibility in tackling the crisis while maintaining a level playing field and not placing undue restrictions on competition. In this context, the Court of First Instance of the European Communities has ruled that the disturbance must affect the whole of the economy of the Member State(s) concerned, and not merely that of one of its regions or parts of its territory. This, moreover, is in line with the need to interpret strictly any derogating provision such as Article 87(3)(b) of the Treaty. This was the basis for the introduction, by the Commission, of the Temporary Framework in 2009 which, amongst other things, allowed for an increase in “de minimus” levels (i.e. small amounts of State Aid which can’t exceed a certain threshold) and state backed credit insurance. A Commission staff working paper written in 2011 noted that “The Temporary Framework of aid to the real economy complemented the framework put in place to allow a swift and coordinated response during the crisis.... it has been a useful safety net allowing for an emergency response during the crisis”. The reaction of the EU states and the Commission to the financial crisis should guide the reaction to what is now a fundamental shift in the future of the Union with the exit of its second largest market. Failure to do so will compound the political, social and economic fallout for the remaining EU member states, most particularly Ireland.