Committee for the Economy

5th October 2016

Committee for the Economy

Northern Ireland Assembly

Room 344

Parliament Buildings

Ballymiscaw

Stormont

Belfast BT4 3XX

Dear Mr Murphy

Re:Your Ref: EC111/16

Trade in Goods and Non-Financial Services after Brexit

Thank you for your letter dated 23rd September in which you stated that the Committee for the Economy had requested you contact Enterprise Northern Ireland for comment on the issues faced by businesses here following the decision of the UK to leave the European Union.

Given that Enterprise Northern Ireland and the Local Enterprise Agencies work to establish microenterprises and small businesses, and are focused primarily on the start-up phase, the majority of the questions contained in your letter are not applicable. The attached document, however, contains details on how Enterprise Northern Ireland and our members believe the enterprise support sector and those small businesses we assist to start and grow will be affected by the UK leaving the EU.

Thank you for the opportunity to provide input into this discussion. We are grateful that the voice of Enterprise Northern Ireland has been given the chance to be heard amongst others from the North’s business community in this, and any discussions, around Brexit.

Kind regards

Dr Caroline O’Kane

Information & Policy Officer

Trade in Goods and Non-Financial Services after Brexit

Enterprise Northern Ireland response

Introduction

Enterprise Northern Ireland, the representative body for the network of Local Enterprise Agencies, welcomes the opportunity to contribute to the Northern Ireland specific-debate around the implications of Brexit on the business community. We feel it is crucially important that the region’s voice is heard in all discussions conducted at the national level, and strongly believe that Northern Ireland warrants special attention in post-Brexit referendum discussions.

Enterprise Northern Ireland consulted with our members – the Local Enterprise Agency network – in order to respond to the Committee for the Economy’s request. Given the fact that we represent those within the enterprise support sector, and are focused on providing support and assistance to microenterprises and small businesses in the start-up phase, we have only responded to those questions which are directly applicable.

Q.Provide an overview of any trade or dealings you have with the EU.

Enterprise Northern Ireland and many of our Local Enterprise Agency members deliver a range of programmes which are contracted either directly or indirectly with the EU, supported under EU funding programmes such as Erasmus+ and ESF funding.

Enterprise Northern Ireland currently delivers the Exploring Enterprise3 Programme (EE3P), which is part-funded through the European Social Fund 2014-2020, and is delivered by the LEA network. EE3P, like its predecessors, is a pre-start enterprise programme targeting disadvantaged groups who are unemployed/economically inactive, or are working/training less than 16 hours per week. Since April 2013, almost 2,000 people have been given the opportunity to explore self-employment as an option to enter and/or return to the labour market. More than 1,000 of these participants have achieved the CCEA QCF Level I in Understanding Business Enterprise qualification and many hundreds have gone to start their own business, return to employment or access training/further education opportunities. As such, thousands of people who were previously unemployed or economically inactive were given the opportunity and the means to improve their life chances through the Exploring Enterprise3 programme, which was made possible by European funding.

In addition, Enterprise Northern Ireland and many LEAs have participated in Erasmus+ projects, forging bonds and sharing best practice with academics, consultants and practitioners across Europe.

Q.Specific issues arising from a UK exit from the EU for Enterprise Northern Ireland and the Local Enterprise Agency network

The Local Enterprise Agency network benefitted from EU funding at start-up and in the delivery of specific programmes, as previously mentioned. There are obviously concerns around future European Social Fund, INTERREG and PEACE funds, which have been used by LEAs to provide support to new and existing small businesses.

As such, the likelihood that a UK exit from the EU is likely to result in less European funding being available for programme activity is a real concern for Enterprise Northern Ireland and the LEA network. This concern is reinforced by the fact that there are no guarantees that the so-called ‘fiscal windfall’ that will be available post-Brexit will be used to simply replace any lost EU funding.

As a result, staff employed on EU funded projects may face redundancy if alternative funding steams are not available. LEAs may not be in a position to offer as broad a range of support interventions without access to European funding, which may require them to limit or differentiate their business support offering to would-be entrepreneurs and existing business owners.

Q.What should the UK Government’s key objectives be in its negotiations with the EU?

Local Enterprise Agencies consulted suggested a number of key objectives for the UK Government to prioritise in its negotiations with the EU, as follows:

• Minimise the impact of any trade tariffs and retain relationships in such a way that Erasmus+ and other EU funding programmes remain available to UK firms to apply to, like is the case in Turkey;
• Northern Ireland is the only part of the UK to have a land border with another EU Member State – this border will, post-Brexit, become an external frontier with the EU. The UK Government must prioritise the border issue, and in particular, address concerns around a ‘hard border’. Post-Brexit, border controls of some sort will be necessary. Physical checkpoints would, it is believed, undermine the peace process and have a negative impact on political stability. Even if electronic monitoring is used to track the movement of goods along the border, there would still be transaction costs associated with this. There are also concerns around an increase in cross-border smuggling across the economy, not just in fuel, and illegal trade.
• As mentioned previously, the impact of Brexit on political stability must be a priority for the UK Government. The EU has helped to create a number of cross-border programmes which have been hugely successful in bringing the two main communities together. Brexit must not be allowed to destroy progress achieved in integration brought about by Peace & Reconciliation programmes.
• Swift approval of Peace IV and INTERREG schemes that were under consideration at the time of the referendum and which, if approved, could significantly boost economic and employment prospects.
• Clarity over future access to the single market and the free movement of people.

Q. Significant benefits or growth opportunities for Enterprise Northern Ireland, individual LEAs and the wider LEA network arising from leaving the EU?

None of the Local Enterprise Agencies consulted believed, at this stage, that there were any significant benefits or growth opportunities for themselves or their clients arising from the UK leaving the EU.

The majority believed that it is too early to tell, because the exact details of the nature and type of the Brexit and the future relationship we will have with the EU are still unknown.

For some, however, there are no foreseeable benefits or growth opportunities at all. On the contrary, some within the LEA network are exceptionally concerned about the impact that Brexit will have on the areas in which they are based and the communities they serve. For instance, there are concerns around:

• The free movement of people should a hard border be re-introduced, such as the impact on people living in one part of the island and working in the other.
• The ability to attract Foreign Direct Investment in the future, and the sustainability of foreign investment already here. There are concerns that companies may now defer or cancel plans to invest in Northern Ireland as a result of the Brexit referendum outcome as they may not have easy access to the single market for trade or be able to avail of imported skills from the rest of the EU. There are also concerns around reports that many financial institutions are considering relocating operations from London to Ireland in the wake of the Brexit vote, as many have based call centres and cost centres in Northern Ireland which would be likely to also move out of the UK.
• Perceived lack of interest from central government in regional policy, and no guarantees that central government will allocate money to Northern Ireland to match funding which is lost from EU programmes.

Q. Any other additional information

Again, some of our members believed that Brexit is, at the moment, such an unknown quantity that until more is known about the exact nature of the withdrawal, and the type of relationship that the UK will have the EU post-Brexit, it is difficult to be definitive about its impact.

Others, however, had real concerns that the region is going to be disproportionately affected by Brexit than other parts of the UK and believe the UK government must take cognisance of this.

Northern Ireland is the only part of the UK to have a land border with another EU Member State and is the part of the UK whose economy is most dependent on EU trade. There are, for instance, concerns around the currency impact on businesses based in Northern Ireland but who trade in Euros and/or US dollars.

The region is further disadvantaged by its geography. It is disconnected from the rest of the UK by the Irish Sea, which imposes additional costs on businesses. For instance, energy costs are already disproportionately higher in Northern Ireland than in the UK. Northern Ireland is part of an all-island energy market, with electricity flowing between the two jurisdictions. There is uncertainty about the implications for this arrangement with the UK leaving the EU.

Funding from the European Union has also transformed the region. It has allowed for infrastructural improvements in roads, rail networks and harbours. It has opened economic development opportunities, allowing indigenous companies to thrive and grow outside the main population centres of Belfast and Derry. For example, companies like First Derivatives and Norbrook Laboratories in Newry benefit from the free movement of workers from the EU who can live in Ireland and travel to work across the border or from other EU member states. Cross-border towns and cities such as Newry also benefit from an influx of cross border shoppers. At present, there is uncertainty around how Brexit will impact on the free movement of people and workers and whether border checks on them will be introduced.

Conclusion

As stated previously, Enterprise Northern Ireland is grateful for the opportunity to input into this examination of how the business community may be affected post-Brexit. Northern Ireland has benefitted significantly from EU funding and our land border with another EU Member State means that UK withdrawal will impact on the region in a different and a more significant way from the rest of the UK.

For the North, the decision to leave is particularly complicated, and until the UK Government’s negotiations with the EU are finalised, there is uncertainty around what a post-Brexit Northern Ireland will look like and the trade arrangements reached with the EU and other countries.

I hope that this contribution on behalf of Enterprise Northern Ireland and the Local Enterprise Agency network proves useful in taking the concerns of the wider Northern Ireland business community to the Lords Select Committee.

Enterprise Northern Ireland