Esmond Birnie: London is right to try to defend the benefits of the UK internal market
The internal market is the relatively frictionless, seamless ability to move goods, services or people between the four UK nations.
In other words, the advantages of a relatively big internal or single market of 67 million people as opposed to Northern Ireland (NI) trying to rely much of the time on a market of only 1.9 million people.
As the document outlines, the gains from such an IM include better consumer choice, lower prices given lower business costs.
The UK government indicates that its forthcoming IM bill will ensure protections and checks against the three devolved administrations using their competencies (including their increased powers following Brexit) to regulate in such a way that frictions to the IM are produced.
The UK’s IM might seem like a very dry or arcane subject. Certainly, not something as topical as NI and Brexit or the economic impact of Covid-19.
However, even though it may be under-appreciated, maintenance of the UK IM could play a major role in ensuring future prosperity and well-being.
History suggests the worth of the IM. Its creation through the Acts of Union of 1707 and 1801 was part and parcel of industrial revolution process in Britain and Ireland.
Imagine the difficulties which might be faced by, say, a food processing firm in NI in 2022 if it found that to sell into Scotland it was legally obliged to use different packaging and labelling that which was required in England or NI.
The government document applies a bit of economic modelling (based on the trading experience between the various states or Lander in Germany which is a very rough comparison) to indicate that “moderate” frictions between Scotland and the rest of the UK could produce a ‘hit’ to Scottish economic output of about £1.9bn.
A similar sort of scale of effect here in NI would represent about £700m (that excludes any issues relating to a potential border in the Irish Sea).
A sort of elephant in the room relating to the UK IM is what the implications might be of the NI Protocol to the UK Withdrawal Agreement with the EU27 (remaining EU states).
In the White Paper the UK government re-iterates that NI will continue to be a full member of the UK IM and will enjoy unfettered access to the GB market.
It remains to be seen how the negotiations between the UK government and EU27 will land. To what extent will NI firms be able to avoid exit declaration forms relating to sales to GB?
To what extent will there be a tariff difference between the EU and UK and how far will the EU allow a light touch approach to applying customs duties on goods coming into NI from GB?
The subjects covered by this consultation are very important. There has already been a political response especially from the SNP that what the UK government is proposing is power grab against the Devolved Administrations (DAs).
In fact, the UK government seems to be trying to defend some of the advantages of the status quo, a status quo which might be threatened if the three DAs or, indeed, the London government (acting as de facto England government) went off and did its own thing regardless of common interests across the UK.
Economic theory suggests that decentralised forms of government require a delicate balance between the centre and the devolved layers of government. An interesting example is provided by industrial policy. The White Paper speaks of a single, fair subsidy control regime.
This is not saying that Belfast, Edinburgh or Cardiff cannot have their own special incentive packages for inward investment or existing businesses.
It does imply, rightly in terms of the danger of bidding or subsidy wars, that there may have to be a cap on the maximum level of assistance which any particular UK administration might provide.
That stops beggar my neighbour situations.
• Dr Esmond Birnie is senior economist at Ulster University Business School
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