Minister Humphreys Statement on the Government’s Brexit Preparedness

Since the June 2016 decision of the United Kingdom to leave the European Union, my Department and its agencies have been actively working to put in place an extensive range of Brexit related measures to support businesses. The measures and supports introduced have been closely informed by our direct engagement with firms and by a number of Reports commissioned by Government, in particular the study by Copenhagen Economics which I published last year.

Our analysis points to the fact that the macroeconomic and trade implications of a no deal Brexit are more significant for Ireland than any other Member State. They also show that the impacts on individual sectors and firms vary depending on their particular level of exposure to the UK market for both exports and imports, the impact of potential tariffs and the potential for significant divergence of regulatory standards.

As the Tánaiste referred to in his opening statement, it continues to be the firm position of Government and our EU partners that the Withdrawal Agreement remains best solution for the UK’s exit from the Union. And I sincerely hope that we can agree an orderly outcome – and that clarity as to the basis for such an outcome will emerge from the current deliberations in the UK Parliament - as the impacts on the business community of a hard Brexit will be very considerable.

Brexit, in whatever shape it takes will be difficult for businesses. In the event of a hard-Brexit, the immediate enterprise impacts could include significant sterling volatility; and the imposition of WTO tariffs on Irish goods exported to the UK, and on UK goods which we import. In addition to these cost factors, VAT and excise duty payments at point of entry for imports from the UK will create cash-flow issues for Irish businesses. The increased time to market arising from necessary customs and food, animal and plant health checks, and the possible need to hold more inventory of inputs and finished goods, will further add to business costs. And clearly I am speaking now of the more immediate impacts only. In fact, over time, were UK regulatory standards to diverge significantly from the EU’s, this would give rise to significant non-tariff barriers to trade.

I am also acutely aware that regionally-based companies are highly exposed to Brexit, spanning a number of important sectors such as agri-food and beverages, engineering, construction and retail/wholesale and that Government’s responses need to be sectorally and regionally appropriate.

Because we have listened to firms, through for example, the Enterprise Forum of all major business groups, and the Retail Forum, both of which I chair, and because we have rigorously assessed the various scenarios, we have already taken important steps to prepare our economy at a strategic level. Measures taken under Building Stronger Business, the Action Plan for Jobs 2018, our Trade and Investment Strategy and Project Ireland 2040, have all been designed to help to Brexit-proof Ireland, as best we can, by investing in the future of our firms.

As part of our whole of Government response, my Department is working with Brexit-exposed firms, in particular with clients of EI, IDA, InterTrade Ireland and the Local Enterprise Offices (LEOs).

The package of Brexit supports that I have introduced through the enterprise agencies under my remit focuses firstly on helping firms to improve their competitiveness through cost reduction programmes, and utilising new technologies and supply chains. Secondly, they support increased levels of product and service research and innovation within firms, and between firms and the research institutions. And thirdly, our supports help firms to diversify into new markets away from any overreliance on the UK which, for many companies, has been a traditional and accessible market.

Since the UK decision in 2016, my Department’s budget in 2017, 2018 and 2019 has been increased to ensure that we are adequately resourced across the enterprise and regulatory agencies to support firms in their preparations.

The suite of enterprise supports in place cover a range of potential Brexit impacts. These range from liquidity support through short-term and longer-term loans, to restructuring aid for businesses in severe operating difficulties.

Specifically, these measures include:

The €300 million Brexit Loan Scheme launched in March 2018 providing loans of up to 3 years to businesses impacted by Brexit. As of this month, under this Scheme 325 firms have been approved by SBCI in the agri-food, retail and distribution, manufacturing, hospitality and transport sectors, and €14.8 million in loans to 63 businesses has been sanctioned at bank level;

A €300 Longer Term Loan Scheme approved in Budget 2019. Legislation was passed in December 2018 to provide for loans of 8 to 10 years for investments in fixed assets. This Scheme will be launched before the end of March and I would like to encourage businesses to start preparing their plans to avail of this facility;

EI is working closely with regionally-important larger companies in exposed sectors such as food to support strategic investments to build resilience – EI invested €74 million in these businesses in 2018;

An EU State aid approved Rescue and Restructure Scheme is in place to deal with events such as sudden shocks;

An expanded network of overseas offices and in-market supports to help firms diversify markets and to consolidate market share in the UK where appropriate.

Furthermore, in the context of the Omnibus Brexit legislation referred to earlier by the Tánaiste being brought forward in the event of a no deal Brexit, it is proposed to improve the range of Enterprise Ireland investment interventions. In particular, I propose to increase powers for EI to provide lending supports to businesses, thereby also helping to preserve the value of the State’s investments in these businesses and in assisting companies through restructuring or re-development programmes.

I should emphasise that the majority of the schemes that I have referred to are open to all companies, including SMEs and are not just targeted at the client base of the enterprise agencies under my Department.

In Budget 2019, I also included additional funding of €3m for EI and €2m for IDA to increase their Global Footprint; an additional €1m for InterTrade Ireland; and €5m for the LEOs, including for customs training and Brexit business advisers. Customs training is a key aspect of building company preparedness to deal with Brexit as the UK will become a third country. While I am satisfied with the take-up so far of customs training and tools that are readily available through EI and ITI for companies throughout the country, there remains a need to increase the scale and range of customs training options available. Later this month, the LEOs will also launch their customs training and awareness programme which will be available to all businesses and delivered through the 31 LEO’s countrywide.

I would like to mention a further important aspect of supporting businesses in the face of a hard Brexit and this relates to a range of regulatory functions undertaken by regulatory agencies within my Department.

The agencies involved are the Competition and Consumer Protection Commission, the Health and Safety Authority, the National Standards Authority of Ireland, the Irish National Accreditation Board and the Irish Auditing and Accounting Supervisory Authority. These agencies play a vital role in supporting businesses to operate effectively, especially in the area of certification and standardisation.

In Budget 2019, I allocated additional funding of €3m to these regulatory bodies to enhance their existing capacity through additional specialised recruitment in the context of Brexit and to assist the businesses, which they support on a day-to-day basis. I am currently working with these bodies to assess what further investment may be required in the event of a no deal Brexit.

It is important to say that while Government can assist in supporting businesses in the face of a hard Brexit, businesses must of course also prepare for such an eventuality and I know that they have been doing so. Notwithstanding the uncertainty we face, there are several areas where firms can take immediate action to prepare. I am asking businesses to take heed and to take action now.

Be alert to your supply chains and any possible disruption that might arise. Firms should consider how they plan to move goods into and out of the country, especially if they are relying on ports and hauliers.

The use of alternative sea routes might be explored, while the potential impact of any delays should be factored into business planning.

Be alert to new customs procedures that might be required. Under almost all scenarios, new procedures will apply on trade with the UK, while tariff and quota issues may arise, particularly in the agri-food sector.

Firms should consider what training or systems might be needed to deal with these new arrangements. Our new Online Customs Training tool, which is provided through Enterprise Ireland, is freely available to all companies.

Be alert to certification, standards and licencing issues. If goods manufactured in Ireland receive their EU-recognised certification marks - known as ‘CE marks’ - from bodies in the UK, then these firms will need to find alternative bodies in the EU27 to provide these services.

Likewise, if firms are importing products from the UK, they should make themselves aware of the new responsibilities that may arise as a result of Brexit.

Be alert to currency fluctuations. Many firms have already had to deal with currency volatility and further exchange rate movements are likely. Companies with exposure to foreign currencies should develop hedging strategies as a priority, allowing them to respond more effectively. While large companies have recognised the importance of this issue, many smaller companies are falling behind.

Be alert to the State supports and loans schemes available from Government, including through Enterprise Ireland, the LEOs and InterTrade Ireland. We have been intensively planning for Brexit since before the UK referendum results were even known and my Department undertook an in-depth economic evaluation to understand the likely impact of a range of outcomes. Using this evidence and consulting with businesses, we developed a wide range of supports, and it is vital that companies take full advantage of this offering.

The priority at individual firm level must remain the urgent transformation of their business models, through product and service innovation, new geographic market identification, supply chain management, hedging and cost control. The need to stabilise and support viable firms during such transformation processes in order to sustain regional employment is a priority for Government. Accordingly, we continue to explore ways to enhance the existing suite of enterprise supports for this purpose, should urgent needs materialise.

Over the course of the last 18 months, officials from my Department and Enterprise Ireland have been in dialogue with the European Commission about the scope of measures that might be needed and any possible state-aid implications. As a result of this engagement EI has been able to provide €74m in grants to Brexit impacted firms.

Of course, this type of grant aid will leverage significantly higher levels of total investment for companies. For example, the dairy processing sector announced over €700m of new investments in 2018 supported by EI, in large part focused on diversifying from existing cheddar production and UK markets.

I will be meeting with EU Competition Commissioner Margrete Vestager in Dublin on 24 January, where we will take stock of work of our teams, as regards flexibilities in State Aid.

All that I have set out in my statement is key to preparing our economy and businesses in the event of a no deal Brexit, and I will be working intensively in this regard with all stakeholders over the coming weeks.

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