The Deal in Detail 3) Northern Ireland

30 Dec

Graham Gudgin is Chief Economic Adviser at Policy Exchange.

There has rightly been much general congratulation on the Christmas Eve Trade and Co-operation Agreement (TCA), but the Northern Irish provisions of the deal have raised the greatest concerns with the wider Conservative and Unionist family.

The Unionist critics (and, indeed, their Nationalist antagonists) aver that the UK emerges with customs declarations between GB and Northern Ireland for the first time in centuries – and in contradiction to the 1801 Act of Union. Even if some animal health checks were already present, the level of customs checks is being substantially increased.

In short, many in Northern Ireland believe this hastens the arrival of a united Ireland. But are these analyses correct?

It is worth recounting what has happened in the last few years. The primary cause of Unionist disquiet is the Irish Protocol, which creates a customs border in the Irish Sea to prevent a land border between Northern Ireland and the Republic. The Protocol remains in place, irrespective of the Christmas Eve Agreement – although its impact is greatly ameliorated by the new agreement to avoid tariffs and quotas between the UK and the EU.

The new Johnson Government found itself trapped in a situation not of its own making and has clawed back something of real value. The previous Government’s deeply unsatisfactory Backstop, tying the UK into the EU Single Market, and Parliament’s self-harming Benn Act of 2019, forced it to accept EU terms to get an election to achieve Brexit. The cost was acceptance of the EU and Ireland’s demand for an Irish Sea Border to avoid any change in the land border.

Recognising the difficulties caused by the Protocol, the Government has used the last year to make determined efforts to limit the economic and political damage of an internal customs border. Much of the negotiation has gone on quietly, and apparently calmly, in the Withdrawal Agreement’s Joint Committee which was given the power to determine key aspects of the border arrangements.

The promise in the Protocol that businesses in Northern Ireland would continue to enjoy ‘unfettered access’ to markets in Great Britain has allowed the UK to see off the contradictory EU demand that businesses should fill out export declarations for any goods sent from Northern Ireland to Great Britain. Export declarations are a normal part of the EU’s Union Customs Code (UCC) which Brussels initially insisted should apply to its new outer border in the Irish Sea.

Such declarations had little practical value, and it has now been agreed that firms do not need to complete them. To keep the EU happy and to keep to the letter of the Protocol, Brussels will instead be supplied with data from ferry manifests on the flow of goods to Great Britain. A further EU demand for a trade oversight office in Belfast was rejected by London as unnecessary and provocative, but the EU does not go empty-handed. It gets access to trade databases, and the right for its officials to be present at customs checks.

Unfettered access is a one-way ticket applying only to West-East trade. In the other direction, things are rather different. The key principle here is that the EU’s Single Market should be protected from penetration by goods which do not comply with its technical, SPS or ‘rule of origin’ regulations. One level of protection for the Single Market is that producers inside Northern Ireland must adhere to EU regulations for any products likely to cross the EU border. Associated with this are rules that some goods must be checked at centres across the border in Ireland and in the case of food products by southern vets at Northern premises.

This still leaves the problem of goods entering Northern Ireland from Great Britain or elsewhere. The principle is that no goods contravening EU regulations should be allowed into Northern Ireland if they are ‘at risk’ of entering the EU across the unmanned Irish land border.

The Joint Committee of the UK and EU has the power to determine which goods are at risk. Despite the new agreement avoiding all tariffs, all goods entering the EU from the UK must provide customs declarations showing that they conform with EU regulations, and checks will be undertaken to prevent avoidance.

For Northern Ireland this means that all goods entering Northern Ireland from Great Britain require a customs declaration. To avoid cost and disruption to businesses, the Government has set up a £200 million Trader Support Scheme (TSS) under which agents working for HMRC will undertake the paperwork based on information received from the businesses themselves.

It seems that few of these consignments will be checked unless they involve sensitive products – chiefly animals, food or chemicals. There will be intensive checks for these products but, under an agreement reached in early December, authorised traders will have a three-month ‘grace period’ to organise the necessary health certifications.

Beyond March 2021, the Government promises a new ‘end to end digital system’ to enable goods to be moved in the most streamlined way possible. Again, the Government promises to bear the costs of setting up this system. Despite an earlier promise of no new customs infrastructure, £50 million has been set aside to construct customs posts at Northern Ireland ports.

A potentially tricky problem affects food products restricted or banned by the EU. Products such as sausages and chilled meat can be prevented from entering Northern Ireland from Great Britain. For the time being, the problem has been kicked into the long grass, with a six-month stay of execution to find a long-term solution.

The idea seems to be that regular importers, including supermarkets and their suppliers, will be authorised as ‘trusted traders’, and will undergo few if any checks. This is intended to promote a light and unintrusive regime, but it is unknown how other importers will fare – especially intermittent or new sellers into Northern Ireland markets. The issue of parcels, which are becoming a major source of consumer goods through internet shopping, has still not been settled, but the promise is for no ‘undue’ disruption.

The DUP vote against the Bill earlier this afternoon but, in truth, this is more a complaint about a perception of being let down than a heartfelt wish to avoid the legislation. Arlene Foster, ever the pragmatist, has been muted in her opposition. The DUP have had to bear daily taunts from nationalists, other Unionists and the media (including of course BBC Northern Ireland) that their support for Brexit has weakened the Union, perhaps fatally.

The DUP should let this roll off their backs: the Union is safe enough and, moreover, is outside the EU just as they wanted, despite the opposition of other major Northern Ireland parties. In this sense, the DUP have won. Nor are the costs of victory likely to be heavy, even if nationalists will of course strive to make them seem so. Life in Northern Ireland is likely to be much less changed than they or their opponents anticipate.

The border in the Irish sea will impact lightly on firms, and is likely to be largely invisible to the public. Meanwhile, the real border will remain the land border. On the southern side is the EU and the Eurozone, with Ireland an increasingly large, and potentially less happy, fiscal contributor. For the Province, a more independent UK will be freer to go its own way in the world with a raft of new trade agreements in which Northern Ireland will fully share. The direction of travel will be towards more trade with a Trans-Pacific Partnership, probably soon to include the USA, and other faster growing economies.

With reforms like freeports, and regulations more suited to UK-specific advantages, Northern Ireland can benefit from this new independence. Already Northern Ireland has gained from being a world leader in Covid vaccination, while EU countries chafe at the delays in approving a vaccine developed in Germany.

Whether continued EU commercial regulation will hold back Northern Ireland remains to be seen. An apparent lack of freedom in Northern Ireland to ban the export of live animals (as in Great Britain) already annoys animal welfare supporters, and constraints following possible subsequent UK reforms will no doubt annoy others.

If the fetters of EU regulation prove too unpopular, the ability to escape the Protocol remains a democratic option after four years – thanks to an important addition injected into the Protocol by the Johnson Government that upholds the consent principle through the mechanism of consulting the Northern Ireland Assembly to review these arrangements. The consent principle is, of course, the cornerstone of the Belfast Agreement of 1998.

Above all, the new arrangements do not enhance the concept of a single island economy, as pushed by Dublin. Anyhow, that concept  is not be found in the Good Belfast Agreement. Instead, this new trade agreement continues the existing framework of two socio-economic entities on the island of Ireland, functioning according to different rhythms.

The mainstream media’s take on Johnson’s attempts over many months to undo the worst aspects of the Protocol was that these attempts would disintegrate – and humiliatingly so. There was no such humiliation, and Johnson’s word on unfettered trade for Northern Ireland producers is upheld. Huge efforts have been made to ensure that few if any traders are more than minimally inconvenienced. But will Unionists appreciate that in the current mood of communal pessimism?

This is the third in a series of pieces from Policy Exchange looking at specific issues that arise from the Brexit trade deal.

Graham Gudgin: It must take a real majority of the right electorate to break up our Union

23 Oct

Dr Graham Gudgin is currently Honorary Research Associate at the Centre for Business Research (CBR) at the University of Cambridge and visiting Professor at the University of Ulster.

There is no internationally agreed principle for the maintenance or breakup of states, even within Europe. Czechs and Slovaks are rightly proud that their ‘velvet divorce’ break-up of the former Czechoslovakia in 1992 was achieved peaceably, but their experience is not typical.

At the other extreme, Catalan separatists are locked up and there seems to be no legal way of achieving independence for Catalonia. For all its liberal principles, and its previous encouragement of a ‘Europe of the Regions’, the EU exhibits de facto support for the integrity of existing states like Spain. It also opposes regional secession in Ukraine even when secession is locally popular – but supported the breakup of Yugoslavia.

The UK approach arguably makes secession too easy, but could be revised to make it pragmatic and morally supportable. British regions are free to secede as long as a majority of the local population agrees. This principle was followed in the 2014 Scottish independence referendum and is also built into the Belfast Agreement, which mandates the Secretary of State for Northern Ireland to hold a border poll if evidence suggests majority support for Irish unity. As in Scotland, a majority of 50 per cent plus one vote is sufficient to detach the area from the UK.

In these respects, British governments have been remarkably insouciant about the break-up of one of the world’s most long-established and successful democracies. There has been only a perfunctory national debate on the value of the Union, leaving the field wide open for successionists in Scotland and Northern Ireland. Few in the UK would follow the Spanish government’s hard line on regional secession, but equally our own light-touch approach risks losing the Union through the votes of a minority of the Scottish population.

The willingness of the UK establishment to permit a break-up of the Union is surprising. England Scotland, Wales, and Ireland formed a unified kingdom in 1603 and since then forged the world’s most astonishingly successful union, pioneering modern democracy and capitalism before spreading both across the globe. It is a union willing to spend billions to maintain uniform social standards, spending for instance as much to maintain public services in Northern Ireland as it did in its controversial contributions to the EU.

The ONS calculates that living standards in Scotland and Northern Ireland are above the UK average once housing costs are taken into account, and only a little below those in South East England. The willingness of British taxpayers to finance uniform living standards is greatly under-appreciated. It is buried in the Barnett Formula for distributing public expenditure and this should be replaced by a much more transparent ‘UK cohesion fund’.

Loss of empire, followed by membership of the EU, loosened the sinews of national cohesion. The temporary largesse of North Sea oil allowed the SNP to rise in popularity in the 1970s under the slogan ‘Its Scotland’s Oil’. The SNP has successfully built on Scotland’s distinctive geography and history to undermine the many British bonds of language, institutions, and a shared 300-year history.

John Lloyd has argued that ‘the SNP’s standard enshrines an ideal, [a] promise of a fuller civic life, a pledge – in a nation once famously pious, now shorn of faith – of a more meaningful existence’. This appeal may be wide, but for many is unlikely to be deep. That support for Scottish independence is wafer-thin has been pointed out by George Kerevan, a recent SNP Assembly member and past deputy editor of the Scotsman.

Within this context the SNP has played its hand extremely well under Alex Salmond and Nicola Sturgeon, even as oil revenue drips away and Scottish voters are offered the prospect of voting to give control back to the EU including pressure to join the unpopular Euro currency area.

If the SNP do well in next May’s Scottish Parliament election,  the clamour for a second referendum may become irresistible. Such a referendum could be won by the SNP and if so a successful 300-year union could be broken up – on the vote of a minority of Scots and with great consequences for the rest of UK, who would have no say.

The 2014 referendum was organised under rules almost designed to maximise the independence vote, and the pro-union campaign was conducted largely on the same ‘project-fear’ basis that failed so dismally for the Government in the Brexit referendum. This lackadaisical approach cannot be risked again. Any future referendum must be taken much more seriously, with voting rules designed to reflect the seriousness of the issue

A decision of such historical importance not only for Scotland, but also for England, Wales and Northern Ireland, must be taken on the soundest basis possible avoiding the weaknesses of 2014. If the 2014 rules were reused, the electorate would include non-UK citizens living in Scotland and exclude Scottish-born UK citizens living outside Scotland. The latter would be eligible for Scottish citizenship in an independent Scotland but excluded for the decision on independence. The 2014  rules could mean that Scottish independence could be gained with a 51 per cent majority on a 70 per cent voter turnout, i.e. with the votes of only 35 per cent of the Scottish electorate.

A liberal and democratic Britain has not, and would not, deny an independence referendum to a Scotland determined to have such a vote. It can and should insist that such an important and probably irreversible decision can only be taken by a majority of Scots. Only Scottish-born UK citizens should vote, and all such citizens should be eligible including the expats. To ensure that most Scots want independence, a yes vote should depend on a majority of the electorate and not just on a majority of those voting

This is close to the rules used in the 1979 Scottish devolution referendum when devolution was supported by a majority of voters but failed to pass because less than 40 per cent of the electorate voted yes. Such a hurdle would probably prove impossible for the SNP.

Having become accustomed to a low bar for independence referendums the Nationalists would of course cry foul. SNP politicians could persuade some Scots that the referendum was rigged, but the logic and morality of such arrangements would be clear and easy to defend both in the UK and abroad. SNP objections would also call attention to the narrowness of the support for independence. The SNP’s strength has been its moderation and adherence to democracy and the rule of law, and it would be difficult for it to oppose British law by attempting to run its own referendum.

This then would be the British way of deciding the rules of secession. It would be more liberal and democratic than Spain and also more democratic than in Czechoslovakia, where no referendum was held and where public opinion opposed a breakup. It would also not repeat the lax approach of 2014.

The new principle would be that a region can vote to leave but must demonstrate that a majority of its people favoured secession. Not only would this help to preserve the Union, but it would set the world an example.

Graham Gudgin: Now is the time to combat Scottish Nationalism

5 Aug

Dr Graham Gudgin is an honorary research associate at the Centre for Business Research, Judge Business School, University of Cambridge. He was Special Advisor to the First Minister in Northern Ireland 1998-2002.

When Douglas Murray wrote recently that Scottish nationalists are unique in escaping the opprobrium usually associated with nationalism he is only half right. Irish nationalists have pulled off this trick for decades or centuries even when their supporters were killing people. The trick is to make liberals view the nationalist cause as escaping from victimhood. Rather like escaping from a bad marriage, many will support the new beginnings of independence.

Who would not have supported the Finns escaping from Russian domination? The West always supports nationalists escaping from its opponents grasp, like the new nations emerging from the Soviet-bloc, even including Kossova a province of the greatly disliked Serbia.

Even more than the Irish, the Scots have a good case in arguing for independence. Their history and geography set them apart. They were an independent state for many centuries and could be one again. To write, as Murray did, that an independent Scotland would “join sub-Saharan Africa in the world poverty indices” is silly and will, of course, be taken as typical English condescension. The battle to save the union is now deadly serious and must be treated seriously.

We must recognise that devolution in the form adopted in 1998 was a mistake. Although there were misgivings at the time, the Labour view that devolution would strengthen the union prevailed but is now in tatters. Devolution cannot deal with a contested adherence to the wider nation any more than it could in Ireland. Labour domination of Scottish politics was viewed as sufficient protection for the union especially with an admirable leader in Donald Dewar. However, as the unifying memories of the world wars faded, along with strong memories of Scottish martial prowess, feelings of separateness could be built upon.

Although the SNP hate the idea, latent nationalism was reignited by North Sea Oil. The SNP first made real electoral gains under the slogan, ‘Its Scotland’s Oil’. The potent mix of a distinct national identity allied with financial strength was there to be exploited by middle-class Scottish nationalists who stood to gain financially and in status from independence.

The SNP’s problem was to carry with them the working class, especially on Clydeside. Thatcherism provided an opportunity with its use of Scotland as a testbed for the poll tax and the SNP grasped it gratefully. Ever since they have presented themselves as progressives. The long withdrawal of Labour from its historic role in defending working-class interests gradually overcame electoral loyalty, and just as in the red wall of northern England, Labour surrendered its Scottish base.

All of this is a national tragedy, but we are where we are. The task now for unionists is to face up to the realities of the problem and to avoid superficial remedies and soft-soap talk. These include avoiding a reliance on throwing money at the problem. Just as in Northern Ireland, the flow of cash from England does little to soften nationalist sentiments. Money is accepted without gratitude. Feelings of financial dependence can just as easily foster resentment as generating a need to ‘cling to nurse for fear of finding something worse’. In Scotland, the majority have never heard of Rishi Sunak, the saviour of their economy during a global pandemic.

Although the realities do indeed include living standards supported by financial subsidies from London, we should not assume that this will be decisive. Scotland’s economy is quite strong, with per capita GDP at close to the UK average. There is little doubt that Scotland could emerge as an economically successful nation rather like Denmark.

Subsidies are not necessary to bring Scots up to English living standards but rather have allowed Scottish living standards, and especially public services, to be better than in England and higher than their own resources would allow. ONS data shows that Scottish living standards are well above the English average and close to those of London once house price differences are taken into account. Scots may be willing to settle for a degree of austerity in return for independence, and with post-independence living standards at something close to the English average, their lot could be acceptable.

So, what is the case for the union? The core case is that three-hundred years of successful union should not be lightly tossed aside. The UK has been a force for good in the world through this period and can continue to fill this role. As a nuclear power with a seat on the UN Security Council and at the centre of a multi-racial Commonwealth of nations, its global reach is immense.

The SNP’s alternative of a future inside the EU may yet backfire if the UK secures a satisfactory deal with the EU and demonstrates that, like Switzerland, Norway and Iceland, economic life outside the EU can be quite satisfactory. A slogan of ‘Give Back Control (to the EU)’ would hardly help the SNP. An EU border at Berwick would be a nuisance for everyone but especially the Scots.

The financial strength of the UK might not be decisive but is nonetheless a strong card which should be played vigorously. The Barnett Formula under which Scotland has received its subsidies since 1979 does little for the union since it leaves financial support largely invisible to voters. It needs to be quickly replaced by a UK Cohesion Fund. Public funds should be initially allocated on a simple basis pro-rata to population. This would leave Scotland, Wales and Northern Ireland well short of what they currently receive, and the difference should be made up from a cohesion fund which makes it fully clear what money is coming from where. We need not go as far as putting Union Jacks on new roads or buildings, but the message would be clear.

Finally, although it is dreadfully late in the day, efforts should be made to contest Scottish beliefs about their own history. Like the Irish, the core of national identity is built upon beliefs about a successful resistance to English attempts at dominance, in the Scottish case most notably at Bannockburn.

The real story, as in Ireland, is not of attack from the English but by French-speaking Normans who, having overrun England, expanded further into Wales. Ireland and Scotland as well as Southern Europe and the Middle East. Scots’ resistance was helped by bringing in their own Norman barons, including the Le Brus and Balliol families, and unifying their own diverse ethnic groups under William Wallach (William the Welshman).

Even so, this would not have worked without the Great Famine, the Black Death and the Hundred Years War to deter the Norman descendants. Independence from then on was then a largely sad story of poverty, feudal dominance and dissension, until the Scots flowered magnificently within the British Empire.

David Starkey’s description of pre-union Scotland as a “benighted hellhole” might be too strong but is reminder of why the union was so positive for the Scots

Having tied themselves to an England on the up, Scots are tempted to jump ship from what they see as English decline. The best tactic is to persuade and demonstrate that a post-Brexit UK has a bright future, remaining a force for good in a troubled world. This needs to be a national effort involving historians, economists and many others. If we leave the task to Johnsonian bluster, we can expect the worst.