UK peers over Brexit cliff as May and her deal limp on

Business Week: also in the news was Anglo Irish Bank; economic warnings; and housing

If UK prime minister Theresa May's Brexit deal were a walking, talking human being, it's self esteem would be on the floor after the week just passed. It seems almost nobody believes in it, and nobody sees any future for it. There was even talk from British cabinet minister Amber Rudd – among others – of a second referendum, something May has so far fiercely resisted.

May informed the House of Commons this week that it will get its “meaningful vote” on the deal next month but even she seems resigned that it will founder, ordering government departments to make no-deal planning their top priority.

“We have reached the point where we need to ramp up preparations,” May said after a 2½-hour cabinet meeting. Plans include chartering ferries for food and medicines, and putting thousands of armed troops on standby to help with any disruption.

In Brussels, the European Union published contingency plans for a no-deal outcome, and dismissed the suggestion from some Brexiteers that the ensuing chaos could be contained with a “managed no-deal”.


The fear has even spread across the Atlantic. Jay Clayton, the head of the US Securities and Exchange Commission, called on both sides to ensure a no-deal Brexit will not cause havoc to global markets, and boosted the number of his staff working solely on Brexit.

Then there’s Dublin, and here you might want to brace yourself. A Government report said a no-deal outcome would impact “every element of economic functionality” including trade flows, supply chains, economic and business operations, the labour market, consumer confidence and spending.

It would be an "exceptional economic event" that would require "exceptional measures". These include the purchase of land at Dublin Port and Rosslare to prevent congestion from new customs, sanitary and animal health checks.

Elsewhere, Revenue has made plans with the pharmaceutical industry for emergency medicines coming into the State to be fast-tracked at customs entry points after Brexit.

To make matters worse, Irish Ferries is to axe its Rosslare to France service next year, just when Irish exporters need to find new ways to get their produce to the continent ahead of anticipated gridlock at the UK land bridge.

The Government said no less than 45 legislative measures, including 21 pieces of primary legislation, will need to be passed in the months ahead, and all Ministers have been instructed to identify non-Brexit legislation that is “absolutely essential” before March. Nobody panic.

No room for morality in finance

Former Central Bank governor Patrick Honohan said in 2015 there was a"moral case" to find a way to prevent a group of Anglo Irish Bank junior bondholders recovering anything after the bank went to the wall and was rescued by the State.

The bondholders had resisted attempts to make them share the failed lender’s losses, and the then-taoiseach Enda Kenny said he saw “no prospect” of them being repaid.

But that was then, and this is now. The Government has said the bondholders are set to recoup all that they are owed – almost €270 million. Many will be paid back the full face value of bonds they bought during the crisis at deeply discounted prices.

On the bright side, Minister for Finance Paschal Donohoe said the State will get about €600 million in the coming weeks, which will be used to bolster cash balances “and thereby reduce the required level of borrowing”.

Separately, the special liquidators of IBRC, the entity that absorbed Anglo and Irish Nationwide during the crisis, are to announce another 25 per cent “dividend” for unsecured creditors, including a €280 million payment to the State.

The cash injection will be most welcome in Merrion St following a report from the National Competitiveness Council that found the economy is facing serious challenges that could derail future growth.

It said the strong performance by a small number of indigenous companies was masking the fact that the majority of Irish companies are underperforming, with productivity growth either stagnant or falling.

Better news from the Central Statistics Office this week where new figures showed the average disposable income in the Republic is now just 1 per cent below where it was at the height of the boom.

It rose by nearly 5 per cent to €48,476 last year, 17 per cent higher than at the low point of recession in 2012 when it was €41,399, and just 1.1 per cent lower than the boom-time high of €49,043 recorded in 2008.

However, the figures are more likely a reflection of the rapid growth in overall employment since 2012 rather than direct wage increases.

Not in my back yard

The Government’s housing policy is likely to come under more scrutiny following a report this week which said the number of homes under construction in Dublin city is down almost 50 per cent on last year.

The report, from the Government’s Dublin Housing Supply Task Force, highlighted a 20 per cent drop across Dublin as a whole. Apartment construction rates in particular have crashed in the last year.

However, the report did note that the decreases in construction were “offset by the significant increase in housing completions this quarter”, which more than doubled to 1,336 in the third quarter compared with the same period of 2017.

One way to increase supply would be to reduce the rate of VAT on new houses, according to Property Industry Ireland, the representative body for the property sector.

Meanwhile, a group of residents in a Rathgar development have hired a planner and barrister to oppose plans by Cairn Homes for a site on their estate. The builder had planning permission for 22 town houses but is now seeking to build apartments instead.

On the mortgage front, Central Bank data showed the number of owner-occupied accounts in arrears fell by 2.9 per cent in the third quarter compared with the previous three-month period.

Separately, a new study from Trinity College and Indecon Economic Consultants found that opting for a cashback mortgage could end up costing borrowers €30,000 more over the life of their mortgage. Younger and less-educated borrowers are more at risk.