The New How: Northern Ireland – Economic recovery in challenging times

To support our clients and contacts who are business leaders and influencers, Shoosmiths hosted a webinar on 5 August focusing on the role on the recovery of Northern Ireland’s economy in challenging times.

Introduction

As the saying goes “when the wind blows, some people build walls, while others build windmills". Despite frequent references to operating in ‘unprecedented times’ now is the time to start looking forward to economic recovery in Northern Ireland: a new normal, better than the old one.

On Wednesday 5 August as one of a series of collaborative ‘New How’ webinars aimed at senior business leaders and influencers, we hosted a webinar that focused on the economic recovery in Northern Ireland, touching on Brexit and opportunities for the NI economy.

The webinar led by Stephen Dawson, Partner and National Head of Financial Services at Shoosmiths, includes panellists Diane Dodds MLA, Economy Minister NI, Ivan Lewis, former Shadow Secretary of State for NI, Paul Leonard from UK Finance and Glyn Roberts from Retail NI.

Below are our key tips and takeaways:

Financial services in Northern Ireland

• Banks have provided support for general consumers during the public health crisis – mortgage holidays for instance have been popular with 1 in 6 mortgage holders taking advantage of this but unfortunately this is now coming to an end. The industry provided a moratorium on possessions which has been extended until October. Three month payment holidays were also provided on cards and loans and £500 interest-free overdrafts were provided for three months.
• Prior to the public health crisis, corporate debt levels in Northern Ireland had been falling. At the end of March business debt was down 8% year on year and level of deposits up 8%.
• The majority of companies say the COVID-19 pandemic has pushed back their Brexit preparations with only 15% saying they are more prepared.
• The Coronavirus Business Interruption Loan scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the Coronavirus Large Business Support Scheme had high approval rates and banks had to work tirelessly to get these over the line. 30,000 businesses have taken a CBILS or BBLS loan – that is about 1 in 4 businesses in Northern Ireland. Of the ten regions in the UK, Northern Ireland is the second largest recipient.
• There is no doubt the schemes have been instrumental in keeping businesses solvent, the concern is what will happen when, for example, the Job Retention scheme comes to an end in the autumn.
• It is important to remember the funding made available to small businesses was by way of loan – so it has created debt. Debt levels have increased and we could see negative impact on economy when repayments become due.
• CBILS and BBLS are not yet assignable but if this is possible then it would broaden the number of players providing finance to businesses.
• UK Finance is involved in the Recapitalisation Group headed by TheCityUK. Based on a recent report there could be £100bn of unsustainable debt in the UK of which there could be £2bn for Northern Ireland. It said 1/3 of businesses taking CBILS and BBLS loans may struggle to pay them back and the economic impact of this could be 800,000 UK companies going out of business and 3m job losses.
• The report suggested BBLS and CBILS loans up to £250,000 should be converted into a form of means tested future tax obligation administered through HMRC repaid over time and subject to affordability. Up to £1m of debt could be paid over an extended term in preference shares.
• The existing Private Equity market doesn’t have the capacity to help to the extent needed and tends to be more focused on growth businesses rather than turnaround. It remains to be seen what recommendations government will adopt, but the clock is ticking.
• In terms of opportunities - banks have been very supportive of the ‘green recovery’. UK Finance has worked with the Grantham Research Institute at LSE on a report regarding how banks can support sustainable recovery.
• Recovery packages have enhanced consumer trust in banks and the industry is much better capitalised than in the financial crisis - stress tests have proven they should be able to deal with the public health crisis.

Retail in Northern Ireland

• Our high streets have moved ‘crisis’ to an ‘emergency’ situation and immediate action is needed to tackle the problems the pandemic has presented.
• In the short term - there is a real risk of a domino effect affecting retailers so a recovery taskforce is needed, this could be brought together by the executive to include local government departments, councils, and businesses to work with the UK Government on getting a plan and stimulus package together.
• In the medium term –  with the furlough scheme tapering out we will no doubt see job losses. We will need to see government at all levels working to get people spending again – Retail NI say there should be a ‘Eat Out to Help Out’ equivalent for retailers.
• The problem is also if the economy is in recession/depression there will be a disastrous effect on spending. So we now need to focus on solutions. While a lot has been grim we can think afresh about what the new economy will look like and apply lessons learnt. We need to reopen in a safe way and offices need to open to stimulate the town and city centre economies. Businesses play a huge role in this.
• In the long term – we need a vision for the Northern Ireland economy. As part of the Trade NI Group, Retail NI, Hospitality NI and Manufacturing NI have created a report entitled ‘Vision 2030’ addressing how Northern Ireland can become a centre of innovation, creating 65000 new jobs, focusing on world class skills and training, and fixing the antiquated business rates model.

The political/economic view

• There have been extreme pressures pandemic has presented for businesses and coupled with final phase of EU exit negotiations this has created a very unique scenario.
• Rebuilding a stronger economy’ identifies measures to support vulnerable businesees from the shock of Covid. £330m has been pumped into the local economy to keep businesses afloat.
• Positives for Northern Ireland: it has a strong skill set, is globally recognised for digital, cybersecurity and higher education capabilities and is also a leading global location for financial & professional services with 40,000 employed in this sector of which legal is the fastest growing with 6500 jobs. As such a Boston-based cyber security firm has just set up a Belfast office because Northern Ireland has the talent pool.
• Aside from financial services and retail, tourism is also recognised as a particular sector requiring recovery support.
• On Brexit – The EU Exit transition period will set context for – Internation Relations, environmental, energy strategies, which are key priorities.
• The green recovery again is a key priority with interesting projects around hydrogen on the agenda
• Some of these longer-term activities may be harder to establish during the mandate of Northern Ireland assembly as we mitigate against worst of covid and grow the economy and sustain businesses in short to medium term as we recover.

On Brexit

• The Minister for the Economy is committed to ensuring access to UK internal market – Great Britain has promised Northern Ireland ‘unfettered access’.
• Businesses need certainty around trading, and how we discuss Brexit with the public needs to be simplified – there is a lot of jargon.
• What does success look like in terms of Brexit? Put simply it is seeing no increase to consumers’ grocery bills. A deal should be reached that works for consumers, as well as for business and retail.
• Until now passporting has allowed banks to transact in the EU and vice versa and this comes to an end at the end of the transition period. UK Finance hopes a deal can be done but the detail regarding financial services may be quite light - local licensing laws will also need to be reviewed and those businesses that have cross-border products will have to engage with their Financial Services provider to see what disruption might apply.
• We have a big journey ahead and recognise there can be greater partnerships between colleges universities and businesses to futureproof and create world-leading hubs for certain sectors in this new economy.

Final thoughts

• Growth capital is not only needed for start-ups and technology businesses, we also have to help our established businesses so we are supporting across the economy – we need to work with central government and be better at welcoming external investors
• The key challenge now is safely reopening different sectors to stimulate our economy again – Retail NI would like people back into their offices as this is not only important for survival of city centres but society at large as there is a mental health crisis business needs to lead the charge on.
• The world won’t be the same and we have to innovate and adapt and if we can do that we can safely reappear.
• Westminster has a responsibility to Northern Ireland but Northern Ireland also needs to take control of its own destiny and lead its own vision, according to Ivan Lewis. On the bid to ‘level up’, Northern Ireland needs to ensure it has strategies to work together with the UK Government to achieve this.

For details of our future webinars visit the New How portal on Shoosmiths website.

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.