Bernard Durkan (Kildare North, Fine Gael)
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66. To ask the Minister for Finance the degree to which he remains satisfied that the steps taken to date to offset the impact of Brexit remains sufficiently robust to ensure Ireland’s economic future; and if he will make a statement on the matter. [2156/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am satisfied that the Government’s response to Brexit has been well-managed.  We have invested significantly in new infrastructure, systems and staff.  We have provided a range of supports to assist businesses and we have engaged intensively with stakeholders. My Department has been participating in whole of Government preparations for Brexit since before the UK referendum in 2016 and, in line with the Government’s overall approach, this work intensified during 2020 ahead of the end of the transition period.

Regarding financial services, my Department has been working closely with the Central Bank of Ireland and the National Treasury Management Agency (NTMA), through the Financial Stability Group, and through the Brexit Contact Group, to limit the impact of key identified risks in the Irish financial system and review progress on readiness planning. This work and engagement has sought to ensure that the sector is adequately prepared, and that financial services firms and market participants have contingency plans in place to cope with the possible effects of Brexit, with as little disruption for consumers, investors and markets as possible. On the basis of its work and engagement across the sector, the Central Bank has been able to assure me that the financial sector is well prepared and resilient enough to manage the changes associated with Brexit.

My Department has been supporting the Revenue Commissioners’ preparations for the customs checks that are now necessary for goods travelling between Ireland and the UK, excluding Northern Ireland. Notwithstanding that the EU-UK Trade and Cooperation Agreement is now in place, businesses face a significant level of change due to new customs arrangements. Significant resources have been allocated to this, including intensive stakeholder communications and training, staff recruitment and infrastructure enhancements. Revenue systems are working as expected and Revenue will continue to work closely with individual businesses and trade and business representative bodies to assist them in building their capability as quickly as possible, in order to minimise the impact. Any traders who are experiencing difficulties should seek support in resolving their issues.  Advice and assistance is being provided by Government.

Much of my Department’s preparations are supported by measures contained in the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020. These measures deal with areas such as taxation, settlement finality, insurance and customs. The measures seek to protect citizens and consumers, facilitate the sound functioning of key sectors, and ensure our businesses are not disadvantaged after the end of the transition period.

The macroeconomic forecasts underpinning Budget 2021 assumed a disorderly end to the Brexit transition period would occur at end 2020. It was in this context that Budget 2021 provided €340 million in measures to prepare for Brexit, through the continuation of existing measures and new supports for sectors and enterprises likely to be most affected. This comes on top of over €700 million in successive Budgets since 2017. In addition, the Recovery Fund of €3.4 billion will allow specific, targeted measures to be introduced when and where the need arises in response to both Brexit and Covid-19.

The EU budget’s Brexit Adjustment Reserve allocation to Ireland will complement and enhance the comprehensive supports put in place by Budget 2021. The European Commission published the proposal on 25 December 2020, and my and other Government Departments are continuing to make Ireland’s case for substantial funding to support affected sectors known to EU partners.

On the basis that the EU-UK Trade and Cooperation Agreement is now in place, as well as the preparations undertaken in respect of the economy, budgetary strategy and financial services sector, I am satisfied with the steps taken to date to support preparedness and to manage any impact.

One sector in particular which has evolved as a result of Brexit, and which continues to do so, is the international financial services sector, which has seen firms relocating from the UK and firms looking to set up operations in the EU for the first time. The industry in Ireland has become broader and more diverse with more firms carrying out a greater range of regulated activities than at any time.  This follows on from a number of government strategies, the latest iteration of which is ‘Ireland for Finance, that have sought to grow the sector over several decades, and these strategies were in place long before Brexit. The Government and various state agencies continue to work to fully capture any opportunities for inward investment that emerge through promoting Ireland’s strengths as a leading specialist financial services centre.

Notwithstanding these preparations and evolution within some sectors, given the scale and interconnectedness of Ireland’s trading relationship with the UK, Brexit will have a negative impact on our economy but the Government is doing everything possible to manage this. 

Joint analyses by my Department and the Economic and Social Research Institute (ESRI) modelling the macroeconomic impact of Brexit were published in 2016 and 2019. The analyses covered a range of outcomes and possible future relationships between the EU and the UK.

The analyses included a limited Free Trade Agreement (FTA) based on zero tariffs and zero quotas on the goods side with very little covered in respect of services. Overall this is broadly in line with the recently concluded new Trade and Cooperation Agreement between the UK and EU.

Under this Free Trade Agreement scenario, the research found that the level of GDP would be around 2  per cent lower over the medium-term (i.e. 5 years) and around 3 per cent lower over the long-term (i.e. 10 years), compared to a situation where the UK remained in the EU.

In the context of the research outlined, Budget 2021 was based on the prudent assumption of a disorderly end to the transition period between the EU and the UK. Under this scenario, a decline in GDP of -2 ½ per cent was projected for 2021, with growth of 1 ¾ per cent expected in 2021. This is around three percentage points below a counterfactual scenario, where a trade deal between the EU and UK is reached.    Updated economic forecasts will be published as part of the Stability Programmer Update in April, and this will take into account the EU-UK Trade and Cooperation Agreement which was reached.

Bernard Durkan (Kildare North, Fine Gael)
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67. To ask the Minister for Finance the extent to which the financial services sector has been affected by Brexit negatively or positively; and if he will make a statement on the matter. [2157/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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My Department has been participating in whole of Government preparations for Brexit since before the UK referendum in 2016 and, in line with the Government’s overall approach, this work intensified during 2020 ahead of the end of the transition period.

My Department has been working closely with the Central Bank of Ireland and the National Treasury Management Agency (NTMA), through the Financial Stability Group, and through the Brexit Contact Group, to limit the impact of key identified risks in the Irish financial system and review progress on readiness planning. This work and engagement has sought to ensure that the sector is adequately prepared, and that financial services firms and market participants have contingency plans in place to cope with the possible effects of Brexit, with as little disruption for consumers, investors and markets as possible.

On the basis of its work and engagement across the sector, the Central Bank has been able to assure me that the financial services sector is well prepared and resilient enough to manage the changes associated with Brexit.  The Central Bank has received a very limited number of questions from financial services firms or consumers on issues arising as a result of Brexit.

On the prospects for the international financial services sector, the nature, scale and complexity of Ireland’s international financial services sector will change in a number of ways as a result of the financial services firms relocating from the UK as a result of Brexit and those looking to set up operations in the EU for the first time. The industry in Ireland has become broader and more diverse with more firms carrying out a greater range of regulated activities than at any time.

The full impact of Brexit for Ireland’s international financial services sector may not materialise for some years. At present, firms are establishing the foundations of a new or significantly expanded presence in Ireland, creating a platform for future growth opportunities in all sectors: insurance, banking, and investment management.

A number of government strategies have sought to grow the international financial services sector over the last number of decades, and these strategies were in place long before Brexit. The latest iteration of these strategies is ‘Ireland for Finance, the strategy for the development of Ireland’s international financial services sector to 2025’.

The Government and various state agencies continue to implement that Strategy, (and indeed industry lead on some appropriate action measures under the annual action plans) and are working to fully capture any opportunities for inward investment that emerge through promoting Ireland’s strengths as a leading  financial services centre.