For example, increased cross-border shopping would cost the Republic of Ireland €60 million while a hard Brexit could have a ‘recession-type’ effect on communities that rely on drinks and hospitality businesses for revenue and employment.
The DIGI is therefore calling on the Government to reduce alcohol excise tax in Budget 2019 to protect this key industry given the potential of a hard and uncertain Brexit.
“While the negative effect of Brexit has been presented in terms of the medium and longer term, we’re concerned about the immediate and short-term effects which are already being felt by the drinks industry,” said the Director of Communications at Irish Distillers and DIGI Chair Rosemary Garth.
The possibility of a hard or no deal Brexit looks increasingly likely following the unproductive meeting between the British PM Theresa May, EU heads of state and the Irish government at the recent summit in Salzburg.
In this event Ireland will suffer disproportionately according to new DIGI figures which show that the impact of a hard Brexit on the drinks and hospitality sector alone could cost the Exchequer as much as €135 million in lost revenue a year.
The estimate was part of a statement, The Economic Impact of Brexit on the Drinks and Hospitality Sector, published by the DIGI with supporting analysis by DCU economist Anthony Foley.
The statement updates 2017’s Economic Impact of Brexit on the Drinks and Hospitality Sector report.
The lost revenue would result from a combination of hard Brexit-related factors including reduced drinks exports to the UK, reduced British tourism and an increase in cross-border shopping.
Drinks exports to the UK have already decreased, dropping 11% in the first half of 2018 alone. This compounds a decrease of 7% over the period 2015-2017.
Many Irish drinks products are dependent or heavily reliant on the British market with more than 70% of all cider exports and 43% of all beer exports going to the UK.
Difficulty accessing this market due to new tariffs, an increase in wait times at the border or other costly barriers will eat into the margins of drinks producers, especially micro-breweries and distilleries, states the DIGI.
The UK is Ireland’s single biggest tourism market. If a hard Brexit occurs, the value of Sterling is likely to drop again, leading to a decrease in the number of British tourists patronising Irish businesses.
Between May 2015 and May 2018, the Sterling cost of a €1,000 holiday in Ireland increased by approximately £135 (from £721.43 to £877.26).
A more attractive €uro/Sterling exchange rate could also lead to an increase in cross-border shopping. DIGI’s report estimates that if Republic of Ireland citizens travel north of the border to purchase drinks products, businesses and government here could lose out on €60 million-worth of expenditure.
Counteracting a hard Brexit
To counteract the effects of a hard Brexit on the drinks and hospitality industry, ahead of Budget 2019 DIGI is calling on the Government to reduce alcohol excise tax, the second-highest in the EU.
A reduction in excise will serve as defensive measures in case of a hard or no deal Brexit, freeing up funds for businesses in a more restricted, regulated market while also allowing for continued growth and expansion at home and abroad, states the DIGI.
The drinks and hospitality industry has been one of Ireland’s greatest post-recession success stories, exporting €1.3 billion worth of goods every year. While the number of total manufacturing enterprises has grown by just 1% since 2008, the number of drinks manufacturing enterprises has grown by 105%.
Ireland’s micro-breweries have quadrupled in number in the last six years, their turnover increasing from €8 million to €52 million in four years. Collectively, Ireland’s pubs, off-licences and restaurants have invested millions in new premises, new products and services, and new employees.
However a hard Brexit in a high excise environment is likely to restrict further growth and jeopardise the future of smaller drinks and hospitality businesses, according to the DIGI.
“A hard Brexit will inevitably lead to reduced revenue, business closures and job losses,” commented Rosemary Garth, “In some areas, where the industry is the primary employer, we’re looking at the possibility of a recession-type effect, whereby entire communities suffer because of a drop in product exports or tourist numbers.
“To avoid this kind of scenario the Government needs to make it as easy as possible for drinks and hospitality businesses to trade and grow. A hard Brexit alone is tough — a hard Brexit in a market with high excise tax is even tougher. High taxes mean more money is spent covering overheads before anything can be invested in productive outputs like new premises, new products, or new staff.
“For smaller producers with limited product ranges, a bump-up in excise can cost thousands of €uros. That’s enough to eat into their profit margins and potentially shutter them completely.
“As has so often occurred in this country’s history, when the UK sneezes, Ireland catches a cold. We’re asking the Government to boost this industry’s immune system now by reducing excise tax on alcohol.”