Businesses voice frustration amid Brexit uncertainty

Last June, in an interview with this newspaper, Chief Minister Fabian Picardo reflected on fair competition in the context of the treaty negotiations.

The ‘level playing field’ issue has been trumpeted in Spanish media as a key concern for Madrid if so-called “shared prosperity” is to materialise. The basic premise of that argument is that Gibraltar always has an advantage.

But when it comes to goods – the treaty does not cover services - it is Gibraltar that is on the back foot where most commodities are concerned. Even on “sensitive” products such as alcohol, tobacco and fuel, the cross-border differential in prices has narrowed hugely over recent years.

“Most things are more expensive in Gibraltar than they are in Spain,” Mr Picardo told me.

“And this is the thing that has not been understood in Seville, in Madrid or in Brussels, that actually 99% of all goods categories are more expensive in Gibraltar than they are in Spain.”

But the EU will not agree to anything it sees as a risk to the single market, and therein lies a challenge. The standard VAT rate in the EU varies depending on country but must normally be no lower than 15%, although member states have some flexibility for some goods covering basic needs such as foodstuffs and medicines.

Fernando Sampedro, Spain’s state secretary for the EU at the Ministry for Foreign Affairs in Madrid, said earlier this year that Spain, which imposes standard VAT of 21% on goods, wants “the smallest possible differential between the tax rates”.

Mr Picardo was clear when asked what this meant in practice: “Gibraltar will never have the same rates of tax [on goods] as Spain.”

“The argument that we're having at the moment is: where does the EU accept that you have a rate for transaction tax which is not going to in any way endanger the single market?” he added.

“Anybody who wants to see this deal deliver shared prosperity needs to understand that Gibraltar, as the catalyst for that shared prosperity, needs to do well.”

It’s not clear whether the issue has been settled. From the outset, all sides in the negotiation have kept the detail of their discussions zealously under wraps as they explore different solutions to this complex puzzle.

But for many local businesses, particularly retailers serving the local market, the uncertainty is crushing, as was evident during a well-attended Town Hall discussion on Brexit organised by the GFSB earlier this week in which I was kindly invited to participate [To ensure a free-flowing conversation, reporters were asked not to name specific individuals in any coverage].

At what level a transaction tax might be set, and what impact that might have on margins for local retailers, was a core concern for many of those present who feared “a David and Goliath scenario” in which Spanish companies, operating with cheaper costs and economies of scale beyond the reach of businesses in Gibraltar, would effectively “take us over”.

“How can we compete with businesses in the Campo?” one retailer asked.

“Is that really a level playing field?”

One counter argument was that a treaty that guarantees mobility at the border could turbo-charge the overland tourism market and increase, in theory at least, the number of potential customers for retailers in Gibraltar.

Additionally, the treaty under negotiation envisages a deal in which Gibraltar businesses would be able to sell retail to the EU market, which could open new opportunities to reach some 520m people.

Conversely, a hard border could hit day-tripper numbers hard, with knock-on effects on a wide cross-section of local businesses.

But not everyone is convinced about the potential benefits of a deal, not least because local clients provide the mainstay for many retailers.

One concern is that free movement across the border could lead to more Gibraltarians shopping for cheaper goods in neighbouring Campo towns and shopping centres, and that this would not be offset by more visitors.

One Main Street retailer illustrated the point by reflecting on his sales on a day this week when Main Street was heaving with tourists.

“I sold £1000 more the previous day to my local customers, who tend to steer clear of Main Street when it’s busy,” he said.

Another retailer was frank and admitted his business would probably be better off without a treaty, even though he preferred there to be a deal, conscious of the wider implications for the Rock and cross-border relations.

That was the consensus in a poll at the end of the meeting to sample the views of the 100 or so people gathered there. Some 76% of them said they wanted a negotiated outcome, despite their concerns.

The paradox was evident: treaty or no treaty, some businesses would benefit, and others would take a hit.

A stickier border would also have a direct impact on the 15,000 cross-border workers and the businesses and public services in Gibraltar that rely on them. That much became evident in early October when tit-for-tat immigration controls caused chaos during the morning rush hour and delays for people trying to get to work.

Some sectors such as retail are already under intense pressure even now, in large part from increased online shopping in recent years, but also from Spanish companies that operate in Gibraltar “unpoliced, unregistered”, creating an element of unfair competition that is causing serious challenges for some businesses.

Underpinning most of the exchanges during the GFSB session was the view that continued uncertainty had left many businesses in limbo and unable to plan, be it to invest to tap future opportunities, or to prepare for a downturn.

There was hunger for clarity as to what a deal could mean for different sectors and the wider economy, alongside weariness as to how long the process was taking.

Negotiators have repeatedly avoided setting a deadline, conscious this could hamstring their efforts to get a deal over the finish line.

Likewise, while the negotiations continue at a technical level, all four parties have maintained complete discretion from the outset save for broadbrush statements on what they are aiming for.

On Wednesday during the GFSB event, the frustration was palpable.

“All we hear is talk, talk, talk, but we seem to be getting nowhere,” one businessman said.

“We need to prepare ourselves, but we don’t know what’s coming.”