Cautious optimism and questions galore at GFSB Brexit town hall

At a Brexit town hall discussion hosted by the Gibraltar Federation of Small Businesses this week, the mood in the room swung from optimism about a treaty that will transform the business landscape in Gibraltar and open new opportunities, to concern about the nitty gritty of what the change will mean in practice.

This was the much-vaunted Gibraltarian entrepreneurship in action, a group of businessmen and women exploring what is known so far about the detail of the deal and trying to identify how their businesses will need to adapt, and where the opportunities might lie.

The biggest challenge they face right now is that they are flying nearly blind.

The text of the treaty is still being finalised and is not expected until the autumn. And while some details have filtered through in interviews since the announcement of a political agreement last week, the fine print has yet to come.

The Gibraltar Government is working to provide information to the public and answers to the questions people and businesses need answering. A day after it was launched, a Government email account set up to accept questions on the treaty had received nearly one thousand queries.

Yet while such initiatives are welcome, businesses need the fine detail to plan ahead.

“The problem is we don’t know yet what we have to do to adapt,” one business owner said.

“We’ve gone from being in the dark to being in the grey,” said another.

The treaty does not cover services, so key elements of the economy – the financial services and gaming sectors in particular, which generate activity in other sectors alongside direct employment and tax revenues – face little change to their models and will benefit significantly from a stable and free-flowing border, as will the wider economy.

The biggest change will come for Gibraltar’s retail and wholesale sectors, the lifeblood of the local business community.

The treaty envisages a transaction tax “in the nature of an import duty” that will never be lower than the lowest VAT rate in the EU, currently Luxembourg at 17%.

That represents a hefty increase for local retailers who currently pay import duties in single figures, if at all, depending on the goods in question.

But the discussion on Tuesday went beyond this, exploring practicalities including how customs checks and cargo flows might change once the treaty is implemented, what taxes will need paying in Gibraltar if goods are stored in warehouses in Spain, and how the transaction tax will work in practice.

The discussion was speculative given the lack of detail, and every concern had a potential counterweight.

The Gibraltar Government has said, for example, that the treaty will open up the European market for local businesses who will be able to sell, potentially at least, to 520m people.

But how realistic is that prospect?

Local businesses face higher operating costs than those in the Spanish hinterland. Not only that, larger, established Spanish and international companies enjoy economies of scale out of reach of most if not all Gibraltar businesses.

The concern was that “big guns”, as they were described, could swallow up home-grown “minnows”.

And while the 17% transaction was worrying enough for local businesses, their concerns went further.

Would, for example, people importing from the UK face any additional tariffs over and above the 17% when their goods entered the EU? (I subsequently asked about this and the response was they will not. Most goods exported form the UK into the EU are tariff free as long as they meet rules of origin, which broadly means they must be produced in either UK or EU, and/or using UK or EU raw materials.)

Or will importers who purchase in Spain also lose their VAT refund? (I asked about this too after the GFSB event and the answer is they will not. While VAT refunds end for individuals, they will not for wholesale importations.)

The fact the individuals will not be able to reclaim a 21% VAT refund on goods bought in Spain could, in theory at least, bring prices in Gibraltar closer to those in Spain, making goods here more attractive.

And because the treaty will not cover services, any Spanish business selling to a Gibraltarian will need to be fully registered and licensed in Gibraltar, just like any local business, to deliver and provide any additional services here.

That last point is a welcome development for the local business community, but many at the GFSB event were still unsure as to how they will be able to compete in this new landscape that is envisaged.

The general sense was that prices in Spain would still be cheaper and competition would be tough.

It’s fair to say, then, that for those businesses present at the GFSB discussion on Tuesday, the future remained filled with worrying imponderables.

But here’s the thing.

There was clear agreement that a ‘no deal’ scenario would be worse for Gibraltar, not least because it could impact heavily major economic contributors on that are protected under the proposed deal.

The prospect of a hard border would impact footfall too, while the border fluidity envisaged in the political agreement would have the opposite effect.

So while there were questions galore and doubts and concerns and unease about what lies ahead, the underlying sentiment was sanguine.

That bullish resilience was captured in a digital mood map of those present in the room, who were asked to scan a QR code and enter a few words describing how they felt about the future.

When the GFSB held its first Brexit town hall in November last year, the mood map [below] was negative and included words like uncertain, anxious, pessimistic, uninformed.