Tuesday, March 24, 2009

Northern Exposure

We should be grateful that the Northern Ireland Assembly doesn't have taxation powers. Otherwise the already significant advantages Northern businesses enjoy relative to their Southern counterparts would become an even greater source of competitive advantage. The Department of Finance's report on Cross Border Shopping projects that Southern consumers will spend up to €700 this year in Northern Ireland (see table). From discussions I've been having with Southern consumers in focus groups recently, that projection just might be on the conservative side.

Though retailers in the Republic of Ireland hardly need to be told about the competitive threat posed by the North's tax and cost advantages, other businesses are waking up to it too. On most measures that matter - price levels, wage levels - Northern businesses start with much lower outlays to get going and keep going, even as growth slows. Even social welfare payments in the North are a fraction of their Southern equivalents (hence the incidence of cross-border 'welfare tourism'). As Michael Taft points out (okay, he doesn't - but the data's there): a single person in the North receives little more than half the unemployment benefit of the same person in the South.

Add in the onset of deflation in the UK for the first time in 50 years and the exposure of Southern businesses to the Northern competitive threat just keeps growing. One consolation though: from my conversations with Southern consumers they are rapidly becoming as canny as their Northern counterparts in demanding and getting better deals. That's a piece of North-South convergence we should all welcome.

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