Let the stockpiling begin: Vat riddle may be Brexit-related

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Let the stockpiling begin: Vat riddle may be Brexit-related


Warehousing supply is now a major issue, says Thomas Burke of Retail Ireland
Warehousing supply is now a major issue, says Thomas Burke of Retail Ireland

Brexit looks like it has been pushed back until Halloween, but some numbers from first-quarter Exchequer figures indicate that some businesses have already been scared (somewhat) into action by the UK’s plans for an exit from the EU.

According to first-quarter Exchequer returns published earlier this month, Vat figures were up 6.6pc, which may come as a surprise given that some other indicators have suggested that consumer confidence is quite muted. Figures from KBC Bank and the Economic and Social Research Institute (ESRI), for example, showed that Irish consumer sentiment fell sharply in February. Are consumers splurging nonetheless?

Or are the higher Vat numbers evidence of stockpiling among Irish businesses?

Chartered Accountants Ireland (CAI) believe that the Vat numbers, which relate to returns for January and February, may indeed reflect the fact that businesses based here started off 2019 by increasing their stock levels.

Cróna Clohisey, CAI’s manager of Tax and Public Policy, told me stockpiling is certainly a live issue among its accountants, who are seeing Brexit-related business issues up close.

“We have talked to members a lot and we have heard there is a lot of stockpiling out there, particularly in industries such as pharmaceuticals. A lot of people are buying in bulk,” she said.

She believes the Vat figures are puzzling.

“There seems to be a lot more transactions in the market. Of course, that could be just consumer spending – as Vat is the biggest indicator of consumer spending – but from looking at different economic research done since the start of year, it has been suggested that consumer sentiment is down.

“The amount of Vat reclaimed is up as well, which would add to the argument that perhaps there is something going on in terms of stockpiling.”

There may be other explanations, including the fact that Vat was increased in the Budget for the hospitality sector.

But there is other evidence of stockpiling in the economy.

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The manufacturing sector has been Brexit-related stockpiling for several months.

According to AIB’s purchasing managers’ index (PMI) in March, the manufacturing sector increased its holdings of pre-production inventories at its fastest rate in almost 21 years.

Stocks had risen in 11 of the past 12 months as the sector attempts to avoid potential disruption from Brexit.

Other sectors have been pre-empting shortages, it seems.

Anecdotally, Clohisey has heard that warehousing space is at a premium.

Not only has warehouse space gone up, logistics firms are now in a position to demand longer commitments from customers, business owners say.

Thomas Burke, of Retail Ireland, part of Ibec, said warehousing shortages is a live topic with his members.

“Obviously it’s Brexit-related,” he told me, “But it’s also related to what’s been happening to the supply chain over the last number of years.

“The ‘just in time’ nature of the supply chain means there hasn’t been banks of warehousing available.

“When Brexit became a reality and people became concerned about cliff edges and wanted to look at stock inventories and wanted to increase those inventories it meant the amount of available space was limited.”

He is not a fan of the word stockpiling, but said many companies want to ensure they have a few more days of comfort in their supply chain.

Other are planning for more significant disruption to their supply chains.

One large communications company told me recently that it has brought in significant amounts of hardware to insulate it from the effects of Brexit, with several months’ worth of supply now in place in Ireland. This company also bemoaned the rising costs of warehouse space.

Even with the most benevolent Brexit outcome, there are very likely going to be some supply-chain problems, at least in the immediate aftermath of the exit when it does eventually happen.

So prudent planning will require a cushion in the supply chain for a vast array of businesses.

After last week’s political developments, immediate concerns over shortages and supply chain interruption can be put to rest – for now.

But given the many twists and turns of the past six months, it is very likely that it is only a matter of time before stockpiling becomes a very live issue.

Sunday Indo Business

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