UK’s post-Brexit corporation tax plan raises alarm in Ireland

Alarm has been raised here after chancellor George Osborne told the Financial Times, in his first interview following the shock Brexit vote, that the UK now aimed to offset any slowdown in Britain by cutting its corporation tax rate all the way down to 15%.

The UK had previously planned to cut its headline company tax to 17% by 2020 from the current 20% level. 

Finance Minister Michael Noonan has said that any effects on Ireland, such as luring big investments into Britain and away from the Republic, will depend on the way the UK constructs the component parts of the tax. 

The Irish Examiner has canvassed expert opinions on the effects of the decision on Ireland, north and south.

Scott Bowman, UK economist at Capital Economics in London, said the cost to the British exchequer of reducing the tax to 15% from the previous target of 17% would be £4bn (€4.7bn) a year. 

“I think there is a good chance it will come about” because it represents only a two percentage point reduction on what the UK was planning to do anyway by 2020, he said.

Brian Hayes MEP said the big loser will be the North because Mr Osborne has effectively undermined the special deal Stormont struck with the UK Treasury to lower its tax rate to 12.5%, to match the level in the Republic. 

“We argue day in and day out in the European institutions for tax sovereignty, so we cannot oppose others over their own tax sovereignty,” the Fine Gael MEP said.

Economist Jim Power said it was “inevitable” the UK outside the EU would attempt to boost its competitiveness by cutting its corporation tax rate. 

“It was always a threat to Ireland and it is a massive challenge to us. Steady as she goes is no longer a viable policy”, Mr Power said, adding the focus here must now be on reducing business costs. 

The EU would stop Ireland if it responded by cutting its corporation tax further because “the French and Germans are obsessed” with corporation tax, he said.

Alan Ahearne, head of economics at NUI Galway, said the UK had already aimed to reduce its corporation tax rate to 17% from the current level of 20% and the latest move was not hugely different and will “not be that dramatic” as a result. 

Mr Osborne appears to be assessing the revenues foregone in reducing the UK’s corporation tax will be balanced by spurring investments following the Brexit hit. 

It will make the UK more attractive as a place for investing, and help offset the Brexit impact on the British economy, Mr Ahearne said. 

However, “if other countries responded by cutting to 15% — if this was the start of a [corporate rate] war — it would be a much bigger issue,” he warned.

Alan McQuaid, chief economist at Merrion Capital, said Mr Osborne’s plan means more competition for Ireland. 

“It is clearly designed to make the UK more attractive and to upset the Europeans and to help London’s negotiations with Brussels,” he said. 

“If he does implement it, it is not good news for us. It just adds to the uncertainty,” Mr McQuaid said.

Philip O’Sullivan, chief economist at Investec Ireland, said it was far from clear whether Mr Osborne would be the next chancellor of the exchequer, noting the UK had executed fiscal policy U-turns in the recent past. 

“Let’s wait and see the make-up of the next cabinet,” Mr O’Sullivan said.

The IDA said Ireland has one of the “most competitive, consistent and transparent tax regimes in the world”. 

That offering was boosted by the “ease of doing business, access to talent, and access to the European market,” the agency added.

Cork Chamber chief executive Conor Healy said Ireland must focus on its strengths, with its competitive 12.5% tax rate and as an English speaking member of the EU. 

“I think they [the UK] were always moving in that direction [of lower corporation tax rates] for the last number of years so I think we can’t control that regardless of Brexit. What we can control is where we have our strengths,” Mr Healy said.

Ibec said the UK’s plan is “a further wake-up call that cannot be ignored” and the plans “demand” an immediate response. 

Chief executive Danny McCoy said it “reinforces the needs to significantly reform the Irish offering in the upcoming budget to make us more attractive for foreign investment.” 

He called for measures to slash capital gains tax, cut the marginal tax rate and a change in the tax regime for share options.

Dublin Chamber of Commerce said the Government must show its commitment to entrepreneurs and businesses in the same way that the UK has done over the past five years. 

The chamber’s public affairs director Aebhric McGibney said: “A strong focus must be placed on ensuring that Ireland has a pro-business tax regime which is competitive with what is on offer in the UK.”

Chambers Ireland said “a stable regulatory environment, the availability of a skilled workforce, competitive wages and other business costs, and modern, critical infrastructure” were just as important as tax rates. 

“These are the areas that our Government must place renewed focus on over the short term as Britain seeks to establish itself outside of the EU,” it said.

The Irish Tax Institute said the new budget was “the ideal time” to review the suite of tax measures that make up Ireland’s competitive package. 

“The 12.5% rate, our intellectual property regime and R&D tax credit are the centre pieces of our FDI offering, but other tax measures — including our personal tax regime and the tax treatment of share-based remuneration — are as important,” said president Mary Honohan.

Isme chief Mark Fielding said there is “no doubt” Ireland needs to be wary of tax competition.

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