The United Kingdom’s withdrawal from the European Union, is the result of a majority of British voters deciding to leave the EU in the referendum on the issue on 23 June 2016. Prime Minister Theresa May invoked Article 50 of the Treaty on the European Union on 29 March 2017, starting the two-year period of withdrawal negotiations. The UK is therefore set to leave the EU by April 2019.
As its closest neighbour and largest trading partner the ripple effect will be felt more in Ireland than anywhere else. The hit to our exports, affected by lower growth in Britain, and internationally. In the harder Brexit scenarios, trade will also be hit by the imposition of tariffs, special taxes on imports which apply on goods traded between Britain and the EU. This will mean Irish goods cost more to UK consumers and visa versa, though of course currency swings will be a factor here too.
Forty-five per cent of all UK trade is with the EU, and most of it with Ireland. UK/Irish trade is worth €1.2 billion every week. The ESRI predicts a 20% slump, costing around €3 billion over two years, as a result of Brexit. It’s bad for exporters but great for shoppers, so now is the time to get online to UK stores and buy. Irish retailers haven’t yet caught up, so it’s only good value if you shop directly off UK sites or in the North.
Both the Irish and UK governments are eager that their citizens will be able to move freely between both countries post-Brexit without the need for visas or work permits, while also retaining full social welfare and pensions entitlements. Can this really be delivered, especially if other countries, such as Poland, which has almost 920,000 citizens in the UK, object to any preferential treatment for Irish nationals?
Key advantages of Ireland that might be highlighted to multinationals headquartered in the UK include its attractive headline 12.5% corporate tax rate; a comprehensive tax treaty network; its status as a common law jurisdiction that is similar to the UK’s legal system; its status as the fastest growing economy in the EU; its highly skilled and educated workforce allied to stable labour costs; R&D incentives comprising the R&D tax credit regime and the 6.25% effective rate of corporation tax introduced from 2016 under the Knowledge Development Box legislation for IP income derived from patents, certain patent-able rights, and computer software; its close proximity to the UK, its status as an English speaking EU Member State with close ties to the US and its business friendly government.
Some commentators are highlighting the potential for investment banks to move from London to other centres including Dublin and Frankfurt. A report in Saturday’s Financial Times suggested that some moves are imminent.
Reasons for this, and also for moves by other firms in the financial services sector including insurance companies, is the ability for certain financial firms who have a base and are regulated in one EU country to do business throughout the EU without having to obtain an authorisation or registration on a country-by-country basis. It is likely that the asset management sector in the UK will be significantly impacted and it was reported prior to the referendum that the Irish Central Bank was preparing for an increase in applications for authorisation from asset management companies due to fears from asset managers that they would no longer be able to sell UK regulated funds into the EU following a Brexit.
The only benefit for Ireland is that some foreign investment earmarked for the UK may now come to Ireland. This could take the form of financial services companies relocating to Ireland. But it could also see more investment in Irish commercial property originally intended for the UK. Brexit may also present an opportunity for Ireland, with our EU status meaning that we are a more active proposition for FDI in relation to the UK. However, it has also been suggested that the UK will look to reaffirm its FDI offering through the adoption of more competitive corporate tax policies which would not be subject to EU scrutiny. We have already seen (the now former) chancellor of the Exchequer George Osborne announce plans to reduce the corporation tax rate in the UK to under 15%.The full impact of Brexit will become clearer as negotiations progress over the coming months and years.
The sharp fall in Sterling since the Brexit vote is a major issue for Irish companies exporting to the UK, as the pound has fallen 15% against the euro since last June. Uncertainty over Ireland’s future trading relationship with the British market is also a concern. Many businesses are concerned about the potential impact of tariffs on trade and lengthy border stops after Brexit is complete.