I have just returned from Ireland, where the implications and impact of Brexit, felt more keenly than in any other country outside the UK, are still being hotly debated. Everywhere there is bewilderment, uncertainty and criticism of the government, which has so far produced no coherent or organised plan for a post-Brexit-world Ireland. “It’s very much the politics of hit and hope,” a leading politician said last week.
The immediate effect, however, is clear enough – the weakness of sterling has made goods in Northern Ireland 20 per cent cheaper than they were six months ago, and shoppers are pouring into shops near the border to fill their boots with British goods. A report by the Irish revenue service reckons the republic stands to lose more than €500 million (about Dh2 billion) in VAT and excise on alcohol and cigarettes. An Audi car, for example, is now €9,000 cheaper in the north.
In recent years Ireland has become a borderless island, with six-lane motorways sweeping from Belfast and Derry to Dublin and all border posts long gone. Today the only way you can tell you are in the north is when prices on the petrol pumps change from euros to pounds, and the road signs record miles rather than kilometres. Ireland is the only EU country to have a land border with Britain and the reimposition of controls in some form, hard or soft, is one of the thorniest issues facing the British prime minister Theresa May in her negotiations with Europe. The result will have profound political and economic implications for the whole island of Ireland, which has enjoyed remarkable stability since the borders came down after the 1998 Good Friday Agreement.
Ireland entered what was then the European Economic Community on the same day as Britain in 1973 and has benefited enormously since. In the 1960s it was still the poorest country in Europe, but by the late 1990s its policy of low taxes and export incentives turned it into the Celtic Tiger economy, with a per capita income second only to Denmark. European grants built roads, harbours and airports across the country, fuelling a boom in tourism and exports unmatched in the north. In just two decades, while the north went backwards, the republic transformed itself from a primarily agrarian society into one of the biggest exporters of pharmaceuticals in the world. Apple, Google, Twitter and Facebook have all established their European operations in Ireland, and even WPP, the world’s biggest advertising business, moved its headquarters from London to Dublin to benefit from the tax structure.
But now what? The EU has long hated Ireland’s low tax regime and sees this as the time to force change. Ireland’s corporation tax of just 12.5 per cent compares with more than 30 per cent in Germany, France or Italy, but effective rates have been even lower. Apple negotiated a deal with the Irish authorities under which it paid 0.5 per cent on its entire Europe-wide profits. Ireland was always able to shelter behind Britain’s robust attitude to the bureaucracy in Brussels, but no longer. The EU has already demanded that Apple pay Ireland €14bn in back taxes in what is widely considered a determined effort to force it to end a loophole that has allowed big American corporations to shelter their overseas profits.
Even before the referendum, Britain was already following the Irish route, cutting its corporate tax rate to 18 per cent. Now the treasury is looking at dropping that even further, which would mean some of Ireland’s best exporters potentially moving across the border. Not surprisingly, confidence among Irish businesses has fallen sharply since the referendum, down from 90 per cent to 66 per cent.
Brexit, however, works both ways. Dublin is home to a large international financial services industry, and has entered the race to capture some of the London-based EU institutions, last week announcing its offer to host the European Banking Authority (EBA), which was established in 2011 after the European banking and debt crisis. The barefaced cheek of the bid has not been lost in Frankfurt or Paris, who also want to house the EBA – the Irish banks were among the biggest casualties of that crisis, forcing the country into a €67bn bailout.
The joke in Dublin is that while London has its Canary Wharf, the docklands development in Dublin is “Canary Dwarf”. Its housing, education and other facilities could not cope if there was a sudden post-Brexit run from the City into Europe’s “fair city”. And even that would not compensate for the loss of its big, high-profile manufacturing companies that employ thousands of people, as opposed to dozens in the financial sector, and become pillars of the local community, as Apple has in the town of Wexford, where I was born and which desperately needs the jobs.
Ivan Fallon is a former business editor of The Sunday Times
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