Belfast Briefing: Brexit puts tax vow in doubt
Brexit leaves Northern Ireland’s businesses questioning what changes await them
The fallout from Brexit has many in Northern Ireland – from indigenous firms to inward investors – questioning just what the local landscape will look like when the UK does eventually leave the EU. Photograph: Christopher Furlong/Getty Images
The US is the number of one source of foreign direct investment (FDI) for the North and Alastair Hamilton wants to get the message across that, despite the Brexit storms overhead, Northern Ireland “will continue to succeed as an attractive location for inward investment”.
His key message is that the promise of a lower rate of corporation tax – it is scheduled to fall to 12.5 per cent in April 2018 – will make Northern Ireland even more attractive than ever to potential investors.
The agency’s promotional material includes a Top 10 Reasons to Invest in the North. At number six, it thrills about its accessibility to Europe and the fact that companies located in Northern Ireland can “take advantage of tariff-free access to the world’s largest consumer market of over 500 million people”.
Following Brexit, the question now is for how much longer?
Hamilton may be keen to suggest not much has changed when it comes to what Northern Ireland can offer – “tax, talent and value” – but you can bet his counterpart at IDA Ireland in the Republic is singing a completely different tune.
Martin Shanahan acknowledges that Brexit may present opportunities that the IDA could take advantage of – and that could cut very close to home in the North.
The fallout from Brexit has many in Northern Ireland – from indigenous firms to inward investors – questioning just what the local landscape will look like when the UK does eventually leave the EU.
It would come as no surprise to many if well known businesses currently located in the North decide to open a sister company in the Republic. A number of professional services firms say they have seen a spike in inquiries about this possibility.
Invest NI is currently hard-selling the benefits of the North’s prospective lower corporation tax rates but there is a growing volume of stakeholders in the North and further afield who are questioning if the UK referendum result could derail their introduction.
PwC has already warned that Brexit “will undoubtedly impact the UK corporate tax system”. Kevin Nicholson, the firm’s UK’s head of tax, says once the UK formally leaves the EU, it may feel more free to implement measures to attract foreign investment as part of the ‘Britain open for business’ initiative.
“With the UK tax rules no longer constrained by parameters set by Brussels, the future shape of corporate tax in the UK is unclear,” Nicholson warns.
What this might mean then for Northern Ireland is anyone’s guess but the differential between what the North can offer new investors and what might fall in place in other parts of the UK might not be quite so attractive in the future.
On top of this is the issue of just how much money the EU has directly pumped into the North to help attract new investors. According to the Northern Ireland Office, in the last five years, more than 40 per cent of FDI projects in Northern Ireland have been funded by investment from the EU.
When the UK leaves the EU, the North will also have to wave goodbye to this source of funding.
This all helps to explain why industry leaders in the North are nervous not just about whether lower corporation tax rates will ever materialise but about the whole unknown factor that Brexit has suddenly thrown in their path.
According to business bodies, members are exploring all the options now open to them with some even considering a move across the Border.
Stephen Kelly, chief executive of Manufacturing NI, says market access is a primary concern for exporters. The uncertainty following the Brexit decision is “enormously damaging” for local businesses because nobody knows just what is going to happen next and that, says Kelly, is going to cost Northern Ireland dear.
The North exports more than £3.6 billion worth of goods to the EU each year.
It is estimated that about 60 per cent of Northern Ireland’s total exports go within the EU.
It is a crucial market and Richard Ramsey, chief economist NI at Ulster Bank, says local exporters are extremely concerned about what new trading arrangements could emerge in the long term.
“Will we remain in the single market? If not, what tariffs will apply to the price of the goods that we import and export?
“Even if we leave the single market, firms seeking to trade with the EU will still have to adhere to their rules and regulations for as long as they have to trade there,” Ramsey says.