Time running out for May as Brexit endgame nears
Business Week: also in the news was Budget 2019, landlords, Paddy Power and the banks
UK prime minister Theresa May with DUP leader Arlene Foster, on whom her government depends for survival. Photograph: Clodagh Kilcoyne/Pool/Reuters
“It may go down as one of the greatest and most unnecessary self-inflicted wounds of modern history,” former US secretary of state Hillary Clinton told an 800-strong audience in Belfast this week.
No, she wasn’t talking about the election of Donald Trump to the White House in November 2016, but the vote some months earlier when almost 52 per cent of the United Kingdom voted to turn its back on decades of co-operation and leave the EU.
Fast-forward more than two years and both sides are still trying to untangle themselves from each other. A crucial EU summit is taking place next week, where it will be decided whether enough progress has been made to call an extraordinary summit in November to finalise and formalise a deal ahead of the UK’s exit in March.
DUP leader Arlene Foster, who is propping up the UK government, was in Brussels this week to reiterate to EU negotiators that her party rejects any form of barrier to trade between Northern Ireland and Great Britain, either regulatory or customs.
Foster said these were her party’s only “red lines”, clarifying that her recent reference to “blood red lines” meant that they “mattered very greatly” and were “deep red” as opposed to “pink” lines. Glad that’s cleared up.
Another thorn in the side of UK premier Theresa May is her former foreign secretary, Boris Johnson, who continued recent windbagging with the suggestion that keeping the whole of the UK in a temporary customs union with the bloc would make it “a permanent EU colony”. Imagine that.
May, for her part, tipped the will-they-won’t-they see-saw back in the wrong direction, telling reporters that talks are likely to continue into November, dashing EU hopes that a deal might be possible before next week’s summit.
At home, the Central Bank said May’s so-called Chequers plan, which would see the UK remaining in the single market for goods but not services, would still lead to a significant contraction in the Irish economy.
Such a scenario, it warned, would cost up to 20,000 jobs over five years. While the decline in economic activity would be much less severe than a no-deal Brexit, the proposals would still see output here fall 1.7 per cent.
That being said, an analysis by property group Knight Frank established that Dublin has attracted 25 per cent of all Brexit-related company moves so far, pitching it ahead of close competitors Paris, Frankfurt and Amsterdam.
However, it also pointed out that transfers from London to Dublin have been “modest in scale” with no signs of a “Brexodus”.
Donohoe happy, but is everybody?
Minister for Finance Paschal Donohoe spoke slowly and clearly as he delivered his budget speech to the Dáil on Tuesday, a marked contrast from the rushed and monotone tenor of some of his less fortunate predecessors.
Indeed, its days like Tuesday that it must be great to be minister for finance. A beaming Donohoe unveiled a package of more than €1.5 billion of spending increases and personal tax cuts that will leave most taxpayers modestly better off.
Not everyone was happy, though. The hospitality sector lost its special 9 per cent VAT rate, while environmental groups were seething about the failure to increase carbon tax just the day after as the UN issued a devastating report on climate change.
There was also a doubling of the 1 per cent tax on betting turnover, something that gambling giant Paddy Power Betfair estimated would cost it almost €23 million a year. Donohoe said the increase should raise an extra €51.6 million a year in tax.
Budget 2019 also fast-tracked a relief for landlords that will allow those with loans or mortgages on their rental properties to deduct 100 per cent of interest paid on these loans against their tax bills.
That’s despite the fact that residential landlords paid tax on just 59 per cent of their rental income in 2016, claiming total deductions of some €1 billion, according to new figures from Revenue, which was able to provide such a breakdown for the first time.
On a related note, Ireland’s biggest private landlord, Ires Reit, abandoned plans to hike rent at its Maple development in Sandyford, south Dublin, by as much as 25 per cent.
Back to the budget, and there will be some concern at remarks by the Irish Fiscal Advisory Council, the State’s budgetary watchdog, which warned that it left the State unnecessarily vulnerable to “the inevitable downturn” that’s coming.
Overall, according to chairman Seamus Coffey, there is little indication the budget was Brexit-proof because money was being spent just as quickly as it was coming in.
Moody’s thumbs up for banks
While an “inevitable shock” may well be barrelling its way down the tracks, at least credit ratings agency Moody’s is of the view this week that our banking system is in good health.
It raised its outlook for Irish banks to “positive” as the quality of their loans has improved with a growing economy. It previously had a “stable” outlook on the sector.
That being said, the Republic is among the main euro-zone banking systems in focus as the European Central Bank presses lenders to lower their non-performing loans (NPLs) to the 5 per cent EU average. At the end of June, the Irish NPLs averaged 13.9 per cent.
Permanent TSB, for one, said its high level of soured loans was “dangerous for Ireland”, as chief executive Jeremy Masding sought to defend the bank’s planned €2.1 billion loan sale. “Our NPLs ratio is really, really dangerous,” he said.
Masding added that if there was another economic shock, such as an international trade war or a disorderly Brexit, these assets were “likely to cause us real difficulty in terms of our capital base”.
Elsewhere, the Central Bank of Ireland fined Dublin-based Citibank Europe €1.33 million for breaches of lending codes that included three senior managers receiving credit card facilities without going through the proper authorisation procedures.
Finally, the Government allocated an extra €1 million to the Office of the Director of Corporate Enforcement, the white-collar crime watchdog, to pay for specialist investigative staff such as forensic accountants, to ensure we don’t go back to the dark pre-crash days of light-touch regulation.