Theresa May confirms tax will be deployed as a key play in wake of Brexit

Lower rates in Britain and US means Ireland faces far greater challenges in attracting foreign direct investment

 

Britain’s businesses need clarity on Brexit, prime minister Theresa May has acknowledged, but she failed to provide much further illumination yesterday on her government’s likely approach to EU departure negotiations. In an address to the CBI, Britain’s largest business organisation, she described Brexit as a “true national moment” and the referendum vote as a “call to change the way the country works”. Although unwilling to indicate a negotiating stance in advance of talks with the EU, Mrs May – faced with forecasts of slower economic growth due to Brexit – sought to reassure business leaders.

First, she recognised their concerns that Britain may need a transitional deal as part of its EU departure plans, in order to avoid facing trade barriers post-Brexit. She also promised to cut corporation tax to the lowest of the G20 – the world’s largest economies – and to develop a “pro-innovation” tax system to offset the impact of Brexit. Already UK corporation tax is set to drop to 17 per cent in 2020, but should Donald Trump implement his campaign promise to cut the US corporate tax rate to 15 per cent, then Mrs May – it is suggested – could match that lower figure.

For Ireland Mrs May’s determination to make a low tax regime a defining feature of her government’s economic policy, allied to the likelihood of lower US corporate rates, means this State faces far greater challenges in attracting foreign direct investment. A research paper by the Economic and Social Research Institute (ESRI) has shown that Ireland can certainly benefit from Brexit, as investment from outside the EU is redirected from the UK to Ireland in order to secure access to the single market.

However, with both the UK and the US set to use low corporate tax rates in order to retain and attract mobile investment, Ireland’s competitive advantage in this area is likely to be eroded. For decades Ireland’s adoption of a low rate of corporate tax has been a critical – though not the sole – factor in winning overseas investment. In future cost competitiveness will assume far greater importance in attracting companies to locate here.

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