Monday 27 January 2020

Britain will always want to see Ireland trading well

Career diplomat shares his insights on austerity, our growth prospects, corporation tax and the UK's increasingly complex relationship with the European Union, writes Colm Kelpie

Colm Kelpie

IT's a sign of the times when a near hour-long conversation with Britain's ambassador to Ireland is dominated by financial matters. Northern Ireland was only mentioned once, for economic reasons rather than political.

Relations between the two islands are at an all time high – topped by the historic visit of Queen Elizabeth in 2011.

We have much in common, with both economies fighting to reduce deficits that have ballooned beyond acceptable levels.

Irish exporters are closely watching the UK and measures taken by Chancellor George Osborne to stimulate growth.

British officials in Dublin are closely watching the performance of the Irish economy, not least because we've been lent £3.2bn (€3.8bn) by the UK Treasury as part of our international bailout in 2010. And the British want that back.

"You're such a big trading partner and you're such a close neighbour, we have an interest in the Irish economy doing well," says ambassador Dominick Chilcott.

"When you do well, it's a benefit to us and when either one of us is doing badly, it's a hindrance to the other as well."

UK growth has been estimated at 0.3pc for the first quarter. Although faster than expected, the figure hardly suggests brisk momentum.

But Mr Chilcott shrugs off recent suggestions from the chief economist at the International Monetary Fund (IMF) that Mr Osborne should ease up on austerity at a time when the very merits of the policy generally are being questioned.

"The question that economists will argue over is whether we will be in a different and better position under different policies," he says.

"But it's not at all clear that the markets will have tolerated different policies to date in any case.

"When I talk to my colleagues in London about these things they say, for all the differences of view that have been put out there, including the IMF chief economist and others, that the (UK) government is probably somewhere in the middle of these arguments and the direction of travel is probably the right one."

Posting

Dublin is a far cry from Mr Chilcott's previous, albeit brief, posting. The career diplomat was ordered to leave Tehran in late 2011 in retaliation for economic sanctions imposed by the West. Days later the British embassy compounds were stormed and Mr Chilcott and his staff were forced to barricade themselves into a safe room.

Leafy Ballsbridge is a world away, although the south Dublin embassy building is suitably fortified to fend off any attack, in a sign that while the Troubles are over, elements remain that continue to pose a threat.

It's hard not to notice the heavy steel door that marks the entrance to Mr Chilcott's comfortable office.

Tax tops the agenda for our meeting – corporation tax, tax havens and Europe's new Financial Transaction Tax (FTT).

And of course that age-old issue of Britain's frosty relationship with the European Union, which has grown even more chilly in the past week after a number of British cabinet members suggested the UK would be better off pulling out all together. Mr Chilcott was confident that the UK would stay within the Union in the event of an in/out referendum, not least because of the negative effect on London's financial district, the City, although he spoke with the Irish Independent prior to the recent Cabinet-level remarks.

"The British public at the end of the day will not vote to make themselves less well off," he said.

"This will come down to an argument about where their welfare lies. The City has so much European Union business, to distance itself further would be contrary to the logic of many City firms."

It remains to be seen whether a vote promised for 2017 after the next election will go ahead if the Conservatives lose power. But it's not likely that Labour will get away with not setting out its position on holding a vote during the election campaign.

"I don't think you get a sense . . . talking to people in government or London that anybody anticipates the UK exiting from the European Union," Mr Chilcott says.

Reforms

"The talk is much more about the reforms that we think are necessary and gathering support across the member states for those kind of market orientated, regulation-reducing reforms."

The British are also legally challenging the proposed Financial Transaction Tax (FTT), arguing its implementation by 11 EU countries would harm Britain's financial services, even though it is opting out.

"The costs to the UK economy and the City of London and business based there will be very considerable," Mr Chilcott says.

"Some people are talking between £3bn and £4bn. This will have an effect on pension funds and savers, it will affect the general population more widely."

But should Ireland, which has opted out also, weigh in behind the British challenge?

"It's up to the Irish Government to decide if they are in the same boat or not.

"It would be very surprising if member states that are not wishing to be covered by the FTT were not saying to us, at least privately, that they were supporting what we were doing."

In every sense, Mr Chilcott is the quintessential career diplomat – competent, well-spoken and a smooth master at keeping on message and avoiding the trap of giving too controversial an opinion.

He stressed the UK's repeated fall in corporation tax – the fourth since the Conservative/ Liberal Democrat coalition took power – was not a result of Ireland's controversial 12.5pc rate. From 2015, the UK rate will be 20pc.

"The feeling is we could make ourselves more attractive. It is not done as a result of competition from Ireland," he says. "There's plenty of scope for inward investment to Ireland and the UK. We're determined to make ourselves as competitive as we can."

To add weight to his argument, he points out that Britain was behind Ireland when a number of countries, including France, raised questions about our controversially low rate after Fine Gael and Labour took power.

Arguably, though, the issue has moved on from corporation tax to far more complicated issues such as transfer pricing.

And Britain is one of the main European countries leading the charge on tax evasion and avoidance, with companies like Google and Starbucks in the firing line.

"By no means would we say that Ireland is a tax haven," he says.

Irrespective of whether the UK as a whole is threatened by our low corporate tax rate, Northern Ireland must feel the pressure. Mr Chilcott accepts that more must be done to wean the North off its dependence on the public sector, but ruled out allowing its corporate tax rate to be on a par with the Republic in a bid to attract inward investment.

Other regions in the UK would look for similar preferential treatment, he says.

"There's a huge effort to reduce the size of the public sector (in Northern Ireland) and help the private sector grow. It's about two-thirds public and one third private," he says. That's not a sustainable ratio, even in the good times.

"It's not in our gift at the moment to say to Northern Ireland that you can have a completely different corporate tax rate to the rest of the UK."

Bailout exit

Britain sees us exiting the bailout at the end of the year, and there's "admiration" for the efforts we've made.

"Growth levels at the moment are not enormous but they're positive and higher than the UK, so there's more than a bit of admiration for what Ireland is achieving," he says.

"The remarkable thing to date is that while people don't like austerity, there's been a remarkable social consensus behind the measures that government has had to take.

"It is in contrast to some of the other countries, where there have been more in the way of protests in Greece and Portugal, and in Cyprus, than in Ireland, but it's a long road."

On a lighter note, and one not directly linked to high finance, there are no plans for another royal visit. At least not in the short term.

And that's a pity – it could have given a welcome boost to the souvenir market.

Irish Independent

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