Jobs threat as North shops to slash VAT
THOUSANDS of jobs in Irish shops are being put at risk before Christmas with the imminent slashing of VAT rates in the North as part of the British government's attempt to kick-start the economy.
With thousands already flooding North to buy cheaper goods, lowering the VAT rate -- which would be 6pc lower than here -- could lead to a deluge and undermine the ability of shops in the Republic to survive.
Irish business leaders last night warned of disastrous consequences for jobs here when the British government announces its 2.5pc VAT rate cut.
There were deepening fears that shops here will be deserted as consumers flood across the Border to buy even cheaper goods in the North.
The British move will put immense pressure on Finance Minister Brian Lenihan to take some action to protect the Irish retail sector -- and potentially thousands of jobs.
The retail sector here is facing one of its worst Christmases, with sales already down by more than 10pc.
Britain's Chancellor Alistair Darling will announce the temporary cut in VAT as part of an emergency package to energise the economy.
It would be the first time the UK's sale tax has been changed since the early 1990s and, taken together with other planned giveaways, would mark the biggest shift in Labour's economic policy since coming to power 11 years ago. Any decrease in the British VAT rate will significantly boost cross-border shopping and pile the pressure on shops all over the country that are already struggling with falling revenues. Thousands of consumers are travelling North daily as a combination of lower prices and a more favourable sterling exchange rate makes buying there highly attractive.
Roads into Newry, Co Down, were gridlocked again this weekend as thousands of southern shoppers flocked to stock up on alcohol and electrical goods in advance of Christmas. Car parks in the town were full to overflowing, with many drivers parking on approach roads and walking to the shopping centres.
Mark Fielding, chief executive of the business group ISME, said that if the British VAT rate falls to 15.5pc, and the Irish rate remains at 21.5pc, there will be serious consequences for retailers south of the Border.
"Already Bus Eireann is busing people up there on a weekly basis.
"At least it shows that the British government has grasped the idea that trading out of a recession is much preferable to taxing out of a recession, which is what our lot are doing.
"They have a number of policies which at least look like they have a plan in place. In Ireland we don't have any plan B, C or D, or any letter of the alphabet for that matter."
Fine Gael finance spokesman Richard Bruton said that while every other government in the world was stimulating its economy with tax cuts and infrastructure spending increases, the Government here was doing the opposite. He said the planned 2pc VAT cut in Britain would further increase the pressure on border towns like Dundalk.
"The reality is that many of our border towns are like ghost towns in terms of the retail sector," he said. But Mr Bruton said he did not believe it would be possible for Finance Minister Brian Lenihan to implement a similar VAT cut here.
"The reality is that the minister is already borrowing 5.5pc of GDP. They have just drained away the capacity of the exchequer to look at options like that," he said.
But Labour finance spokeswoman Joan Burton said there was a "window of opportunity" for Mr Lenihan to reverse the 0.5pc increase in the higher VAT rate before it was implemented next month.
"I'm not sure if Mr Lenihan understands but if you were to draw a line between Dublin and Galway, everything north of that would be within one-and-a-half hours driving distance to shopping in the North," she said.
Ms Burton said a lot of retailers were banking on getting some return out of the Christmas period and needed a VAT cut.
"They are paying colossal rents in shopping centres and leasehold rents all around the country, and I really think if the minister is minded to anything the opposition has to say, he should think again about it," she said. Torlach Denihan, director of Retail Ireland, which is part of the employers group IBEC, said British companies already enjoy lower running costs including payroll and energy bills. A reduction in VAT will tilt the playing field still further in favour of businesses in the North.
"Alistair Darling is going in the opposite direction to what we have done. Our rate of 21pc is due to got up to 21.5pc on December 1. The British rate is just 17.5pc. Within a week we'll have a 4pc difference and, if he cuts it, that 4pc group will grow further.
"Businesses in Britain already have lower costs, lower pay roll, property costs, electricity, waste disposal. If you take all that and the VAT differential into account, it's going to be very significant in context of the Border and stimulating cross-border trade and shopping which is not good for business here," he added.
"The biggest motivating factor for cross-border trade is to buy alcohol, there is a very substantial excise difference. The initial magnet is alcohol but when you throw in a lower VAT rate, then the strong euro and weak sterling, then businesses here do not enjoy a level playing field with the North."
Director of the Small Firms Association, Patricia Callan, said the British were following a "perfectly logical thought pattern" by lowering VAT and that the decision to raise the Irish VAT rate in last month's Budget did not make sense.
"The short-termism of grappling for an extra few million euro has left us open to this action by the UK. If the minister does not follow suit, we'll be closely watching the Border to see where the revenue is going," she added.
Comment: nicholas leonard, page 31