Opinion Comment

Saturday 23 March 2019

British plan could wipe smirk off the face of Ireland Inc

Governor of the Bank of England Mark Carney gives a press conference at the Bank of England in the City of London where he signalled interest rates could be cut over the summer to bolster the economy after the Brexit vote. Photo: Matt Dunham/PA Wire
Governor of the Bank of England Mark Carney gives a press conference at the Bank of England in the City of London where he signalled interest rates could be cut over the summer to bolster the economy after the Brexit vote. Photo: Matt Dunham/PA Wire
Donal O'Donovan

Donal O'Donovan

After the traumatic reaction to its own Brexit vote, the UK is dusting itself down and coming back with an aggressive plan to retain its European business crown.

The UK is slashing tax, priming the economic pumps with easy money and sinking the pound to boost exports.

It's a brutally simple plan, and, unfortunately for Ireland, may prove very effective, especially as we've watched our own competitive edge blunted in recent years.

Commentators here who spent the past week salivating over the spoils that might be grabbed during Britain's post-referendum convulsions may have missed it - but Britain isn't giving up its economic crown without a scrap.

Boris Johnson and Michael Gove are throttling each other into political oblivion - but however gratifying it might seem to see our nearest neighbour cast in the part of laughing stock, it is a distraction.

It won't last. The Westminster centre will hold. In the governing Tory Party, David Cameron loyalist Theresa May is poised to pluck the prime ministerial crown from the fratricidal Leave campaigners.

In the meantime, Britain's permanent government at the Treasury and at the Bank of England have combined to draw up a blueprint to radically shake up competitiveness.

Read more: Chancellor's bid to cut company rate should be a wake-up call to Ireland Inc

Read more: Brexit: Plans to slash corporation tax poses fresh economic threat to Irish 12.5pc rate

The Treasury will slash taxes to retain Britain's already dominant position as by far the biggest magnet for foreign direct investment (FDI) - in cash terms they attract about seven times more investment a year than we do. The Bank of England will slash interest rates and ramp up bond buying to keep credit flowing in order to stave off the risk of recession.

Britain's policy double hander is a reminder that the UK is far more effective than our eurozone when it comes to crisis management.

The current plan there is a co-ordinated pincer by both monetary and fiscal authorities, ie the central bank and the government are singing from the same hymn sheet. All that's missing is a capital spending programme - but big debts and a gaping deficit mean that may be a stretch too far.

Still, eight years into the financial crisis it's a response that those of us in the euro area can only look on with envy.

So what is happening? Last week the Governor of the Bank of England Mark Carney made the first move. He calmed markets and piqued investor interest with his firm determination that the Brexit vote had led to a sudden deterioration in economic conditions in Britain.

Given how quickly he came to that conclusion, it is an assessment based on intuition rather than hard data.

In reality it's a clear statement of intent. Carney won't dither and risk acting too late to head off a recession. He put the market on the front foot.

On Sunday, the Chancellor George Osborne grabbed world headlines with a plan to slash corporation tax to 15pc. Ours would still be lower, certainly, but for a big economy it's a massive step. In 2020, the UK rate will be half that of the US.

With no certainty that the UK will ever leave the EU, and the certainty that it won't be leaving for two years at the very least, the plan appears to be to hold as much of the global market as the country can, for as long as it can.

With Britain outside the EU we'll have a real advantage as a low-corporation tax, English-speaking full member of the single market, with access to hundreds of millions of consumers, and a huge skills pool.

But in the meantime, until (and unless) that happens, the Osborne-Carney combo means we are now well and truly on the back foot.

Irish Independent

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