Despite all that has been written about Brexit in recent months, one question continues to mystify the Irish nation – why is Theresa May in such a rush to leave the EU? After all, the Irish solution to an inconvenient referendum result is to re-run the referendum until the desired result is achieved. Recently, I posed the question to a UK resident who, without hesitation, responded as follows:
- The Tories lost the North of England vote (and Scotland).
- The North of England voted for Brexit.
- The North of England voted for Labour.
- The Labour party is in a state of chaos.
- Senior Tories see Brexit as a golden opportunity to secure the North of England vote, recapturing the glory days of Margaret Thatcher, when the Conservative Party dominated UK politics.
Given the UK appears determined to proceed with Brexit, what changes can be expected?
Post Brexit UK
Assuming a ‘hard Brexit’ transpires and the EU applies tariffs on UK goods, it would be reasonable to expect the UK to apply tariffs to EU imports (including RoI goods) and move to encourage and protect UK industry. Traditional industries, such as steel manufacture, are likely to be protected and / or subsidised. Government incentives are likely to be offered to encourage industry in the faded industrial North of England, which has endured a long economic decline. Apart from general economic benefits, any investment in the north would send a message that the Conservative Party now cares, bringing political benefits with it. On the other hand, Northern Ireland, a region which has long struggled to attract investment, could find itself disadvantaged by losing its status as most favoured UK region for government grants.
Remember the 0% Corporate Tax Rate?
Some of us can recall a time when Ireland offered zero corporate tax on export sales or a 10% tax rate for manufacturers. These incentives were ended at the behest of the EU. After many years spent criticising low Irish taxes, there are already suggestions that the UK may move to match or beat Ireland at its own game. Freed of EU regulation, the UK could be very creative regarding tax incentives; the harder the Brexit, the more creative the incentives are likely to be.
From Exporting to UK Office
A combination of tariff barriers, an unfavourable exchange rate and a 1970s style grant regime, could leave Irish exporters in a very uncomfortable – or impossible – position. The Irish media may be fixated on the threat to exports but, in such a scenario, perhaps it is time for Irish businesses to transform their game from exporting to establishing a UK business. After all, most businesses surviving in a market of 4.7 million souls should be able to thrive in a market of 65 million sinners. A protected market, government grants and a favourable tax regime could make the case compelling for those prepared to adopt a new strategy. One hundred years after the Easter Rising, Irish business people may do well to recall an old revolutionary slogan: ‘England’s difficulty is Ireland’s opportunity.’ Now may represent such an opportunity.
Open Shop in the post EU UK
Establishing a UK business is not as difficult as some imagine. For fiscal purposes, the UK starts at towns such as Enniskillen, Strabane and Newry. A business in Limerick or Athlone can choose between selecting a location in Britain serviced by a regional airport or selecting a location in Northern Ireland accessible by road. Nor is the rationale for establishing a UK base limited to larger businesses. For example, a mushroom farmer in Monaghan could reduce many of his operating costs and eliminate much of his currency exposure by taking a short daily drive to a facility in Tyrone or Armagh. On his way home, he could also treat himself to a bottle of wine at Northern Ireland (NI) prices.
At a time when British and NI businesses are contemplating the establishment of an RoI base, it is ironic that RoI exporters may be forced to establish a base in Britain or NI. Sean O’ Casey described such a situation beautifully in his play, Juno and the Paycock: ‘The whole world’s in a terrible state of chassis.’
CAIM members can assist businesses to develop their business plans; many have worked in Britain and NI and are experienced in the preparation of alternative business strategies. As always in times of great uncertainty, it is essential that businesses avoid increasing fixed overheads until there is clarity regarding what Brexit will mean in practice; CAIM members offer a flexible service without being a burden on fixed costs.
Pat is a member of CAIM – Chartered Accountant Interim Managers