Business Week: Race for post-Brexit spoils hots up

The race to pluck the post-Brexit spoils from the UK’s table began to hot up this week. It’s been framed as Dublin versus Frankfurt in many quarters, but several other European cities are also vying for pieces of the pie.

Chicago-based financial services group Northern Trust will have piqued the ears of the IDA and Minister for Finance Michael Noonan when it name-dropped the Republic and the "meaningful presence" it has here when mulling the possibility of an EU subsidiary.

“We have a meaningful presence in Ireland, in Luxembourg, and several other locations today,” said chief financial officer Biff Bowman. “And we will evaluate all of those for where the optimal location is for us.”

Currency exchange operator LMAX Exchange got in on the act as it unveiled plans to seek approval to be based in the Republic if the UK government doesn’t maintain its EU passporting rights for financial services.

Perhaps even more indicative of an influx down the tracks was the latest review of the Dublin office market by agents CBRE. It highlighted a “considerable volume of Brexit-related queries”. It was also the strongest quarter for take-up since third-quarter 2007 – the peak of the boom.

There were 83 individual office lettings in the last quarter, which brought the year’s total to 198 – 18 ahead of the same period in 2015. Over half of the third-quarter lettings were to Irish companies, with 20 to US firms and five to UK enterprises.

The Government is even considering opening a school to teach an elite international curriculum called the baccalaureate as part of a plan to tempt international bankers and their families to Dublin.

Minister of State for Financial Services Eoghan Murphy came up with the idea of teaching the swanky syllabus as it might help convince senior bankers to move here if their families can continue to live in the manner to which they've become accustomed.

Irish public relations firm Hume Brophy is one that got away, however. It opened an office in Frankfurt and lined up an acquisition in Berlin on foot of the UK’s decision to leave the EU.

The company, which specialises in financial services, said Brexit had accelerated a gradual shift in business from the UK to Germany which necessitated having a presence there.

Crumbs of comfort

All this talk must be churning the stomachs of British voters, but there were some crumbs of comfort. The sterling crisis ebbed somewhat as the currency touched its highest in almost two weeks against the euro on Wednesday and had risen a bit further by Friday. It may be simply treading water, though, as reports also emerged of retailers in the North offering pound-euro parity.

At least the UK’s jobs market is holding its own – for now at least. The unemployment rate held steady at an 11-year low of 4.9 per cent in the three months to the end of August, which covers two months after the Brexit vote.

There were 106,000 more people working than in the previous three months, and 10,000 more classed as unemployed. While this represents a slight slowdown in jobs growth, it was better than economists had expected. “Life goes on,” mused Scotia Bank economist Alan Clarke.

In Northern Ireland, the figures showed an unemployment rate of 5.5 per cent, higher than the UK average. The data also showed that the number of people claiming jobless benefits in the North fell last month by 400 to 34,900.

However, a new industry survey also showed one in every three firms in the North has scaled back or put off growth and investment plans since the vote to leave. Business confidence has also slumped.

The to-ing and fro-ing over a hard or a soft Brexit continues. Theresa May’s cabinet even discussed continuing to pay billions of pounds into the EU budget after Brexit to maintain single-market access for the City of London and other sectors.

The effects of the uncertainty are hitting company profits all over the place, and Ryanair cut its full-year profit guidance by 5 per cent to between €1.3 billion and €1.35 billion on the back of the fall in sterling, which accounts for about 26 per cent of its revenue.

Tax clampdown

The budget circus has moved on for another year, but the Finance Bill was published on Thursday. This is the legislation that gives effect to all the bits and pieces that made up the budget.

In a significant move, Noonan gave further details of a clampdown on tax evaders and defaulters. Evaders have been given six months to get their affairs in order in relation to offshore assets before Revenue comes calling. The measure is likely to lead to a cash windfall for the State between now and the end of April next year.

Taking a harder line on individuals who may be ignorant of anomalies in their taxes, there will no longer be mitigated penalties for people who come forward of their own volition. Up to now, penalties could be reduced by up to 50 per cent in such cases.

Other nuggets include a change to the help-to-buy scheme. Homeowners must now have a mortgage of at least 70 per cent of the value of the property. The budget had said the figure would be 80 per cent.

The Bill also proposes to limit how Section 110 companies use inter-company loans to reduce their tax bill. Vulture funds buying Irish assets use these structures in a way that avoids them paying tax on earnings and profits.

The bill also has a provision to allow the sharing of information about tax rulings between the Irish tax authorities and those in other EU states, under the terms of an EU transparency directive.

In related news, EU competition commissioner Margrethe Vestager refused to rule out further state-aid investigations into the Republic's tax arrangements with multinationals.

In an interview with The Irish Times, the Danish commissioner said her staff were assessing approximately 1,000 tax rulings from across Europe, up to 300 of which are understood to be from Irish tax authorities.

Ms Vestager defended her record Apple ruling, saying it was “fact-based”. She said the commission was well aware of the forthcoming appeal by the Government and was “very prepared” for the case.

Cost of renting

Minister for Housing Simon Coveney is unlikely to have welcomed a report from real estate agent Savills Ireland, which warned that the cost of renting a home in the Republic could increase by as much as 25 per cent over the next two years.

A shortage of supply was cited, as well as the Central Bank’s stringent lending rules.

The research also indicated that less than 2 per cent of rental properties in the Republic are available for rent, driving the cost of accommodation in the private sector higher.

The cost of renting a home countrywide jumped by almost 10 per cent in the 12 months to the end of July, with rents in Dublin reaching record levels. The average monthly cost of renting in Dublin at the end of the second quarter of the year was €113 higher than 12 months earlier.

Separately, figures from the Insolvency Service of Ireland showed the number of people applying for debt relief during the third quarter of the year more than doubled on last year.

There were 899 new applications in the third quarter of the year, more than twice the number received in 2015, and up by 22 per cent on the second quarter. More than three-quarters (78 per cent) of applications are for Personal Insolvency Arrangements. These allow a person to return to solvency while staying in their home.

Mortgage debt accounted for slightly less than two-thirds of applications (64.5 per cent), split between buy-to-let and residential mortgages, with other debt owed to financial institutions accounting for a further 29 per cent.