Deal on transition period after Brexit vital for Ireland

British prime minister Theresa May made a much-anticipated address to UK business leaders today. Here are the three key take-aways from an Irish point of view.

1. Commitment to a low corporation tax rate

The UK is already on track to reduce its corporation tax rate to 17 per cent by 2020. May said today that her intention was “not solely for the UK to have the lowest corporate tax rate in the G20 but also a tax system that is profoundly pro-innovation”.

The "spin" by her advisers is that if US president-elect Donald Trump fulfils his promise to cut the US rate to 15 per cent, then Britain will follow.

Trump does look likely to deliver lower corporation taxes, though whether the main US rate will fall from 35 per cent now to as low as 15 per cent is open to question.

As Trump negotiates with US Congress, some believe the number will be closer to 20 per cent.

Either way, for Ireland, this indicates that our low corporation tax rate of 12.5 per cent – while still at the lower end of the international average – will not be as big an incentive for foreign direct investment in future.

We will face new challenges, as the US strives to keep companies at home and the UK takes a more aggressive stance to attracting foreign direct investment (FDI).

2. Talk of a transitional period as the UK moves to Brexit

While the focus here may be on the comments on the corporation tax rate, this hint may be even more significant.

May says she was listening to warnings from the Confederation of Britain Industry (CBI) and others that business needed “clarity” and “people don’t want a cliff-edge”.

The most obvious "cliff-edge" would come when the UK leaves the EU – which could happen as early as March 2019 – but before it negotiates a new trading deal with Europe, which could take years.

Unless a transitional arrangement is put in place, trade barriers such a tariffs and quotas would immediately apply between the UK and Europe once Brexit actually happens – the cliff-edge.

May appears to be hinting that the British government is aware of this and may seek some kind of interim arrangement post-Brexit, while a new deal is being trashed out.

If this avoided significant trade barriers, this would be very much in Ireland’s interests. However, it remains to be seen whether it will be possible – given the bad blood between the UK and the rest of the EU.

3. Clear signals of a pro-business agenda

Ireland is in competition with the UK not only for FDI from the US but also for business investment in a range of areas.

Brexit will be a huge disruption to business in the UK, but May has signalled that the UK will try to up its game, not only by cutting tax but also by making the UK “ the global go-to place for scientists, innovators and tech investors”.

Whether this is more than words remains to be seen – and it is not clear, for example, how immigration controls and a desire to boost tech and innovation sit together.

But there will be competitive issues here for Ireland, particularly for mobile tech companies choosing whether to grow their businesses here or in the UK.