May’s decision puts new focus on Budget 2017

The decision of British prime minister Theresa May to name a date for the triggering of article 50 puts a new focus on next week’s budget.

With sterling falling in response – and expected to remain weak, if probably volatile – the Government here is under pressure to respond. What can it do?

One thing it can do is follow the old medical maxim of not doing any harm. In this context it seems a nailed on certainty that the 9 per cent VAT rate for tourism will remain in place.

There has been debate about this, and about the extent to which gains are being passed on to tourists. But with the sector creating jobs, and vulnerable to a fall in the value of sterling which may reduce British visitors, the VAT rate will be held.

The second strategy is to avoid any moves in the budget to impose new costs on businesses, or to hike the tax burden. There may not be much room to cut taxes, but the Government needs to avoid upping any taxes in a way that damages competitiveness.

And in the months ahead, it needs to conduct a thorough audit on the way the State and its agencies impose costs on businesses – and act to reduce these where possible.

Some kind of “hard” Brexit now looks likely, pushing Britain outside the EU single market and the customs unions. This means tariffs – special important taxes – are likely to apply on trade in many areas.

This move on trade and the UK’s determination to control immigration could lead to pressures to reinstate Border controls on the island of Ireland.

In short, very significant uncertainty now faces the Irish economy and businesses and it will go on for some years.

Britain first has to negotiate its exit and then new terms of trade with Britain. Some interim arrangements will have to be agreed because the exit talks are likely to finish several years before new trade terms are finalised.

Hard Brexit needs not necessarily mean hard times for Ireland, but it does bring a whole new set of complex and difficult challenges and questions.