Stephen Kinsella and Sean Golden predict how recent economic unrest in the UK may impact the Irish economy
By Aislinn Kelly
The proposed UK corporation tax increase has caused ‘financial chaos’ in the markets. However, Ireland can maintain stability by increasing inward investment, according to two Limerick-based economists.
The UK’s corporation tax rate increase was confirmed after former Prime Minister Liz Truss made a U-turn on a policy decision.
The plan was originally proposed by former Chancellor Rishi Sunak in March 2021, before the decision was reversed in September by then Chancellor Kwasi Kwarteng.
In her tumultuous 50 days in office, former Prime Minister Liz Truss announced the increase will still go ahead in order ‘to reassure markets of fiscal discipline’, with the change set to be implemented from April 1, 2023.
The increase will mean a 25% tax rate for companies with taxable profits exceeding £250,000, with companies making less than £50,000 taxed at the previous rate of 19%.
A sliding scale between 19% to 25% will be in place for UK-based companies making between £50,000 and £250,000.
Professor of Economics and the University of Limerick, Stephen Kinsella, believes the impact of the proposed increase has already been felt in the markets.
“Essentially, there was a deep weakening of the pound, and it fell to its lowest level relative to the US dollar in 100 years. It was financial chaos.
“And that affects Ireland – if you happen to be in the UK as the pound collapses, that worry if you’re trying to buy something in Ireland, as that is happening, you’re exposed to exchange rate volatility.”
This increase raises the question of whether UK industrial policy will change, and how that will impact various aspects of the Irish economy, such as how Irish universities and smart manufacturing industries fare on a global stage.
Ireland can prevent experiencing the same instability by maintaining consistency in the strongest elements of its economic policies such as competitive export rates for pharmaceuticals, IT and finance companies.
While the UK remains an important trading partner, Ireland has established global trade due to a strong export sector.
Professor Kinsella said, “When Ireland became independent, over 95% of our exports went to the UK. And now it’s 11%. So they’re still an important market for us. They’re still a hugely important trading partner for us, but they are not the force in our lives they once were.”
While the corporate tax increase was unpredicted, there was a short period of time to understand the consequence of this decision, according to the Chief Economist and Director of Policy at Limerick Chamber, Seán Golden.
“If Ireland was to reap any of the benefits of having a lower corporate tax rate than the UK, it would have happened in the interim.”
Mr. Golden estimates there will not be a large immediate impact felt by Ireland once the increase is implemented.
In the interim, the government should consider investing to make Ireland attractive for foreign investment to maintain its perceived economic stability on the world stage.
The current economic instability felt in the UK has been driven by perceived instability by investors, something Ireland should avoid.
According to Mr. Golden, maintaining stability for the Irish economy could be achieved by increasing inward investment in infrastructure, education and energy.
“Ireland gets about 75% of its gas from the UK, which is why it’s important that the UK is stable for us and that’s due to increase within the next number of years.
“The government needs to evaluate how we can make sure that these talks have blackouts and winters and not enough energy, gas and storage, and how can we plug backup, and how we can actually remain a competitive business environment to attract inward investment.”