Richard Curran
Even upsides of Brexit carry their own downsides
IF the opinion polls are right, the UK will vote to leave the EU on Thursday. It will be widely seen as negative for Ireland. It won’t be all bad news if it happens, but the upsides look a lot less certain than the downsides. People have talked about the need for British banks to have a presence in the EU and how slices of the City of London could look at Dublin as an investment location.
The Foreign Direct Investment case for Ireland probably goes a lot further than that. The UK is the best performer in the EU when it comes to attracting inward investment.
Some companies locate in the UK because it is English-speaking and in the EU. Others see it as a base for the UK market.
It would make sense for more firms, not just in financial services, to look at Ireland as their EU base. We already have lots of them, but we could get even more in the likes of the technology sector.
But, this is where it all gets complicated. We rely on our low Corporation Tax rate and ancillary tax structures around intellectual property etc, to attract those companies.
Our European partners in Berlin, Paris and Brussels don’t like it much. By and large, the British have been sympathetic towards our case, because of our economic relationships and also the fact that the UK understands this approach to winning business.
At times they have been a major ally in Brussels or at council meetings — a bit of a helpful big brother. With the Brits outside the EU, that big brother simply won’t be there anymore.
Equally, if Ireland begins to hoover up large amounts of FDI that used to go to the UK, the British themselves might not remain quite so “helpful”. The British would be free to change their own laws, whatever way they saw fit, in relation to the tax treatment of US multi-nationals doing business in the UK through Irish-registered corporate vehicles.
Meanwhile in Brussels, with the big brother having moved on to a different school, Ireland might be bullied a lot more on key policy issues.
The EU is built on compromise, which in turn means high-level horse trading. It is never good to go into these situations alone. The notion of other EU countries forging ahead on things like new corporate tax initiatives and leaving Ireland outside, could take hold.
The potential gains for Ireland from Foreign Direct Investment (FDI) could be undermined both in Brussels and London at the same time.
Such a scenario would leave us battling with the negative implications of a Brexit while seeing the positives evaporate. The negatives in pure business terms relate to an uncertain tariff regime for Irish exports in vital sectors such as food. They also relate to the likelihood of an effective devaluation of sterling, which would be tough for exporters and bad for our tourism industry.
There are wider political and social consequences in relation to North/South relations and what happens in border areas.
Perhaps the ‘Remain’ side will pull it out of the bag when all the votes are counted, late on Thursday night? Perhaps the collective bungling from politicians like David Cameron and Jeremy Corbyn in the campaign will somehow fail to seep through? I am not convinced. Brace yourselves!
Finding out if the waste companies talk rubbish
THE words ‘Irish Water’ have become politically toxic and nobody wants a slow motion replay of that shambles. Hence the urgency of Simon Coveney’s meeting with waste disposal companies on Friday.
The intervention raises questions about when and how a government should intervene in a private sector industry.
The best time to do that is when you are drafting legislation which will affect what can be charged for the service.
This is the same for water, mortgage interest rates or insurance premiums — three political flashpoints.
Allowing price gouging to be slipped in (not through the back door, but through the front door) warrants a closer look and points to a fundamental error in how the law was drafted.
Of course it can be changed. In this era of new politics, if the Government doesn’t change it, then the Opposition will. Hence the urgency. It is all about determining whether private waste operators are taking advantage or not. And the best way to judge that is to examine their books and profitability.
Transparency in the sector is varied. Two companies that have been heavily criticised for price increases are Greyhound and Thorntons.
Greyhound is basically a company called Greyhound Recycling and Recovery, which is an unlimited liability firm. This means it doesn’t have to file accounts.
This should mean the directors carry unlimited personal liability if the company collapses. That is part of the quid pro quo of availing of the additional privacy associated with unlimited liability companies.
However, Greyhound Recycling and Recovery — like many other Irish companies across different sectors — is owned by a limited liability company in the Isle of Man. This takes away the personal financial risk, and in the Isle of Man you don’t have to file accounts even as a limited liability firm.
It is a loophole that has been going on for years and is being used by an increasing number of Irish firms in different industries. So we know nothing about its financial performance and cannot judge the impact higher prices will have on profitability.
According to the website of Manvik, Greyhound’s equipment supplier, Greyhound has a turnover of around €35m.
Thornton’s, on the other hand, file detailed transparent accounts which show that in 2014 turnover rose to €49m from €41m and it made an operating profit of €1.9m up from €181,000 in 2013.
It had accumulated profits of €14.4m at the end of 2014 and shareholders’ funds of nearly €21m.
It would seem that things are going well in the rubbish business.
You cannot begrudge private companies a profit — but raising standing charges by so much looks like price gouging.
Perhaps many of their customers were putting out underweight bins in the old system and the waste companies stood to lose money from the new regime. That implies they were making a packet charging customers full rate on half empty bins, which wasn’t fair in the first place.
The many mistakes of not keeping EBS independent
THE EBS is finally coming out of the long dark tunnel of the boom/bust years. The former mutual building society, now owned by AIB, generated a pre-tax profit of €223m last year.
Assessing its financial performance is difficult, because it has relied on the support of its bigger parent bank — and perhaps it would be a different story if the government had not directed that it be swallowed by AIB.
The problem is that with a €12.4bn mortgage loan book, 71 branches and a direct telephone distribution channel, EBS might have made an alternative mortgage provider in a market with little competition.
It lent out €603m last year and retained around 12.4pc market share of new residential lending.
Achieving a separation from AIB now would be difficult. AIB will not sell it, unless directed to do so by the Government. The Government won’t direct a sale like that at a time when it is trying to get the best market price in a future sale of AIB.
It would appear that in a hurried attempt to shore up the banking crisis in the short term, the government took out what could have been a potential future player in the mortgage market.
All talk of the mythical third banking force in Ireland has now evaporated into thin air, as the Government tries to get the best price for what used to be the first banking force.