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Johnson: UK should cut corporation tax “to Irish levels or lower”

Whatever you think of Boris Johnson (and I’m not a fan), you have to hand it to him: he knows an opportunity when he sees one.

This week the Tory ex-British Prime Minister criticised UK plans to raise the country’s corporation tax rate from 19% to 25%, saying that it should instead be cut “to Irish levels or lower.”

“Let’s dare to be different and do things differently,” he said, adding:

“We should dare to be different on the economy…there’s no point now in just emulating the high-tax, high-spend, low-growth European model. We should think not about raising corporation tax but cutting corporation tax to Irish levels or lower and really turbocharging investment to drive levelling up across the whole country, really showing the world what they wanted to see from 2016 onwards: that we are different now because this is a Brexit government, or this is nothing.”

Now, one could view this as a cynical ploy on Johnson’s part, considering the fact that he was all for rampantly high taxes while he was Prime Minister. He fully supported the OECD’s minimum global corporate tax rate during his tenure. It’s only now that he’s out of Number 10 and can’t actually change anything that he’s suddenly found his fiscally conservative instincts again. One might say it’s a little bit too convenient to be credible.

But putting that aside, it is, strictly speaking, a good idea from the UK’s perspective. Whether sincere or not, Johnson’s proposed move would be a significant change for Britain, considering the fact that Ireland’s corporate tax rate is only set to rise to 15%, after raising it from the historic rate of 12.5% back in 2021. To go even lower than this would give Britain one of the lowest corporate tax rates in the world, and make them a clear appealing outlier for global business.

This would frankly be a great move: to steal a phrase from Boris, what better way to “turbocharge” an economy than to make your country more attractive to foreign companies? The low-tax, high-FDI model has served Ireland’s economy well for many decades, and has only started to stall since we began reversing it.

In 2021, when Ireland decided to raise our corporate tax rate (against the wishes of the public, mind you), there was no pretence that we were going to benefit from it financially. The government didn’t even attempt to argue we would.

In fact, just a couple of months after the move, then-Finance Minister Paschal Donohoe admitted that “Ireland will lose money” because of our new corporate tax rate, and said that he fully expected the income source to decline after 2023.

Donohoe projected that we could lose a staggering €2 billion per year – despite going ahead with the move anyway.

Before that, in 2017, Fine Gael leader and then-Taoiseach Leo Varadkar said that changing Ireland’s 12.5% corporation tax rate would “damage our country, its employment prospects, and its economy.”

All government parties at the last election assured voters that they favoured a retention of the 12.5% rate.

So there was no question but that this move harmed Ireland, and that we would have been better off financially keeping the old historic rate. And so it seems logical that Britain dropping its rate would see them reaping enormous rewards.

So why did we shoot ourselves in the foot with this policy exactly? What motivated us to change such a long-standing regime that was working perfectly?

Simple: international pressure. Specifically, Irish politicians’ fear of being labelled a “tax haven.”

As Leo Varadkar said at the time of the decision:

“Speaking at Dublin Castle today, Mr Varadkar said that Ireland would prefer to be “in the tent” with a global OECD tax deal which would see corporation tax of “at least” 15pc.

“I think we’d certainly prefer to be part of any international agreement. Ireland is not a tax haven, nor do we wish to be seen as a tax haven,” said Mr Varadkar.”

Now, what is a tax haven, and why is the government so scared of that label? It must be some really terrible charge involving corruption or something, right?

Well, if you consult Oxford English dictionary, a tax haven is defined as:

“a place where taxes are low and where people choose to live or officially register their companies because taxes are higher in their own countries.”

Yes, you read that correctly. A tax haven literally just means a place with low taxes that is attractive to foreign business. And naturally other European and North American countries that we compete with economically are unhappy about that, because why wouldn’t they be? Their businesses are coming here, so of course they’re irritated. That’s how competition works.

Ireland changing our corporate tax rate and costing ourselves billions to appease our competitors is as absurd as Pepsi changing a successful business strategy to appease Coke. And yet that’s exactly what we did, in an effort to bend to international pressure and get a pat on the head.

So if I was a newly-Brexited Britain that was no longer beholden to European powers, I know what I’d do: undercut Ireland, and reap the benefits of my neighbour’s misstep. As an Irishman I hope they don’t, but it would be an excellent manoeuvre strategically for them.

How likely is it for Rishi Sunak to attempt this? Well, not very. But if they wanted to really prove they were out from under the thumb of Europe, this would be a great way to do it.


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