December 13, 2009
If I had the ear of finance minister Brian Lenihan, I’d be telling him not to look a gift horse in the mouth. The British government has this week handed Ireland a gilt-edged opportunity to kick-start the battered IFSC and, with it, the fortunes of thousands of young Irish graduates and workers.
Last Wednesday, the British chancellor, yielding to popular pressure for revenge, announced he would tax the bonuses of high-flying investment bankers. He announced a 50 per cent tax on any bonus over Â£25,000.This, for most mere mortals, would seem nothing to grumble about until you see what the reality is for those bankers.
When you consider that for the 5,000-odd Goldman Sachs employees in London, the average pay – of which bonuses are the most significant proportion – is Â»500,000 a year, you can see how this ‘super-tax’ will make them nervous.
While it’s easy to understand the British government’s motives, particularly as the bankers are unrepentant about their role in last year’s collapse of the global economy, the result is that these bankers will simply look to leave London.
These are the most footloose of all workers; their capital is their contact book and their bank’s balance sheet their armoury. They will move to wherever the feel they can work and make money.
Whether you like them or not, these are an asset that many countries can ill-afford to ignore. That is why Luxembourg, Ireland, Dubai, Singapore and, of course, Switzerland have been trying to make sure that financial services are part of the country’s industrial infrastructure.
The British government has given us an opportunity like the one presented to us when Intel, Microsoft and Pfizer were looking for a place to locate outside the United States in the 1990s.They chose Ireland for tax purposes and for the quality and availability of the workforce.
It was ‘win-win’ for us, as we had no real multinational industry so we got all the benefits; we got jobs we didn’t have before, tax revenue we didn’t have before, and spending we didn’t have before.
Now, quite feasibly, we could do the same again, because investment bankers – the ones which drive the economy of London – are the targets of the Labour government. We could be their port in a storm.
The Minister for Finance should seize the opportunity and get on the phone to the head of Goldman Sachs and JP Morgan and tell them that Dublin welcomes them and is open for their business. God knows we need a bit of luck and now is our chance to grab it. But why would a big investment bank come here to Ireland? Apart from the fact that its senior employees were about to jump ship because of taxation, what other reasons could there be to come here?
First, in a 24-hour trading business, Ireland shares the same time zone as London and therefore acts as a platform to bridge the Asian markets, which open during our evening, and the American markets, which open during our afternoon.
Second, we have a huge oversupply of commercial office space in Dublin. Any incoming bank could get great property deals, which – among other things – could save us putting these properties into Nama. Equally, we have good links to Europe and the US. God knows Aer Lingus needs some regular business passengers. Ryanair would welcome the challenge too.
The IFSC has the technological infrastructure. The same language helps enormously for employees wanting to move here with the minimum of hassle. Third, the 12.5 per cent corporation tax is attractive for a large investment bank.
While our tax rates will rise this year and next, income tax in Britain before the ‘bonus tax’ for bankers will also be high. Fourth, Dublin and Ireland offers international investment bankers a good quality of life, good schools and a government that is not targeting them exclusively. Why wouldn’t they move here?
Let’s look at this from our side of the deal. For us, it looks like a ‘win-win’ outcome. Think about tax alone. In Britain, financial services companies constitute 25 per cent of total corporation tax. This is a figure of Â£11 billion.
This obviously doesn’t include the huge amount of tax the employees of these companies pay in income tax, Vat and stamp duty.
For Ireland, even if we were to poach one of the giant investment banks, the contribution to our faltering tax revenue would be enormous. Equally, as we have seen with pharmaceuticals in Cork, once one big name comes to Ireland, others tend to follow. This is know as clustering in economics and it is easy to see how attracting a huge name like Goldman Sachs to Ireland could begin a process where others copy and move some, if not all, of their operation here.
When I worked in investment banking in London, in the 1990s,the majority of my colleagues were foreign. We worked with non-English clients and most of the deals we did were not in Britain but in Europe and further afield. London really only served to ‘host’ the industry.
Most people I worked with liked London, but if they felt the government there was out to get them they would have moved on just as easily to an adjacent English-speaking jurisdiction that was prepared to open its doors to them.
Even if we attracted 20 per cent of the business – about as much as we could manage now anyway – the positives would be enormous. Just think of the prospects of our own workers who are now waiting in our zombie banks for the horrible but inevitable chat with the boss. Because of the stupidity of their top brass, Irish banks expanded rapidly, fuelled only by an unsustainable increase in property. Now many thousands will be laid off as the banks contract.
Where are they going to go? Where are they going to use their skills, if not in new banks that might come into Ireland? This is the opportunity and the IFSC, with its new Luas link, provides a fantastic and obvious home for these highly-motivated foreign bankers. The more of them we have, the more they will need to employ local people with banking acumen. Off we would go on a virtuous circle. This is our chance to do what Brian Lenihan calls our ‘‘patriotic duty’’.
‘‘England’s difficulty, Ireland’s opportunity’’ – wasn’t that what the forefathers of Fianna FÃ¡il used to say?
After all, if the British government is prepared to entice our shoppers to Sainsburys in Newry, then we should be prepared to poach their bankers for the IFSC in Dublin.