The Chancellor leaves the NI Assembly’s Business Growth Strategy in Tatters following Budget 2016…

Earlier today the Chancellor left the Northern Ireland Assembly’s Business Growth Strategy in Tatters following the release earlier today of Budget 2016.

Many of us have argued on the Slugger Platform in recent years, that the current obsession by Stormont to put all of its economic eggs in the 12.5% Corporation Tax basket was misguided and their efforts would be better served to create the economic conditions to enable our indigenous businesses, large, medium and small to thrive. This could be achieved through a variety of measures such as business rates reform, forcing local banks to lend to SME’s, slashing government red tape,  driving efficiencies through NI government services, investment in infrastructure such as business broadband, airports, roads etc.

In the Chancellors 2016 budget earlier today, he drove another stake into Stormont’s business growth strategy by announcing a range of measures including:-

  • infrastructure investment
  • A further cut to Corporation Tax of bringing the UK rate down to 17% from 2020, (bringing the difference with the Republic of Ireland down to just 4.5%)
  • Business rates reform

Our Northern Ireland politicians are now so disconnected from the electorate and business community that their current business growth strategy can today be shown for what it is, non-existent.

For example, with regards infrastructure investment, were the UK is investing heavily in assets such as High Speed Rail, and Aviation, Power generation, we have a public transport system which is not fit for purpose and have chosen to invest in the likes of Sports Stadia and Road improvements. If one looks at our key infrastructure assets, our International Airport (in the wrong location by the way) has received so little investment, it virtually looks the same visually as the day Bill Clinton flew into town to broker the Good Friday Agreement nearly 2 decades over ago. It is only when Belfast International Airport is visually compared with the improvements to Dublin Airport undertaken over the same period does one get a sense of how far behind the rest of the UK and Ireland we now are in terms of our key infrastructure assets. Many of our city centres are not even fully enabled for fibre broadband which is 2016 is ridiculous.

The Corporation Tax reform that Martin and Arlene have backed heavily has now turned out to be the damp squib many of us have been saying for years. Not only is the actual legislation , The Corporation Tax (Northern Ireland ) Act 2015 a very restrictive piece of legislation and when one considers that large global companies can remit a greater amount of their profits to ROI than they ever will be able to in NI, the difference will only be 4.5% from 2020. One only has to stand in the shoes of a large international corporation considering locating in NI and ask yourself if you could be bothered dealing with the red tape we are world famous for a 4.5% tax saving. (just ask John Lewis when their new store is opening to understand my point).

The Chancellor’s comments today suggests that he has listened to not only the business community but both the IMF and OECD and recognised something our local politicians are oblivious too, that structural reform is needed to boost long-term growth and that the most effective structural reforms include lowering the rates of distortive taxes to ensure that product markets are flexible and competitive, and cutting or simplifying business regulation and that these policies are critical to delivering sustainable growth for the next generation.

In Northern Ireland the most distortive tax we have is Business Rates. Not only is it the most economically damaging tax to the SME sector in NI, but it has literally destroyed every city centre, town and village in Northern Ireland and not only resulted in boarded up shows and offices, but stopped any form of new commercial development in its tracks to the point that the banks are no longer willing to fund commercial development projects or consider commercial property as collateral when making business loans.

To put the differences into perspective, summarised below is a summary of the NI Business Rates System compared with the reforms announced today by George Osborne which will apply to England. The Table below is a reproduction of Table 1.6 Section 1.164, Budget 2016 with Northern Ireland Business Rates calculations added.

rates

 

As you can see from the above table, a ratepayer with a small shop with a NAV of £12,000 will pay rates of Nil in England and between £6,300 and £7,000 depending upon which district your business is located in NI. This is material, especially when one considers that not only are we the poorest region of the UK, that we have some of the lowest level of entrepreneur start-ups and higher levels of business of business failures as well as stubbornly high levels of emigration. Any reasonable person can only conclude that the current business rates policy in NI is sheer lunacy.

Yet again the Business Community of Northern Ireland demands our politicians to stop procrastinating and create the economic conditions in NI that ensures our SME’s have overheads, business taxes and red tape which are comparable to the rest of the UK and not only keeps our local economy competitive in terms of the UK, European and World markets but also allows our local SME’s to grow, create employment and enable employers to pay their staff better. It is now becoming clear that because the NI assembly has continually avoided the structural reforms to central and local government that NI urgently needs, kicking the can down the road, year after year, the politicians literally expect the local business community to pick up the tab for their waste and inefficiency.

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  • In England, guest houses also pay council tax. Also you need to take into account the year the premises were rated. It is a long time since business premises were rerated in England.

    But the boarded up shops come from having to pay two taxes – one to the state, one to the local paramilitary group. It is no coincidence that areas with a strong UVF or UDA presence have a lot of boarded up shops. Earlier this year I revisited the Cregagh Road, It used to have half of the shops boarded up. There are now stretches of the road with only a couple of shops still open.

  • Ernekid

    There was some good news for NI in the budget. NI will finally get a proper air ambulance service which will be funded by the money raised by the fines from bankers rigging the LIBOR rate. So if you ever have a heart attack and have to be air lifted to hospital you can thank the dodgy bankers in the City of London who are rigging the system for their own personal enrichment.

  • Ernekid

    That poses a question then why don’t local businessmen get together and form a party to contest the Assembly elections? The business party could present itself as a cross community, pro business party with a manifesto of reform to make NI work more effectively for businesses both large and small. Instead of complaining from the sidelines they could take their alternatives to the electorate. Pro business reform parties exist elsewhere in Europe and there’s no real reason why one couldn’t exist here.

  • jm

    Great piece – mainly cos i agree with everything you have written 🙂

  • Greenflag 2

    A good idea as long as they don’t end up like the PD’s in the Republic or the FPD’s in Germany . Both parties went too far to the right and are now extinct . Another factor was that both parties were in competition and coalition with other parties who were pro business anyway .

    In NI I imagine it to be almost impossible to break free of the current public sector entrapment of the small local business sector never mind the ‘protection money ‘ gangsterism .

    Excellent explanatory piece by Murdock San detailing the nitty gritty of the problem .

  • But surely the new advisory council that Foster has put together on both coasts of the US will offset all this pain ?

  • chrisjones2

    Of course it will…Americans are notoriously altruistic and will come here to give us money not exploit our resources for as long as they can make money on us

  • chrisjones2

    “our International Airport (in the wrong location by the way) has received so little investment”

    …well it is catch 22 innit. Because it is in the wrong place and has such low traffic it doesn’t justify investment. Investing in City would be a far better deal with the option that there is a rail link not 200 m away (but stupidly unconnected to it)

  • chrisjones2

    ” allows our local SME’s to grow, create employment and enable employers to pay their staff better.”

    but then who would feed the myriad SPADs Councillors MLAs Advisors, Consultants, Civil Servants, Ministers, etc etc etc

  • notimetoshine

    I knew that there were rates disparities and that our businesses get shafted in terms of rates but I never realised just how badly they compare.

    But you have to remember economic growth isn’t that important to the political establishment here. We could be going on for 20% unemployment and the current parties would still exist quite comfortably. End of the day until the electorate wises up they get what they vote for…

  • Brian O’Neill

    I imagine they are to busy running their businesses to get involved in our Groundhog Day politics.

  • Old Mortality

    Such a party wouldn’t get very far unless they could assure the witless electorate that the lower business rates which they advocate would not lead to any reduction in public spending.

  • Graham Parsons

    There are a lot of things wrong with this piece. You say business rates have literally destroyed NI town centres then show a comparison from 2017. What are the comparisons today? There are plenty of other factors at play most importantly Internet retail and digitisation of many enterprises.

  • Old Mortality

    Once the national corporation tax rate falls to 17%, the penalty to the block grant for introducing a lower rate for NI should be diminished which means the NI rate could be reduced to 10% without less pain than had already been anticipated.

  • Dan

    Get rid of air passenger tax.

  • Greenflag 2

    As long as the NI State continues the electorate will never wise up or to be more precise HAVE to wise up ;(

  • Greenflag 2

    Let them eat cake . If it was good enough for Marie Antoinettes French subjects why not for Queen Lizzie’s ? On the other hand they might start to eat each other or worse 😉

  • Accountant

    We can perhaps recover our Corp Tax “miscalculation” by moving, affordably, to 10%. Indeed, a move to 10% is the least we need, as the 12.5% rate will not work. As Patrick observes, the CT devolution legislation, as drafted by Treasury (and accepted by the Stormont zombies), is a joke – massive red tape, with such a narrow opportunity to avail of the lower rate; no-one in business will plan growth around it. I don’t know who has advised Martin and Arlene on the credibility of their US CT roadshow – or should I say, holiday – anyone analysing, or using advisers to analyse, the NI CT offer will laugh Arlene and Martin out of their offices. At 10%, the scheme will probably still fail – no companies selling on a multinational basis, no banking services, no hedge funds, no insurers – can use the “opportunity”; only manufacturers that make all their products in NI could avail (and who in their right mind thinks NI is an optimal goods manufacturing location ?).

    So much for competitive advantage to rebalance NI !! Thanks, George !

    But how about just a level playing field ? How will our SMEs compete with English SMEs that will now pay no business rates. Can anyone explain to me the Barnett impact of the £7bn business rates cut ? I appreciate that Barnett is expenditure-driven, but on the income side, do we (NI) have to pick up our share of this giveaway to English businesses through general taxation ? Who picks up the cost of this largesse – did the £220m we have just been given through Barnett effectively fund us to follow suit ? The gov.uk website seems to imply this:

    “The Budget confirms an additional £220 million of funding through the Barnett formula for the Northern Ireland Executive, thanks to the prioritisation of frontline services and support for business through the rates system in England”…………..

    ……….in which case, Stormont, get on with scrapping business rates in NI. Let’s get one decision right.

  • sadie

    Exactly. lf the politicians who are doing nothing to help the situation and the civil servants who control LPS had a taste of living in the real world and knew the realities of running a business, they might sit back and think. Their policies/practices which are slowly destroying the economy are at odds with the ideals of the GFA which sought to promote economic growth.

  • Gopher

    Competition is good but the problem is our two airports are existing in an enviroment now where Dublin airport is the competition and not each other. That is the fundamental problems, passenger duty and too many airports. The decision has to be reached to scrap one and invest big in the other.

    The International has the advantage that it has two runways and “the Brits” have to keep equiped with all the latest electronics suite for strategic purposes (something Dublin does not have) and its runway is longer than Dublins’s or infact Glasgow’s with plenty of room for further expansion without too many headaches.

    Its problems are it’s not connected to our road net by a dual carriageway and though two train lines run in close proximity none service it. If they were sorted out with a check in facility at a Belfast transport hub The international would be in the “right place”

    The City is in the best location but its runway is short nearly 1000 metres shorter than the International. It only has one and since the RAF and FAA left, its not needed for strategic purposes so does not get the same “freebie” investment as the International. Expansion and time constraints on flights will always be a problem for our useless politicians whilst they wont be such a problem at the International.

    As for transport the Railway needs swapped to the Sydenham bypass side and the road to the railway side and made three lanes. Especially with the Assembly about to create the biggest bottleneck in Irish road traffic history by underpassing the Westlink and not addressing Dee street or the entrance to the City Airport. Allow an extra hour or two to get to the airport when that improvement (sic) take place, if there is a crash you have missed your flight between the hours of 330 and 6pm or before 10 am in the morning.

    I love the City location and its site has the best location but the assembly has no will to do anything with this jewel so its best to sell it to developers and run with no passenger duty and the International airport. I’ll not hold my breath on the assembly doing anything dynamic, procrastination inc up on the hill.

  • whatif1984true

    Any political party, no matter how far from the current bias of the unionist and nationalist camps, will be subjected to the whataboutery of their opposition.
    Matters for which their opposition has well rehearsed and evasive answers for. Answers which seem to be swallowed or at least disregarded by the electorate. The sectarian division is strong and the sad fact is that the younger members of the electorate have no concept of the brutal and divisive nature of the main parties past actions. They appear to foolishly believe that what is hidden under the carpet is gone. History shows us that the divisions are still with us and ready to erupt and brutalise us all again.

  • whatif1984true

    Location is irrelevant when one considers the huge numbers heading to Dublin to fly. The extra costs of taxes from Belfast and the severe lack of international flights are the main factors. The time taken to get from an airport to the city centre is the critical factor, in all seriousness Belfast Int. is OK, within minutes of leaving the city centre you are on a motorway and at the end on a good main road to the airport. Compared to many many other cities Belfast is in this respect, quite good.
    For 1 week from the 19/3 the cheapest car parking is Belfast Int. £23, Belfast City £46, Dublin £23.
    The two airports weaken each other and provide airlines the opportunity to play one off against the other. Splitting the actual/potential investment between the 2 sites also weakens the overall infrastructure of NI.
    The airports need never have competed. Their privatisation was folly from the start. Can anyone forget the underpricing of BFS INT?