#SluggerReport: UK Corporation Tax to drop 5%, so where does that leave NI PLC?

In the Slugger report this morning, I agree with Wolfgang Munchau that it is time for the UK to pursue its options, not to cry over split milk of the Referendum, or worse, look for a re-match. Whatever damage has been done (and we won’t know that for a while) it’s time to move on.

It is, of course, sobering to recall that the UK government has slapped a requirement on Unions to get 40% support of the unions membership before any action can take place (the EURef got 37.4%). As Rick notes, you couldn’t even organise an overtime ban for that much.

But in terms of a Brexit, it’s largely beside the immediate point. From an NI point of view we are likely to have some influence on how Brexit pans out, but it is likely to be limited.

Osborne’s announcement that he intends to cut Corporation Tax to within 2.5 points of the Irish rates kinda shoots one of the few distinct fiscal policies for reflating the NI economy. Moreover, we may get squeezed as the Republic pushes back.

As IBEC’s chief executive Danny McCoy notes:

“We need to slash capital gains tax, cut the marginal tax rate to attract mobile talent and bring the tax treatment of share options into line with the UK and other competitor economies. Now is not the time to sit on the sidelines and see what happens.”

And that’s not including any fierce response from Osborne (or his Tory successor) in terms of cutting public spending to compensate for the transition to a new leaner meaner UK model that may be needed to exploit new opportunities coming up.

 

 

 

  • lizmcneill

    “move on” to what though? Or in the case of individuals, it might be “where”.

  • Brian O’Neill

    Corporation tax will get cut. To pay for it all they will cut benefits and public spending. The two main things NI relies on to keep us afloat. The future is as bleak as todays weather.

  • Thought Criminal

    The EU rules around giving differential tax rates to regions now will no longer apply. Stormont might not even have to make up the short-fall.

  • Sir Rantsalot

    NI reaction will be a few years of talking but doing nothing.
    ROI reaction will be nothing, unless permitted by Germany 🙂

  • Brian O’Neill

    True. But it is still wild messy having different tax rates in the one country. Maybe some kind of economic zone thing.

  • murdockp

    Have you been to Dublin? The ROI is on fire, tower crane city
    They don’t have to do anything other than create the conditions for business to thrive, e.g. lots of office space, housing, accelerated planning consents, decent broadband, world class international airport, skilled work force, proactive culture.
    Even if Coporation Tax in NI was nil, would you really want to come up here and put up with the can’t do that culture of our civil service? Planning that takes literally years ? Electricity costs the highest in Europe? Poor Broadband? Two airports neither of which is world class?
    It is not rocket science.

  • murdockp

    The old enterprise zones worked well in the past, London Docklands is a good example of success, Nissan Sunderland is another.

    Differential taxation is a good way of achieving investment, but NI already is doing this in the reverse way. It is charging businesses in NI levels of business rates which people in UK are shocked by when they hear how high they are and struggle to understand how we survive.

    Instead of incentivising investment in the SME sector, the NI assembly are taxing the sector out of existance which is why all of our towns have row upon row of empty shops and offices.

    It also explaines why the social enterprise sector is one of the few green shoots in our economy as many are exempt from this business destroying tax.

    Our lot just don’t have a clue, it would be funny if it wasn’t so serious.

  • murdockp

    Sadly, benefits and public spending will never be cut,it is our crack cocaine.
    Public Spending is also an interesting issue here. We all associate public spending with seeing bodies on the ground doing stuff like fixing potholes etc.
    What is happening now is the staff are still being paid, but they are not out doing any work as they don’t have the budgets for materials or plant etc.
    This is the real sad part of NI, as the public sector is now basically a full employment creation agency.
    The whole NI civil service needs root and branch reform and many services outsourced.

  • Obelisk

    The fate of Northern Ireland will not trouble the sleep of any English Chancellor, whether Labour or Tory.

    Whatever will be done will be done with one goal in mind, servicing the shires of Southeast England that form the core of Conservative support.

    Northern Ireland is no way master of it’s own destiny.

    Hell, the Conservatives would probably be OK with the region suffering. They see Northern Ireland as a statist entity incapable of paying it’s way.

    A couple of cuts to ‘wean people off the state’ will surely unleash the transformative and beneficent invisible hand of the market, improving life for all.

    At least that’s the lie they keep telling themselves. Arch Capitalists are as bad as Communists really, unable to understand that their ideology doesn’t work and harms everyone. Capitalism just fails over long timescales than Communism.

  • Brendan Heading

    Theresa Villiers has already ruled that out.

    I find it hard to understand the naivety of some Unionists who seriously believe that a Tory government is going to do anything to increase the subsidy to what is already an unreformed, public spending heavy economy.

  • eamoncorbett

    Those cranes are in the financial centre and are mostly involved with the creation of office space , but there is very little in the way of houses social or otherwise being built . There is very little benefit to ordinary people looking to buy or rent housing.

  • Ryan A

    Nope. Villiers last week said any cut will be paid for by NI Executive, irrespective of Brexit.

  • Ross Brown

    If people who support the lowering of corporation tax view the decision to lower the UK rate as a ‘blow’ it demonstrates that the whole premise of lowering the corporation tax rate had nothing to do with how the policy per se could encourage business growth and everything to with a competitive race to the bottom where we all lose out. http://www.belfasttelegraph.co.uk/business/news/uks-proposed-corporation-tax-cut-will-be-blow-to-northern-ireland-34854155.html

  • Brendan Heading

    Brian,

    At the moment it looks like they will pay for it by increasing borrowing levels significantly; several of the Tory leadership campaigns have made reference to the value of doing this due to the low cost of borrowing. The Conservatives will cast off any vestiges of fiscal credibility in order to get them through the next election.

  • Brendan Heading

    Scotland can set its own income tax rates and the legislation is in place for NI to have its own rate of corporation tax.

    The existing provisions for NI corporation tax are extremely complicated due to the UK government’s concern to ensure that major FTSE100 sectors (energy, insurance and banking) do not move to NI and that only companies which have employees physically here can benefit. If the government continues on the trajectory towards alignment with the RoI’s tax rate, the NI rate-setting legislation becomes obsolete.

    An interesting aspect is that cutting corporation tax in this way may actually make international trade deals for a post-brexit UK more difficult.

  • Reader

    Not so. There are 2 arguments for lowering Corporation tax, only one of which risks becoming a race to the bottom.
    1) Reducing corporation tax will speed up business growth, creating jobs and leading to larger tax returns in future (not a race to the bottom)
    2) Reducing corporation tax attracts new external investment (FDI), creating local jobs and leading to larger tax returns in future (possibly a race to the bottom; but not likely in the case of a smaller region trying to grab more than its proportionate share of inward investment, because there is only so much FDI to go around, so there is no advantage to large region in following the small region in the race. In this case, Osborne is treating the UK as a small region competing with the EU for FDI)
    In this case, Osborne’s move is obvious, and Northern Ireland is going to have to share the FDI instead of taking it all.

  • Ross Brown

    What do you mean by not so? You repeat the two arguments for lowering corporation tax which I made in my post and miss the point i was making.

  • Gopher

    With regards devolved corporation tax, it is now patently dead as an item of policy. With a level playing field pertaining to corporate business tax likely throughout the UK location to Northern Ireland will come down to other factors like cost and accessibility. I would suggest the Executive divert the money planned to cover the cut in corporation tax into infrastructure especially around our airports. In fact an air plan should now be the number one priority of the Executive given the two year countdown to exit when triggered. Getting rid of Passenger duty if Westminster have no plans to remove it (perhaps ask them) would be essential for NI in the future, if attracting FDI is the new path for the UK in the post EU world.

  • lizmcneill

    What do you do with ~30% of the population then? Well, we’ll all need a basic income once the robots take our jobs, maybe think of it like that.

  • SeaanUiNeill

    Lizmcneill, the true irony is that a proper citizen income would stimulate the economy far, far more than any cut in how the big boys are taxed, by permitting small scale personal enterprise. But the governments seem to be mesmerised by scale and have eyes only for the multinationals they can attract.

  • hgreen

    Arelene, the DUP and the fools in invest N.I. should be ashamed of themselves. By campaigning to leave the EU (or in the case of invest N.I. sitting on the fence and showing a complete dereliction of duty) and destroying one of our key pillars for inward investment they showed a disregard for the economy of N.I.. Now they won’t have corporation tax to fall back on either. Idiots.

  • Sir Rantsalot

    I know Dublin quite well having lived there for a decade in the recent past. Your point about the NI civil service is correct, they are slow and useless. Broadband is better in NI though. We have the choice of all UK providers, in the south they only have a few.
    My point was that ROI gov can only do what it is told to by Germany, cough cough, I mean the EU ‘parliament’. No chance EU will let Ireland further undercut the rest of the EU states.

  • Gopher

    Spilt milk and plenty off it. Now we have to rely on ourselves and our ability to demonstrate to HM treasury a level of competence that has been noticeably lacking previously with regards investment. I would suggest that the executive call an emergency budget as all previous ones are now redundant and focus our efforts on infrastructure and tourism. There needs to be a plan

  • Reader

    I don’t agree that the NI plan to reduce corporation tax was part of a race to the bottom, nor do I believe that the Osborne plan was part of a race to the bottom. In both cases, I think it was a competitive move where the success would be measured in increased FDI. So we don’t “lose out”, as you put it.
    In the unlikely event that the EU followed suit – then it would be a race to the bottom.

  • Ross Brown

    Exactly the point i am making – it was all based on a false ideology of competitiveness and not on any analysis of an optimal rate for business growth. Irwin armstrong confirmed this on Nolan this morning when he called for the lowest rate possible even as low as 0%. Such calls ignore any cost on public spending or impact on private business as a result of cutting such spending in the local economy. The EU doesnt set corporation tax but individual states and there are many smaller states than NI and the UK so a race to the bottom (the bottom being 0% or lower if we start paying corporations to locate here) means we do all collectively lose out.

  • murdockp

    The other taxes paid from FDI such as paye, vat, business rates, NI, SDLP etc far outweigh corporation tax.

    even at NIL rate, NI would be quids in.

  • Ross Brown

    Only rates are devolved.

  • murdockp

    am well aware but this is why FDI is so important as there literally is no cost to it if you set yourself up right an this is in terms of everything, planning, regulations etc.

    we are a joke in NI, unless we offer a ball of cash, very few are interested.

  • murdockp

    NI take it all, very funny.

    next time glaxosmithklien want to build a factory in NI, should they allow five years for planning or ten years?

    how about if the Mag wanted to build an airport shall we say ten years and then no permission.

    how about the lack of skills in the workforce. what do you mean coding is not on the curriculum for kids ?

    build a second rate infrastructure and it will build you a second rate economy.

  • hgreen

    Well if we are relying on tourism we are completely fecked. N.I. will be no more than a niche tourist destination. Investment in education and STEM training is our only hope.

  • Jag

    Ireland’s 12.5% corporate tax rate is a brand. It’s been that rate since January 2003 – 14 years ago. It was promoted and defended through thick and thin, most notably in March 2011 when the country was starting a bailout and the French and Germans used the opportunity to ruthlessly insist on the abandonment of the rate. There was a “Gallic spat” between the Taoiseach and Sarkozy (but the real fist in the glove was Merkel), and Ireland had to sacrifice a reduction on bailout interest rates in order to keep the corporate tax rate.

    So, if you’re a company looking at national tax rates, you can have confidence in Ireland’s rate of 12.5%. It’s a brand. It won’t be changed at the drop of a hat.

    On the other hand, George Osborne may be out of a job in a couple of months; the Tories may be out of government in six months, and a future Labour govt, especially under Jeremy Corbyn is almost guaranteed to raise corporate tax rates. Even if Osborne is chancellor for more than a couple of months, remember he failed miserably in his primary objective to balance the budget in the last government, and he has now abandoned austerity in the face of an imminent recession. What CEO of a serious business will pay attention to an unspecific commitment from such a flaky person to reduce corporate tax rates to “below 15%”.

  • Gopher

    Tourism is basically the only private revenue stream from abroad we have, it is current and we can do stuff to increase it and unlike training and education it will have an immediate effect. So yes we are relying on tourism. Presently for everything else we are relying on non existent Infrastructure and a delusional sense of entitlement. We simply cannot afford to invest in students for export nor can we keep the educational Ponzi scheme going. A 2-3 year countdown has begun we need the infrastructure and we need it fast, every other region in the UK bar the Scottish Highlands and Isles has bright young things and better infrastructure.

  • IRF

    Interesting to see SF’s Máirtín Ó Muilleoir advocating a partitionist approach to this matter:
    http://www.bbc.co.uk/news/uk-northern-ireland-36711840

    “…if we had have been able to say, the tax rate is the same across the island, I think that would have been compelling, that’s no longer true.

    “Unless we go for an different strategy and reduce it ever further, and that will need to be considered.”