“no prospect at all of a differential corporation tax in Northern Ireland”

There may have been an announcement of a review of the different tax rates between Northern Ireland and the Republic of Ireland, to be conducted by Sir David Varney a former chairman of HM Revenue and Customs – it was one element of that total package announced by Gordon Brown – but as the Belfast Telegraph’s Mark Hookhan reports, according to the Secretary of State for Wales, etc, corporation tax will not be affected.

Speaking yesterday in Westminster, Mr Hain said: “The problem here is, as the Chancellor and I have explained to the parties, European Union law makes it impossible to have differential corporation tax within any part of a nation state. So, there is no prospect at all of a differential corporation tax in Northern Ireland.”

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  • Yokel

    And nor there should be.

    This place is not a special case anymore. If people spent less time whingeing about their disadvanatages and started actually building they might gets somewhere. Otherwise they shouldnt be in business.

    There are plenty of examples of companies who have done well under the current fiscal and regulatory regime. Maybe we just have too many losers aroudn the place.

  • barnshee

    That the item was floated in the first place (by what passes for politicans in N Ireland) shows the depths to which we have sunk.

    The one bright spot on the horizon is that these intellectual cripples may now actually have to govern within the funds available. Watch this space

  • Henry94

    What he is saying as I read it is that under EU law corporation tax would have to fall to 12.5% in a united Ireland

  • The Lurgan Spade

    So lets see…thats Corporation tax out,water rates posponed for a year now instead of being scrapped and the block grant the Stormont Stormtroopers were begging for is nowhere near what was being originally talked up.
    Boy..these guys negoiating skills are second to none.The British Goverment must be laughing up thier sleeves!!!

  • Yokel

    Henry

    Yeah ok, thanks for the laugh.

  • Aldamir

    I am not entirely convinced by the EU law argument. If I recollect correctly the EU law restraints were considered in a judgment of the European Court of Justice relating to the Azores, where the local government had reduced the corporation tax rate.

    The rationale of the ECJ decision was that if differentials in corporation tax were as a result of decisions by local bodies then they might be permissible, if they were (as in the Azores) as a result of agreements between local and central government they would not be.

    If NI had tax raising autonomy it might be possible to introduce differential tax rates under European law.

  • protorious

    Suorise suprise, the British government has finally admitted that they have no plans to lower corporation tax.

    The whole Varney review was clearly just a calculated political move by the British Government designed to win over political parties, it is clearly implied in what Hain is saying that the NI parties where looking for a slash in corporation tax (an unrealistic demand that the British Government would most likely never carry out). The Varney review merely exists so that British Government can be seen to be listening to demands of NI parties.

    What is depressing is that the political organisation in Northern Ireland know so little about the economic elements of politics they thought this was a real possibility. They probably just got the idea after reading an article explaining what corporation tax is in the Irish times…

  • smcgiff

    If Scotland left the union, followed by Wales, followed by Cornwall, followed by the North of England then maybe NI would get a favourable CT rate to the rest of the union.

  • George

    Aldamir,
    “If NI had tax raising autonomy it might be possible to introduce differential tax rates under European law.”

    Either way, if it didn’t get the tax in from the move then it couldn’t get a bale out from Westminster and would have to live with the consequences if there was a deficit. It’s a double-edged sword.

    Fiscal autonomy also means fiscal responsibility.

  • protorious

    Aldamir,

    Even if NI had more tax altering autonomy there would be no garuntee that the corporation tax could be altered.

    Just look at the mess Gibraltar has got in with the EC over their plans to lower corporation tax. Although they are recognised as fiscally autonomous from the Uk by their constitution, the EC ruled that this was irrelevant and that they were part of the UK’s economic sphere and lowering the corporation tax still violated competition laws…

    And Gibraltar has an entirely seperate tax system…

  • GavBelfast

    What happened to UTV’s recent exclusive that fuel duties were going to be equalised (ie. reduced) to those of the Republic? Not speculative guff, surely?

    (Though this wouldn’t be against EU rules – I’m 99% sure it happens in some other EU countries in zones near to land borders.)

  • Hain is simply wrong on this. The Azores ruling blocked the particular regime proposed in that case, but it backed the principle of regional tax differentation if certain tests are met.

    The court has upheld the three tests postulated by the advocate
    general in order to evaluate whether a regional tax regime is truly
    autonomous: institutional, procedural and economic autonomy. This means
    that the regional tax regime must be approved by a public body with a
    considerable degree of autonomy and without the interference of the
    central government in the approval process and that its financial
    impact must be borne by the autonomous government, without compensation
    from the state authorities.

    In short, the region must both have the power to adopt the specific regional tax measures and bear their cost. (International Tax Review)

    The first test will be met once Stormont is up and running. The second test could be met if Westminster devolved powers over taxation. Even the third test is not an insurmountable problem, if you think that a corporation tax reduction will eventually pay for itself. Last year’s ERINI study concluded that the overall effect on public finances would be positive by 2013.

  • Terry Doherty

    Excellent. Not even an assembly established and already the pros and cons of tax raising powers being raised. If people want “real politics” then they’re going to have to face “real responsibilities” and to me that means not depending on the British Government to decide what size of a cake we get to divy up.

    The power to raise or lower taxation rates is the very essence of politics. The sooner these powers are devolved onto the island of Ireland the sooner everyone will realise the benefits of working on an all ireland basis. 2016 anyone?

  • protorious

    Terry,

    The ability to lower and raise tax rates still does not nessecarily solve the issue with corporation tax. Scotland can lower and raise specific taxs (mainly business rates and income tax) but is powerless to alter its corporation tax rate.

    Gibraltar however demonstrates a more worrying example. They have complete tax autonomy and have the capability to lower and raise their taxation as they see fit, overseen by a legitimate local body. However the EC has still ruled their plans to cut corporate tax as being against competition ruling due to the unfavourable advantage it would give them above other areas of the UK.

    It is true that Gibraltar is fighting this tooth and nail and going to the highest EU courts about the ruling but it is a word of warning to NI, an area of the UK that enjoys les political and fiscal autonomy than Gibraltar (the devolved nature of the government offering less independance than the overseas territory status of Gibraltar).

    This is a relatively moot point anyway as the Uk government will not pass legislation giving Scotland or NI this degree of fiscal control as it moves devolution a step forward, feeding the SNP’s economic demands as well as further weakening the British Parliament’s control of the UK

  • Terry Doherty

    protorious,
    Its my view that the longer the real powers are held, and the real decisions regarding our taxation and ultimately the size of our economic cake, are made in London in the interests of London, the more people will wonder why. Hopefully they will then make what i consider to be the small step in deciding we are likely to be better off having a bigger say in our own fate, and turn towards the south.

  • The European Commission might have challenged Gibraltar, but it doesn’t mean they’ll win in the European Court. On the basis of the Azores ruling, Gibraltar has a strong case.

    No doubt, the British Government doesn’t want a Corporation Tax cut for Northern Ireland. That is the real significance of Hain’s remarks.

    It may not be that easy to close down the debate though. It’s quite possible that a Scottish coalition could be be elected with a mandate to demand fiscal powers. Equally, Scottish business leaders are saying they expect pressure from England for changes to the Barnett Formula that shares out public spending across the UK.

    There’s a saying that devolution is a process not an event. After May, we could well be in the next phase of the process, with fiscal powers at the top of the agenda.

    John Major set his face against the emerging consensus for devolution, but ultimately failed to stop it. Gordon Brown may find himself in a similar position in relation to fiscal devolution.

  • Greenflag

    Terry Doherty,

    ‘The sooner these powers are devolved onto the island of Ireland the sooner everyone will realise the benefits of working on an all ireland basis. 2016 anyone’

    It’s a moot point now whether lowering the CT Rate in NI would even make a significant difference to NI at this stage. 1984 would have been good timing -by 1998 it was already late. Now it’s not only late but the investment boat has long since left the dock and won’t be coming back this way anytime soon . As for 2016 ? The only difference in NI by then will be how much of the remaining NI private sector will have been bought out by ROI other non NI investors .

    The UUP/DUP have played a ‘blinder’ in the whole economic policy area 1969 to the present . But not in the traditional meaning of the term 🙁 They could’nt see beyond the internal conflict within unionism or beyond the sectarian stand off in NI. Now NI gets to pay the price for 40 years of ostrichism from Unionist politicians ‘.

    Anyway the DUP/SF will assuredly carve up between them whatever spoils they can .

  • Comrade Stalin

    Hain is simply wrong on this.

    You guys are missing the point. Why should we get a tax discount compared to other poor areas of the UK ? Hain’s electorate, like Gordon Brown’s electorate, will not allow him to do this.

  • Comrade Stalin,

    Hain is simply wrong in his interpretation of the Azores Ruling, which does allow for differential tax rates in autonomous regions.

    That ruling is potentially relevant to Hain’s electorate in Wales and Brown’s electorate in Scotland just as much as to Northern Ireland.

    Brown’s electorate in particular, is waking up to this fact. Both the SNP and the Scottish Liberal Democrats are in favour of some form of fiscal autonomy. They could well emerge from the May elections in a position to apply some Catalan-style leverage to achieve it.

    The danger if anything, is that Northern Ireland could get left behind.

  • Aquifer

    So historically the most autonomous region may have the least autonomy when it comes to competing with the others. This sounds a bit, well, colonial.

    When we don’t get different corporation tax we should then strengthen our transport and business links to provide services into the faster growing ROI economy.

    Has anyone told Ian Paisley?

  • Rubicon

    Gibraltar has a good case. Paying for the decisions you make is the core of the Azures case. Mapping it across to NI is simple only in principle. It would not require modification of the Barnett formula – it would need ditched.

    Put plainly, NI is not ready for that – it would make the cost of water seem a trifle. Politically, it raises interesting questions – but economically – we’re not about to vote for hardship. If I was English I’d be very keen to award NI the responsibility of paying for itself. It’s certainly possible but Wilson got the problem well described many years ago. NI has only become more dependent since.

    Perhaps the word parasite is too charged. But – no NI politician is getting elected on a mandate of closing hospitals, closing schools and cutting back social welfare.

    If the cap fits folks .. There was a time that British identity in Ireland was industrious. That identity is long gone. It’s the Irish identity that is prospering. Some unionists used to base their identity on economic reasons. It is these that unionism need worry about. They may bring about surprising political change.

    Are all Irish Brits happy with enforced dependency?

  • Comrade Stalin

    The danger if anything, is that Northern Ireland could get left behind.

    Tom,

    Be realistic. This is nothing to do with whether it’s legal or not. Are the Brits going to cut corporation tax here so that HBOS, HSBC, Barclays and all those huge companies in the City of London all move over to Belfast to take advantage of the cut ? Are they going to gut London for the peace process ? I can assure you that they won’t.

  • John East Belfast

    I hope the uncertainty can be put to bed and this one club golfer mentality to economic policy can be kicked into touch and our Assembly can start thinking of ways to support and grow our indigenous Entrepreunerial Private Sector.

    Nobody wanted to pay higher tax and/or pour cold water on the party but the only real champions of all this were people like George Quigly and the local Business Press.

    George Quigly is possibly thinking of Shorts and the Belfast Telegraph and Co would all love an extra 17.5% retained profits in NI to invest in technology here.

    We are all going to have to work a bit harder and think of better ways if we want UK Services along with UK Income Tax, VAT and Stamp Duty Rates.

    This was always a case of wanting our cake along with the best slices of our neighbours to eat.

  • IJP

    The real frustration with this argument, other than the fact that Comrade is entirely right to say it isn’t going to happen, is the assumption that it’s a magic solution to all our economic problems.

    Actually its effect would be minimal. I don’t even think the big banks would shift here.

    Very few investors choose a location for tax reasons – frankly, you get caught somehow everywhere. They want stable politics, a well and aptly educated workforce, and a high quality of life for the Executives who are going to spend time here.

    Does NI offer these? Even any of these?

    Is anyone going to take on the real basic problem?

  • Dan

    I am amazed at the nonsense about this one.

    You want Republic of Ireland corporation Tax that is easy, vote Sinn Feinn, hold a referendum and vote to join the republic, easy.

    Second option devolve tax and finnace so that revenue from Northern Ireland provides all services in Northern Ireland you can then choose to raise or lower taxes, lower corporation Tax means higher income Tax or closed schools and hospitals, I am sure Gerry and Ian can agree how to fund it. To those that argue that lower rates mean more investment and more profits so overall more Tax, that may or may not be true but the change does not happen within the first 12 months it takes time for the higher investment to feed through so in year one you are faced with spending cuts or higher other taxes.

    But I forgot this is Northern Ireland and there is an assumed third option. Allow us to reduce corporation Tax to attract companies and jobs from Scotland, England and Wales. AND get the taxpayers of the South of England to pay us even more for the services regardless of the fact we are paying less tax than they are.

    CLOUD CUCKOO LAND!!

    The voters of Scotland, Wales, the North East, etc etc all Labour Heartland would go nuts as they would argue they are deprived and entitled to “special treatment” too.

    The voters of London and the South East would go nuts as they are already complaining that the Barnett formula needs to be rewritten to keep more money in the area which produces it i.e. within 100 miles of London, and sends less to Northern Ireland, Scotland and Wales.

    The fact that it may or may not be legal depending on the interpretation of an ECJ case about the Azores is not the point. The point is from the perspective of voters on the other side of the water why is it a good idea for them.

    The idea of special treatment even on Petrol Tax, or drink duties are also unlikly, if Northern Ireland gets it why not the ferry ports of Kent?
    How long is a journey from Belfast to Dublin, as of November London to France will be will be around an hour on the high speed channel tunnel link.

  • Crataegus

    Dan

    The point is from the perspective of voters on the other side of the water why is it a good idea for them.

    The argument is that we need to have a serious look at inherent structural weaknesses that make trading and setting up business in NI unattractive as compared to RoI . The advantage to the UK is twofold;

    1 Improvements in the economy here benefits the UK.
    2 What works here may work in other regions.

    As I said in another post if East Anglia were a separate country with the tax regime of the RoI you would see a totally different attitude to this in Westminster.

    With regards Corporation tax I am not so sure it is the be all and end all cure for all woes. There are other matters that I would put ahead of that such as being in the Euro zone (even joint currency here in NI) or creating low tax port zones in the harbours and around airports. I would prefer to try to set up a framework that encouraged local business growth to balance any inward investment. It needs serious and detailed coordinated consideration and involves transport, training, energy costs etc.

    Certainly the last budget shows us that New Labour care little about small business anyway so no; no one expects much but remember in the global economy if those with money to invest don’t like it they move.

    Another problem in the UK is over centralisation. A lot of the power currently residing in Westminster really should be exercised in the regions.

    As for the economy of RoI it may not be as strong as everyone thinks, very high levels of debt secured on property could start to look problematic if the drop in property prices really starts to take hold.

  • Henry94

    I see two of Britain’s leading pro-unionist columnists are coming around to the idea of a united Ireland

    Jenny McCarthy in the Sunday Telegraph today

    At that point, the least humiliating strategy may indeed be a voluntary entry into a United Ireland, in which Unionists could be a significant political force in alliance with genuine democrats, instead of a despised and disenfranchised minority within a crumbling United Kingdom.

    http://tinyurl.com/2xce44

    Simon Heffer in The Times on Saturday

    “I am in no doubt, now, what the only way forward is for Northern Ireland, and this has probably been the secret plan all along: incorporation into the Irish Republic, where it would at least be ruled by a reasonably successful government not composed almost entirely of nutters.”

    http://tinyurl.com/2xce44

  • Dan

    Crategus,
    Now a discussion around the inherant structural weakness of the Northern Ireland economy is worth having.

    But it has to happen with an understanding of the reality of Westminster politics.

    http://www.timesonline.co.uk/tol/newspapers/sunday_times/ireland/article786274.ece

    Is an old article but still has a lot of relavance, with public spending being restricted in comparison to recent years Westminster of either party will be looking for places to cut spending were nobody notices or cares, with no Labour or Tory MP’s under either Brown or Cameron Northern Ireland qualifies.

    One of the tough questions is public sector pay, part of the reason small business is squeezed in NI is with the larger % of employment from the public sector makes it more difficult to employ. In most cases public sector pay is based on a UK national rate, the Treasury wants to move to regional pay rates so Nurses or or Teachers would be paid less in Belfast or Newcastle, as part of weaning NI off subsidies it may be part of the soloution but I can just imajine the screams of anger from the voters.

    In terms of the Euro, I can never see Westminster agreement of NI going in to the Euro but not the rest of the UK, so NI politicians need to get to a consensus that UK should join, then start trying to change public opinion in England, realistically the first opportunity is probably Prime Minister Milliband in 2013 or 2017, as neither Brown nor Cameron are in favour.

    Low Tax port zones around ports or airports is deliverable, it has been done with variable sucess in different parts of the UK since the 1980’s.

    Your point re decisions being made in the regions is a good one and would totally agree, but it means decisions have to have consequences. i.e. no Water rates means higher something else tax or less spending on something else not begging for more from Uncle Gordon.

    The point overall is the political establishment seem to beleive there is something called the Peace Dividend and they should get it to spend in Northern Ireland.

    The population of the rest of these Isles assume Northern Ireland was seeing artificially high levels of public expenditure either because of the conflict or because difficult decisions were postponed during the conflict. The reason in now over and the money available should be spent on nurses, teachers, roads and trains in London, Birmingham and Newcastle.

  • Frustrated Democrat

    I would assume that the loss of Corporation Tax in NI would not be substantial as most companies in NI have historically paid only 19% and through the use of allowances even the larger compaies have mitigated their taxes.

    I don’t know if the figures are broken down in this way or if in fact GB companies with a tax take here such as M&S Tesco, Sainsbury, and ASDA and all the other High Street stores are partially attributed to the NI economy.

    I do know that there was a grant to equalise the tax in the 80’s e.g. if a company was able to forecast its profits over a period it could claim a grant to claw back the differential in corporation taxes North and South. Maybe the new allocation of money for Industrial Development could be used in this way for say 10 years.

    I hope the New NI Government can do something to reduce CT here as we need a low tax economy to get away from the years of terrorism and mismanagement by a succession of Westminster incumbents at the NIO.

  • John East Belfast

    Dan

    What the people of SE GB need to realise is that the Treasury doesnt see plugging the outer regions of the UK with cash subsidy as some major act of generosity.

    It is to maintain the overall fiscal balance of the UK.

    Gordon Brown knows that 28% (just about)Corporation Tax is an acceptable level for the major Corporates based in the UK who contribute the biggest take – Banks, Insurance Companies, Petro Chemicals etc.

    The regions are sadled with a CT Rate that suits the overall UK and if we were given the ability to lower our rate whilst maintaining UK Company law etc you would see more than just FDI flooding into NI.
    Not to mention the fact that the call for such a lower rate would be echoed in Scotland, Wales and everywhere north of Birmingham.

    Basically the entire apple cart would be upset.

    NI and the other regions need to play to their strengths but in the Treasury’s desire to extract the maximum overall take from UK plc it is going to lead to regional losers who will be supported by subsidy transfers.

    Anyhow lets get real – there is nothing intrinsically better in the work ethic etc of the UK citisens who live around London.
    It is all about geography and the London Financial centre.

    Perhaps we should empty all the regions and move to London ?

    I get fed up with people who live in the South East saying the rest of us are spongers as if they work harder than the rest of us.
    I have done business with many and we “wouldnt see them in our way” as we say here.

    Just because your postal address is the South East does not give you any right the share of UK wealth than the rest of us.

  • One problem with regional transfers at the moment. is the way they are skewed by the current devolution settlement.

    On issues like student fees, prescription charges, and cancer drugs, the Scots and Welsh have got a more generous regime than the one in England, even though in many cases Scottish MPs and Ministers have had a decisive say in imposing the latter.

    This issue is going to be come much more salient once Gordon Brown is PM, and most of the UK can ask why his constituents get a better deal than they do.

    Combine that with the Scottish elections, and I expect the coming months to be the biggest watershed for the UK since the 97-98 period.

    Northern Ireland may not be ready yet for full fiscal autonomy yet, but it is important to think about where the future lies, and the corporation tax debate is a part of that.

    In the short term, yes, a corporation tax cut is bound to be anathema to the current UK Government. In fact, it’s hard to think of a policy better calculated to threaten Gordon Brown’s political interests.

    But in the medium term, I think that the English will be more concerned about the unfairness of the current regime of regional transfers than about the threat of tax competition.

    Some of Brown’s compatriots have already cottoned on this:

    SHONAIG Macpherson, chairman of the Scottish Council of Development
    and Industry (SCDI), says Scotland’s political leadership must
    re-examine its fiscal options, widen its horizons, and develop a
    clearer sense of national priorities if the country is to avoid being
    overwhelmed by externally-imposed changes.

    In a strongly worded speech to delegates at the SCDI’s annual forum
    in St Andrews last night, Macpherson warned that political, civic and
    business leaders must think more widely about Scotland’s fiscal
    position in the face of potential changes to the Barnett formula.(Scotsman)

  • Bill

    Jenny McCarthy?

  • Henry94
  • Crataegus

    Dan

    Several points.

    Though I have earned much of my income in NI I make my returns in London where I also live. In many ways the SE benifits from money earned elsewhere.

    The argument about tax is not about wanting any special treatment, or money not due, or living of handouts, it is about trying to set up structures that enable NI (and other regions) to compete and be self reliant. NI is the only part of the UK with a land border and this requires special consideration.

    Personally I would like to see more fiscal control and responsibility given back to all UK regions. Among the measures I would like to see adopted are local income tax and abolition of rates, taxes on wind fall profits from planning changes of use to help pay for the necessary infra structure, a look at local duties and how their current level causes a cross border flow of trade (out of NI), increase in University places, consideration given to the practicality of joint currencies etc etc etc. None of these we can do. Our hands are tied.

    I am sorry for the delay trying to clear up before heading out East again, which neatly brings me to my final point. In the modern world business and money move to where it can make a better return. In Britain (generally not just NI) we have built up an administrative nightmare that is grossly inefficient. Is the half of it actually needed, and to what useful purpose? Some time ago I mentioned a development that I was involved in in NI which is still wallowing through the planning process, in India similar project built sold and on to the next one! This is not an isolated incident.

    Also look at material costs, I cannot think of any material or product that I cannot source cheaper in the East. High time Britain and Europe generally woke up to reality. Fine that people like myself earn income abroad or receive dividends from foreign companies, or local companies that have moved. That income helps our national take, but there is no way that we can run a successful economy on that basis and those that earn in such a manner can easily reside where ever suits them or move assets to where suits. Economically Europe is in rapid relative decline.In 50 years we will be well down the economic pecking order.

  • Ian

    You know the justifiable outrage that was recently expressed following the announcement of £1.2m of taxpayers money allocated to the UDA for “community development” (aka “Danegeld”)? People saying “If I set up an illegal organisation and carry out drug dealing, extortion and murder can I get the same?”

    Well, apply a similar argument on a much bigger scale and you get a very reasonable argument that could be made by all the other relatively poor regions of Britain (relative to the South East) – “If we kick off 30+ years of civil disorder can we have a reduction in corporation tax as well?”

  • Dan

    I think Ian sums it up more brutally than I would dare. Lots of people have made good points as to why low corporation Tax is a good idea, I have no problem with that and happy to debate the pros and cons of the change on a UK wide basis.

    My problem and that of a lot of people in the rest of the UK is with arguing the case for introducing it on a Northern Ireland only basis because: we are “special”, are nice!, we “deserve it” etc etc.

    There is a lot wrong with the ecconomic management of the UK, intrest rates have been set to cool an overheating housing market in the South East and damanged manufacturing in the Midlands and Scotland, for example. So lots of your arguments if run on a UK wide basis will gain sympathy,

    i.e. dramatically lower corporation Tax for the UK the Tories and their supporters could sign up to,
    Special treatment for ALL regions with above average unemployment, Labour and their supporters could sign up to.
    Special Treatment for Northern Ireland on it’s own will simply annoy the core supporters of both big parties and therfore beyond small items in the margin will not happen.

    If you are in the Union learn to argue for what you want to happen as being to the benefit of all and you may well deliver it. Arguing from the point of view of we are special is simply going to annoy the rest of the UK.