Corporation tax cut ruled out non-shocker…

I THINK most Slugger contributors were canny enough to realise that the review into corporation tax levels in Northern Ireland was a fairly cynical ploy by the Government to fob the parties off and get them into an Executive. And lo, it unsurprisingly came to pass, that Sir David Varney turned out to be a ‘yes’ man after all. A source told the Financial Times that Varney “absolutely dismissed the idea” in meetings with the parties last week. “He discussed a very wide agenda, but it was clear corporation tax was not part of that agenda at all.” Well, it was always pie in the sky thinking that it ever would be.Gold star to Comrade Stalin for correctly predicting the reason why. CS wrote:

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.

And the FT reported:

The Treasury has traditionally been wary of anything that undermines the fiscal unity of the UK, fearing that allowing Northern Ireland to set a lower rate would trigger a “beggar thy neighbour” reaction from other UK regions seeking the same concession.

The Inland Revenue tried and failed in the European courts to stop Cadbury Schweppes relocating part of its UK operations to the Irish Republic, with the UK tax authorities arguing the food and drinks company was seeking to avoid UK tax. Officials say UK authorities would be even more wary of allowing companies to use a Northern Ireland base to reduce their UK taxes.

  • IJP

    It’s been patently obvious to anyone thinking that there are only two ways to get corporation tax in the North level with that in the Republic:
    – an all-UK rate level with the Republic’s;
    – NI leaves the UK.

    The four parties are in government now. Time to throw out the apple pie, people!

  • Billy Pilgrim

    Stunned to hear this….

    Different tax regimes within member states are illegal under EU legislation, but I’m not sure exactly what piece of legislation it is.

    Can anyone help me out?

  • The Dubliner

    “Well, it was always pie in the sky thinking that it ever would be.”

    Yup, but at least the brass plate makers had something to dream about, since the only outcome would have been a shifting of corporate headquarters from one part of the UK to another in-order to secure the lower tax rate. The UK was never going to increase its subsidy to NI in-order to compensate for the cut in corporation tax revenue, since that would only have the effect of an overall drop in tax revenue to the UK exchequer arising from both the HQ migration from the rest of the UK to NI itself.

    Begging bowls and brass plates are a poor basis for an economic strategy. Still, with the tossers folks elect up north…

  • Billy,

    The great Jim Allister has a statement on his website on why a lowering of the corporation tax rate was always a non-starter. (Lots of good sense elsewhere on the site for you as well.)

    NI isn’t the only part of the EU that has a land border. Does anyone know what other states do in the same position if a neighbour has a lower tax regime?

  • DC

    How about this then –

    NI joins Ireland on the condition that Sinn Fein goes away completely never to be seen again end of and banned as quasi-paramilitary outfit.

    No more Sinn Fein and a truly happy prosperous Ireland at peace with itself all reconciled with its brothers and sisters.

    Im sure Paisley can placate his supporters he’s managed to get them to buy into a worse form of governance up here what with a limited and residual form of petty governance being co-led with partners even the Irish themselves can’t stomach.

    IJO – I’ll take option 2 contingent on the above being accepted.

  • jaffa

    http://www.lowtax.net/lowtax/html/isleofman/jimdctx.html

    “In the Isle of Man there is no general capital gains tax, turnover tax or capital transfer tax, and there are no stamp duties. Apart from VAT, the only significant tax is income tax which is levied on ‘persons’, ie individuals or corporations (companies). The Assessor of Income Tax is the head of the Income Tax Division of the Manx Treasury and carries out the functions of tax assessment and collection. The Manx tax year runs from April 6th to April 5th (as in the UK).

    In February, 2004, Treasury Minister, Allan Bell revealed that the government intended to extend a zero rate of corporate tax to businesses involved in the space and satellite industries. The jurisdiction planned to move towards a zero tax rate for all businesses by 2006.”

    Let’s become a Crown Dependency and undercut everyone!!

    ..not sure of my numbers on this but we may need to shut all the hospitals.

  • Billy Pilgrim

    Thanks Watchman!

  • Billy Pilgrim

    DC

    I’d go for that. Very sensible suggestion. And if SF were patriots, they’d surely sacrifice themselves for the good of the nation?

  • As far as I can see, Commissioner Kroes’s letter and Jims Allister’s commentary on it, only restates the position that we’ve discussed at length on previous threads:

    1. The devolved Government must be of such a nature, from a constitutional point of view, as to have a political and administrative status separate from that of the central government.
    2. The subject fiscal law must have been adopted without the central government being able to intervene directly as regards its content.
    3. The financial consequences of reducing corporation tax must not be offset by aid or subsidies from the central government – in other words there must be no subvention to make up for the loss in revenue.

    The first condition is already met, the second could be met with legislation from Westminster. The third is the deal-breaker, but is what the North should be aiming for in the long term.

    Arguably the most significant point in Kroes’ reply is the court cases pending with the Basque Country and Gibraltar. It’s worth noting that in the latter case, the Treasury solicitors are actually arguing against the Commission position.

  • Robert Keogh

    DC & BP,

    I think you might be on to something here. SF made so many errors in the recent Irish general election it is hard to parse out which played a greater or lesser part. However, I think part of SF’s retrenchment was a result of people in the south no longer feeling that they needed to vote for SF to encourage them in the Peace Process. WIth the Assembly up and running the process is seen as concluded.

    I do think that the longer it takes for re-unification the greater the chances that SF will survive the event but if it happened tomorrow they would soon die back to the levels of support similar to the Greens, PDs and formerly the Workers Party. If not cease to exist entirely and/or merge with FF.

  • Comrade Stalin

    Tom Griffin:

    The first condition is already met, the second could be met with legislation from Westminster. The third is the deal-breaker, but is what the North should be aiming for in the long term.

    Tom, I disagree :

    1. The devolved Government must be of such a nature, from a constitutional point of view, as to have a political and administrative status separate from that of the central government.

    I ain’t a lawyer but the NI assembly & executive exist solely because of UK acts of parliament. What constitutional basis do they have ? They are not an integral part of the makeup of the UK, they are an apparatus to permit people in a region of the UK to have some say of certain devolved matters, as part of a larger political peace and reconciliation objective. This is painfully clear given the number of times the assembly has been stopped and restarted. The UK government still reserves certain powers – including tax raising, and if there was a corporation tax cut (if hell froze over) it would be decided in London. There’s no way in hell they’re ever going to delegate tax collection to us.

    I would have thought that the NI assembly would have to be written in stone and constitutionally guaranteed – ie so that it couldn’t be overruled with a mere act of parliament – before the above definition would apply. Perhaps someone with some expertise on the UK constitution could comment.

    Debating this question of getting a corporation tax cut is a complete waste of time. As I said (thanks for the quote Gonzo), the City of London is the jewel in the UK crown, and like any other tax haven in the world people would very happily shift entire company HQs over to NI to avail of the rate. For example, HSBC paid £379m in corporation tax last year. If the tax rate were reduced by half (say) that’s the guts out of £200m, which in itself 2% of their net profit right there, which is one quarter of their profit increase over the previous year. You bet they’d snap that up in a hurry – they are already talking about moving their HQ back to Hong Kong, and if HSBC can talk about it, so can all the other large similarly-sized corporations.

    There’s no way the Brits are going to give us this one, forget it. Unionists should accept the downsides as well as the upsides of the union and stop trying to cherrypick. Nationalists likewise, now that they have accepted partition. I think about the best that we can do is make the case for increased cash injections which are ringfenced for infrastructure and capital expenditure only, to help us fix up our ailing hospitals, roads and railways. Pushing for increased ongoing subsidies is unlikely to cut it.

  • Aquifer

    Don’t worry. Corporation tax is only paid after a business makes profits.

    Plenty of scope to create employment intensive services, outsourcing, and R&D businesses to service the booming but overheated ROI economy. And firms also have the option of forming an ROI subsidiary.

    All it takes is to integrate transport infrastructure on an all-island basis.

    Over to you big Ian.

  • carlosblancos

    It was never a goer. And it was a real copy paste job if you think about it. We’re a small region, with a small population, highly educated, English speaking, good infrasturcture & close to Europe. 12.5% is not the only solution. Our focus should be attracting spin-offs FROM the Republic, not copying it. What about a tax break on R&D for example? Costs next to nothing, and would attract major facilities from the South to the North.

  • DK

    Jaffa – what about unification with the Isle of Man. Is that allowed?

  • Comrade Stalin,

    The Scottish Parliament rests on the same constitutional basis, and yet they already have tax-varying powers which do not seem to be threatened by the Azores ruling.

    The real obstacle to this, as we all know, is Gordon Brown and the Treasury, but even that need not be insuperable, given the head of steam building up for devolution of more powers in all parts of the UK.

  • jaffa

    DK

    No idea! Maybe we should build a bridge.

    Not sure what “is it allowed means either”

    The UK has no written constitution so I think the rules are whatever Parliament and the Crown agree on subject to a respectful glance towards tradition and convention. Maybe one of the Slugger legal team knows. Constitutional Law is not my thing. I’m more a numbers and commerce kind of Jaffa.

    I suppose if we went down the oversized Isle of Man route we wouldn’t get to send MP’s to parliament anymore but half of ours don’t want to go anyway. I’ll swap being ignored in London for indepdendent taxation (but only if Alliance get the Finance job – they’re the only one committed to NI break-even as far as I know).

  • JG

    2. The subject fiscal law must have been adopted without the central government being able to intervene directly as regards its content.

    1935?

  • Maybe this has something to do with Paisley’s invite to Alex Salmond?

    Devolved Governments vs Westminster anyone?

  • Cardiff might come on board too, if the rainbow coalition can oust Labour.

    Plaid Cymru, the lead party, would obviously be sympathetic. The coalition would also bring in the the Lib Dems, who want corporation tax-varying powers for Wales, and the Tories, who have flirted with the idea of fiscal autonomy in Scotland.