Tax powers for Stormont, a doubtful proposition

Should the Assembly bid to Westminster to take on tax varying powers and lower corporation tax to the Republic’s level of 12.5%? Local experts appearing before the NI Select Committee were divided.  It was pretty much the magic bullet for lobbyists from the Economic Reform Group, Eamonn Donaghy of KPMG and Victor Hewitt of the Economic Research Institute.( I was relieved to see them alive and talking; for judging purely from their websites, they died  a while back- terrible PR that). Their report had already been debated admiringly by the Assembly.  

Lower CT would be the game changer, just as it had been for the Republic in those far-off days before the property bubble burst. Even now, in the last 10 months, another 10 foreign companies had brought in 5,000 good jobs. It was exports from such companies that was keeping the Rep’s economy afloat. Although other taxes and levies were soaring, the fact that Rep was holding its CT down was proof of its high importance.

Invest NI’s man Jeremy Fitch waxed lyrical. All those nice Americans he’d talked to last week told him ” lower taxes count.” (How much investment have they pledged already, Jeremy?) Lower CT would help create 3,200 jobs a year for 20 years, concentrating on ICT and business and financial services – a whopping total of 67,000 new jobs – wow!

Was it all too good to be true? Well, it wasn’t their job to know all the details of the downside, like the costs of lower CT.  One English MP got everybody tangled up in a complicated claim that each new job would then cost 67k compared to today’s 10k, if you took into account the consequential cut in NI’s block grant from Westminster. Jeremy smiled and said he couldn’t do the mental maths – (worryingly!) – but don’t worry er, the increased tax take from all those high end new jobs would make up the difference.

Was there just a hint of desperation in Jeremy’s pitch? His quiver was running out of arrows, in the approved metaphor of the day. For from January the EU axes development grants to 10% in Belfast and 15% for the rest of NI, with zero all round looming.

A mere niggle from English MPs, that GB companies would “brass plate” i.e set up semi- bogus HQs in NI to take advantage of lower CT was swept aside as banned under the Azores ruling of the EU court. You have to show you’ve created real jobs and take on new tax powers locally. Westminster can’t  just hand them over without squaring it with Brussels.  How likely is each stage of  that?

Surprisingly none of the English members talked about the obvious danger of lower CT for us attracting FDI away from their constituencies – perhaps they were too polite or were they just baffled?

Still, all that prompted the Big Question: should the Assembly bite the bullet and bid to Westminster for tax varying powers? These have already rejected by the former top tax man Sir David Varney in his big report for Gordon Brown. So maybe it was no surprise that fellow tax experts before the committee were doubtful. “A brave decision” John Whiting of the Institute of Taxation called the idea, presumably in the Yes Minister sense.

Lower CT as  a brand leader has probably  had its day, the tax experts concluded. Not that they were actually opposed to it. It’s just that  everybody is doing it now; those guys in eastern Europe, they’ve all become so sophisticated.

But at least we got a glimpse of what turning NI into a ” special economic zone” might mean – like tax breaks above UK rates for R&D, patents and intellectual property Dull- sounding, unlike low tax, but important. Perhaps some bright spark will work them up into a slogan.

NI has it over the Rep in one respect. Payroll taxes are soaring in the South and are set to climb still higher in January’s budget. Do you think this might tip the balance in the North’s favour? I can’t remember the answer, so it can’t have been that good. And somehow, I can’t see the Assembly taking the magic  bullet, can you?