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?

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  • Pete Baker

    “Was there just a hint of desperation in Jeremy’s pitch?”

    Well, Brian, that “mere niggle” from English [Labour?] MPs has the imprimatur of the TUC…

    And, as I recall, Sammy Wilson has estimated the cost, of lowering CT, to the NI block grant to be up to £500million.

  • Brian Walker

    £250 was mentioned but nobody wanted to be too definite – I’ve seen £275m. “Mere niggle” is ironic, Pete.

  • Pete Baker

    “‘Mere niggle’ is ironic, Pete.”

    I know, Brian 🙂

    But the TUC input is not.

    And I am sure I’ve heard/seen a report that Sammy Wilson was estimating the cost at the £500million level. It might be in the Assembly’s Hansard…

    It all feeds into the question you ask about the NI Assembly biting that particular bullet.

  • The Raven

    “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.”

    I hope that’s not it. Tell me there’s more. Like stuff that ordinary people can take advantage of..? Or things that are relevant to the 90-odd percent of businesses in NI, which employ five or less people…? Or things which might take it back to the root of the problem and encourage enterprise as a career option…?

  • Seymour Major

    I recall being told by Owen Paterson about 18 months ago that the cost was about £470m so Wilson seems to be near the mark.

    It is not a question of affordability. We cant afford not to have it. If we want a balanced economy here, we have to have the lower CT. Failure would mean a continued lack of inward investment.

  • emanonon

    If we want to return to being a society that has at least some semblance of economic reality then there is no alternative to creating an Enterprise Zone. Failure to do so will result in us being locked into a spiral of decline forever dependent on diminishing handouts.
    Reduced CT is not about giving handouts to big companies, it is about creating jobs in NI, every new job created in companies creates jobs in other local companies that supply them. I don’t have the current figures but I seem to remember 2 or 3 jobs being quoted somewhere.
    We just have to make the investment as the payback will be in living in a country where we might just be able once again to hold our heads up in pride at what we contribute to the world, not hold our hands out for charity from anyone who will listen to our plight.

  • Brian Walker

    The Raven, To be fair, there was mention of the 80% small business under 10 employees and the prime importance of human capital, education and training etc. But as the session was about CT it didn’t dominate.

  • bob wilson

    A doubtful proposition?
    Well depends what you mean – do you mean the current bunch of politicians at Stormont wouldnt have the guts to do it? You are probably right.
    All the local parties backed the idea and lambasted Varney and Gordon Brown when they said no.
    If Owen Paterson and the Tories deliver the power to the Assembly will the current MLAs be exposed as populist charlatans?

  • Bob wilson

    Interesting to see that Lazy Sylvia Hermon failed to turn up for this meeting of the Select Committee.
    Is there a mechanism to get her removed?
    Has she actually voted in this Parliament yet?

  • Glencoppagagh

    If low corporation tax is such a vital instrument why is a successful indigenous company like First Derivatives based in Newry rather than Dundalk?
    Mind you, if it means taking another chunk out of public expenditure I’m almost in favour of it.
    And why not undercut the RoI rate while we’re about it – 10% seems a nice round figure. I suppose there’s a risk that SF and SDLP might oppose it but so what.

  • Bob wilson

    Glenco – Corpor tax is not the be al and end all. Access it quality graduates and determination to ‘do something’ in their home town I suspect are main reason FD is still in Newry

    Yes 10% should be the target. It will be interesting to see how much it will cost. Hugo Swire, the number two at the NIO was very dismissive of the idea that it would cost £500m on radio this morning – seemed to suggest it was nearer £100m?

  • Glencoppagagh

    “Corpor tax is not the be al and end all”
    Exactly my point. Anyway, a growing company like FD should have an effective tax rate of much less than 28%. Can you think of any companies which have migrated across the border to take advantage of the lower rate? I can’t.
    Lower corporation tax seems designed to attract FDI rather than stimulate indigenous enterprise and, implicitly, an acknowledgement of an entrepreneurial deficit.