Corporation tax 2. They’re flying blind. Confusion reigns

The debate over what lower corporation tax for NI only would do for the local economy is in total confusion. That’s my verdict after listening to a couple of hours of frankly embarrassing evidence before the NI Select Committee. I’d got such a different impression from the chairman of Belfast Harbour Board Len O’Hagan yesterday. It was all so very “Ulster.”

What you’d expect for such a fundamental shift of policy is for the Executive to commission an authoritative report on whether to bid for a certain range of tax varying powers and present it to Whitehall and Westminster. This is what happened, more or less, for Scotland and Wales.

Not so with Northern Ireland. We do things differently up at Stormont. We wait for everybody else to take the initiative and then grumble when we feel railroaded by Business. This was what was played out before the NI Select Committee of MPs today ( thanks Nevin). The drive for a differential corporation tax comes from NI business, with the Assembly dragging along uncertainly behind.  NI CBI representatives Terrence Brannigan and Nigel Smyth waxed lyrical – 90,000 jobs in 20 years with a level of company tax matching or lower than the Republic’s, phased in over 4 or 5 years.  We’ve heard it before and it sounds inviting.

Then along comes NI ministers Sammy Wilson and Arlene Foster, full of problems and no solutions.

Nobody knows the cost of the downside of a lower corporation tax rate , the loss of revenue in the block grant, with NI already facing the loss of another 28,000 jobs over the next four years. The CBI wave this aside. Growth stimulated by the new jobs a lower rate would attract would make up the difference. Not that they had any figures either nor any comparators either. No one seemed to do any research; the CBI,  the local ministers and  least of all the committee members who kept asking first year business studies questions ( but not getting even first year answers). 

So what is the estimate of the costs of lower corporation tax? Nobody knows, for a host of reasons. Between £100m and £500m a year said Sammy, adding :

” The lower you set the rate, the bigger the bill.. A loss of £300m a year is not sustainable.. I would like certainty over what the government’s views are towards rebuilding the economy and a clear indication that the costs will be set at a realistic level that will not devastate what we are trying already trying to do “

Sammy and Arlene blame the Treasury for the uncertainty and the long delay. Even the Secretary of State was “disappointed” ( but could he do nothing to speed things up?)

They had agreed terms of reference for a negotiation before the summer but then the Treasury got caught up in the comprehensive spending review to 20 October. A letter had been sent to them but so far, no reply. Did Sammy try boning a Treasury minister in the corridor,  he was actually asked? Well, no.

Arlene was about to put out to consultation a very important report on rebuilding and rebalancing the economy without this important element in it.

Asked whether the corporation tax debate was confined to business and politicians, she replied revealingly:

“If we were to lose £200-£300m a year, people haven’t realised  it’s up to Northern Ireland to deal with it, and not the Treasury.”

Who’s fault’s that, Arlene?

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  • Brian, less than a fortnight ago we have this from the IBEC website:

    “Speaking at the event, Hugh Crossey, PwC Northern Ireland managing partner and JBC chairman, said: “IBEC-CBI Joint Business Council very much welcomes the detailed briefing on the recently published Comprehensive Spending Review for Northern Ireland provided at today’s forum by the Head of the UK Treasury, Sir Nick Macpherson. The process has brought a sense of certainty around the scale of the fiscal challenge for the NI Executive.” source, IBEC October 28, 2010

    So much for certainty!! Perhaps the Treasury needs to indicate which is more important to it: the NI or the ‘island of Ireland’ economy. CBI NI would need to address the same question, even if it does endanger EU funding.

  • IJP

    Your recent blogs have been consistently excellent, Brian, and this tops them all.

    Your point about how “we do things differently” rings so true. We take no responsibility. We are not proactive. We wait around for things to happen round about us and then wonder why they don’t appear to coincide with our interests.

    Most of all, it is about time we realised that with devolution comes responsibility. If we can’t take welfare reforms because local childcare provision is so poor, we should do something about childcare; if we can’t take spending reductions because we are so public-sector-reliant, we should do something about being so reliant; if we can’t take our own decisions on benefits because we don’t raise enough wealth, we should be seeking ways to raise more.

    All the tools are actually in Stormont’s box – but we seem afraid to take them out and use them!

  • John Greene

    Brian isnt it the NI Tories and Paterson that have been pushing the Corporation Tax campaign?

  • Halfer

    If there is to be lowering of taxes for foreign corporations, it should come with a caveat that they commit to operate for at least ten years here.

  • aquifer

    So the DUP are dithering again, preferring their role as dole givers rather than champions of free enterprise. The SFDUP strategy is to keep us divided, and now poor.

    The UUP are the only ones who could lead on this, but farmers like their dole better than most.

  • Maxwell

    The corporation tax debate was re-opened during the Tory election campaign in NI (campaign may be too strong a word) following the earlier dismissal of the idea in a report to the Treasury by Sir David Varney who said that “implementing a different corporation tax rate for Northern Ireland, as compared to the rest of the UK, does not offer the best way forward for building a strong investment strategy for Northern Ireland”.
    It was further ignited by the new coalition’s agreement promising a paper “examining potential mechanisms for changing the corporation tax rate in Northern Ireland”.
    Sammy et al are worried that the risk of a cut in the bloc grant would not be outweighed by the benefits. One of the reasons for that is that many existing locally owned companies spent the past few years “investing” their profits in property speculation rather than re-investing them to improve production capacity etc. Sammy should get all the top companies into a room and extract the promises from the – if we cut your tax, what will you give us in terms of expansion, jobs, opening new markets etc. As for external investment (FDI) there is clearly an argument that a 10 or 12.5% CT rate would make NI’s offering look more attractive but Brian is right when he indicates there isn’t enough independent research to actually show that inward investment would increase and at what rate. It remains too simplistic to argue that Ireland’s success in attracting FDI is down to the tax rate.

  • “Perhaps in another preview of what effect a Conservative government might have on Northern Ireland, Laurence Robertson felt that there was a strong case for NI to be an “enterprise zone”, with a reduced corporation tax to attract business.” … East Belfast Speaks Out, September 30, 2009

  • alex gray

    On Ulster Unionists David McNarry reaction on Corporation Text very encouraging,. He said : ” When others sneered at our idea, we relentlessly pursued the objective of reduced Corporation Tax for the Province combined with the idea of Northern Ireland becoming an enterprise zone. We must now close this deal and we must not allow drift to set in, as so often happens with the DUP-Sinn Fein regime. We cannot afford to let this opportunity slip.”
    “A major reduction in Corporation Tax could offer the Province a new economic dawn. This has to be a good deal for our economy especially as we desperately need some new incentive to set us apart and help us grow our economy in the light of new tighter EU rules being introduced in the new year.”
    “Northern Ireland has always had a strong underlying spirit of enterprenureship and enterprise. We must set that spirit free. We must lose no opportunity to allow these talents to re-emerge and with them new businesses, new wealth and new opportunities for our people. I must emphasise that the development of Northern Ireland as an enterprise zone is of equal importance in creating a new entreprenurial buzz about our economy.”