The circle of the block grant vs lower corporation tax can be squared, we’re told

At last! The Bel Tel carries a thoughtful piece by economic commentator Paul Gosling on how to reconcile the continuing need for the substantial subvention of the block grant with the incentive of a regionally lower corporation tax. He quotes economist Mike Smyth.

” If you don’t do something like this, the subvention will be north of £10bn in a few years. If we don’t do something we will be bailed out by the Treasury in perpetuity.”

Making up the reduced block grant from Westminster is not a major challenge, suggests Smyth
” The answer is that by 2020 the rate of corporation tax will be the same as in the Republic. That would cost less than £100m [per annum].”

So that’s all right then. It’s not quick fix for the present downturn. And the case fails to take account the wider pressure in the EU to harmonise regional tax breaks – ie reduce them. It’s also quite breathtaking how Prof Smyth frankly admits that NI’s gain would be a GB region’s loss. From what I’ve heard, resistance from MPs across the water to any such concession for NI will be a formidable obstacle to overcome.  This is a factor the local debate tends to ignore.

Secretary of State Owen Paterson promised a plan to rebalance the NI economy in the New Year. Let’s hope we don’t have long to wait.

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  • Frustrated Democrat

    We should not be looking at a reduction in Corporation Tax as a final solution to our economic woes. It should be included as part of a larger integrated plan that would encompass changes in education, training, incentives and other measures.

    We should not be looked at as an Enterprise Zone where we are fenced off but rather as an Enterprise Community where everyone here is part of the team not only politicians and business people. When we go out to the world to sell Northern Ireland it should be a fully integrated approach which should show investors that we are all committed to change and to becoming a 21st century industrial hub.

    To achieve will take people who are not politicians, it will take our business community, who are not seeking votes, to get involved and to go out and explain why we need to reprioritise our budgets. The arguement should be pot holes versus jobs, more community centres versus jobs, water rates versus jobs, bus passes versus jobs, free prescriptions verus jobs, people need to be able to understand why these decisions need to made and what is in their and their families best interests.

    Let us get out and create One Northern Ireland, One Community, One Future where we are all focussed on the same things and where we all work together to make Northern Ireland a place we can all be proud of regardless of our backgrounds.

  • aquifer

    Certainty has a value too. Publishing a slow timetable for its introduction while supporting high employment growth sectors might be smart, allowing companies to write off increased investment against high tax and pay lower tax on eventual profits. A lot of this may depend on how long and how much the Treasury would ‘charge’ NI for introducing a lower tax rate. Would they be willing to take the percentage reduction in the existing corporation tax take as the benchmark, or would they charge extra as profits grew and their ‘loss’ increased. Our economy is being drowned by profits from the london financial sector retuned as subvention, but do we mind?

  • “And the case fails to take account the wider pressure in the EU to harmonise regional tax breaks – ie reduce them”

    That might be a problem for the Republic of Ireland in the future but not the UK, which is outside the Eurozone. The UK will never give way to pressure from Europe to harmonize.

    “It’s also quite breathtaking how Prof Smyth frankly admits that NI’s gain would be a GB region’s loss. From what I’ve heard, resistance from MPs across the water to any such concession for NI will be a formidable obstacle to overcome”

    The lobbyists and MPs from across the water are not “formidable” and they will not get anywhere. This policy was in the Conservative election manifesto. Furthermore, it is in the UK’s interests to keep businesses within the UK that may otherwise be thinking of leaving it. Northern Ireland has a role in helping that national cause.

    In a few years time, the Corporation tax will have been lowered across the UK in any event. This Government has a policy to lower corporation tax throughout the UK. Within the next year, you might see a 3% reduction to 25%. It will come down gradually over the next few years. That will also help to limit the reduction to the block grant.

    It’s not quick fix for the present downturn.

    It might not be a slow one. Business confidence is an underrated phenomemon in politics. As soon as it is clear that the implementation of the tax is certain to come very soon, this will electrify the business environment here. Invest NI have done a very good job with a poor hand. This policy will give provide them with the ace of spades.

  • Brian Walker

    seymour.. I wish I was as certain if anything as you are… I didn’t know you had so many good sources. attuned. 3 interesting comments though..