The corporation tax debate is finely balanced. Business needs to shape up

 Claire McNeilly presents a pretty good pull-together of the local debate on lower corporation tax in the Belfast Telegraph. In the FT John Murray Brown does the elementary sums.

 Assuming corporation tax is cut to the Irish Republic’s rate of 12.5 per cent, the Treasury paper estimates the block grant would have to be cut by £105m in the first year of the adjustment, rising to £270m, or 2.6 per cent of the block grant, after five years

The onus lies on local business to make a strong case. With rock bottom interest rates in the US and pressures rising on sovereign debt in much of the world, why should foreign direct investment come flooding in  anytime soon? The Institute of Directors’ local website is trying to start a debate. Let’s hope they get a decent response for once. So far, the balance among experts tilts in favour of caution.

Economist John Simpson said even if an agreement is reached, many companies might go to the wall in the interim period. ”The process of approving such a reduction here will take years, so it won’t be in effect until 2015, so if businesses can’t survive today’s recession they will be gone before this happens.”
Tax expert Richard Murphy said there were numerous reasons why a tax reduction wouldn’t be the much-sought after panacea many adocates promote.

 “The province can’t replicate the lax tax regime of the Republic which refuses to tax large tranches of profit — so Northern Ireland can never compete with Dublin’s current offering,” he said.

 If Northern Ireland is to benefit from lower corporation tax, why not Scotland and Wales, – and poorer English regions remote from the south east, for that matter? The debate has been too restricted and will have to take in wider arguments.  Wales Today raises the flag, but one Welsh MP with rare knowledge of NI is doubtful. 

   Owen Smith, Labour MP for Pontypridd, did not think that lower corporation tax would be on the way for Wales.

He said: “I don’t think anybody is seriously suggesting that Wales could or should have a separate corporation tax threshold to England. The Northern Ireland case, which I can comment on with some degree of knowledge having been a special adviser there, is of course long-standing and unique because of its border with the Republic where corporation tax is 12% – the lowest anywhere in Europe.

“The more important debate about corporation tax after this budget is whether it’s appropriate for the Chancellor to give another tax break to big business whilst asking families to shoulder the burden of increased taxes and increased living costs.”

But some Scots businessmen sing a different song.

 “Northern Ireland is a great example…. It is exactly the same argument for Scotland. It’s more expensive to have a company here than in the south of England.

“Just look at road transport and flights, for example, and the cost of getting goods to major markets. The further away from the south-east you are, the more remote, the harder and more expensive it is.

“Scotland needs to have real incentives for big overseas companies to establish themselves here. Otherwise, most companies in the UK will remain centred around London and the south-east. That’s not a level playing field.”

Devolution analyist  Alan Trench issued this basic warning to the Commons NI Select Committee exploring the issue.

The key thing to satisfy EU law is that all decisions regarding devolved corporation tax must be devolved, and there can be no prospect of a bail-out from the UK Government if those decisions result in a shortfall of tax revenue.  As the likely scale of cut is in the order of 5 to 8 per cent of devolved non-social-security spending, it’s quite a risk to take – and if this doesn’t deliver the revenue that’s expected, Northern Ireland will have to be on its own, and public services  there will have to be cut as a result. 

Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London