Where is the corporation tax debate?

 The corporation tax debate in Northern Ireland is unusual within the pattern of development for UK devolution. In our case, it’s the UK minister who is pushing and prodding the local administration fearful of permanent cuts to the block grant to bid for taxation powers, rather than the other way round as in Scotland and Wales. Three months to consult is practically nothing bearing in mind that the period straddles the May election, when any thinking  will be at a premium.  I say “debate” but I should ask “what debate?” The policy has strong opponents. Where do the economists and business people figure in this? They’d better get a move on. Bald campaign statements made months or even years ago are not enough. The Commons NI select committee looking into differential corporation tax should report quickly to avoid being blindsided. That would be a pity, as the GB and UK wide interests represented can present a more rounded picture than purely local lobbies.  Jim Fitzpatrick, soon to be BBCNI’s Business and Economics Editor may be right when he says:

“We can predict, with relative confidence, that the Executive will ask for the power and that a mechanism will be found to grant it.”

This is more questionable:

But if the Executive can get that formula right, and the mechanism to police it right, the potential benefits are huge and any loss of block grant will be more than offset by increases in employment and consumer spending.

A sharply contrary view of the supposed benefits comes from the influential pro-Keynesian Will Hutton in his Observer column, noting the Chancellor’s’ pledge to cut UK wide CT from 28% to 23% in five years . No capital cuts and higher spending on education and training are his priorities. A better use of the block grant rather than a £270m-£300m cut and taking a gamble on business? 

There is an enormous literature on the drivers of economic growth. Multinationals’ choice of tax jurisdiction barely figures. Indeed, the most magisterial survey by the University of California’s Professor Peter Lindert shows the opposite – that growth is higher in advanced countries with a higher public investment in social, intellectual and physical assets, which tends to be associated with higher rather than lower taxes.

The prioritisation of what matters is scarcely credible. The annualised and ongoing cost of the corporation tax changes by 2015/16 (including the reductions last June) that so pleased Mr Sorrell will be over £5bn a year as the government scrapes together a one-off £100m for extra science investment and a one-off £100m to create 50,000 apprentices

There should be no cuts in capital investment at all; instead, public investment in our physical infrastructure, our knowledge base and our social capital should have been stepped up, both because it is so needed and to boost faltering levels of demand so crucial to the growth process.

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