“There is a convincing case for reducing the corporation tax rate in Northern Ireland…”

So has concluded the Northern Ireland Affairs Committee in a report published today:

The committee supports the principle of devolving to the Northern Ireland Executive the decision over whether or not to amend the rate of corporation tax, and believes this would assist the indigenous private sector to expand, innovate and employ more staff.

However:

This means the decision to vary the rate must be devolved to Northern Ireland, the receipts for corporation tax raised in Northern Ireland would be kept in Northern Ireland, but at the same time the block grant would be reduced by the same amount as the initial corporation tax receipts

A connected initiative, Grow NI, has been set up today:

Secretary of State and NI Conservatives help launch Corporation Tax campaign

The Secretary of State, Owen Paterson MP, addressed an audience of business leaders, Northern Ireland Conservatives and other stakeholders at the launch of the Grow NI initiative at Belfast’s Lyric Theatre this morning.  The umbrella group spans the business community, which has formed a united front, calling for the power to set Corporation Tax to be devolved to the Northern Ireland Assembly.

Owen urged businesses, employers and the general public alike to respond in numbers to the Treasury’s consultation paper on rabalancing the economy, before the closing date of 24 June; “send emails and letters, overwhelm the Treasury and let it know, loud and clear, exactly where the business community in Northern Ireland stands on this issue”.

  • Frustrated Democrat

    The case for reducing the rate of Corporation Tax is unassailable, it will benefit all sections in Northern Ireland with more jobs and prosperity and ultimately more tax paid.

    The danger is that we do nothing and lose the opportunity and that other regions grab it with both hands.

    Each 2.5% reduction will mean that the Executive will have about £80 million less to spend out of about 20 billion or less that 0.5%, however companies will have the same amount more to invest in the future.

    It is not about more money for fat cats it is better life for all. A good deal all round.

  • DC

    The goal of a reduced corporation tax should be about giving NI workers new skills by using corporation tax as weapon to attract new private sector jobs, which when created would mean a running down of unneccessary public sector ones. The corporation tax policy should essentially be about sectoral change – a shift away from the public sector to the private, not necessarily profits.

    To put this another way – if corporation tax receipts go up then block grant funding goes down in sync – no problem. Whereas if there tax receipts remain the same or fall as a result of a reduced tax rate the NI executive should demand no change or reduction in the block grant.

    It’s a win-win for the executive and treasury – if NI makes money the block grant will be reduced, if it doesn’t the block grant does not get reduced. The aim is not for NI to profit per se but to switch from the public sector to the private so that NI workers and employees pick up new skills working inside the private sector that the region can build on for the future. The goal will be to reduce the public sector in the end – so that the NI economy is balanced.

    The reduction of the block grant should be on a sliding scale – if there are loads of jobs and profits created, the block grant comes down in a relative manner.

    This is a better way of ensuring that the transition goes smoothly, rather than saying “ok – that’ll be 200 million a year that you owe the treasury regardless of whether a 10% reduction in corporation tax works or not.”

  • DC

    Maybe tax receipts isn’t the best way of looking at this but more so looking at how may new private sector jobs have been created and then looking to make a reduction in the number of unnecessary public sector ones, then returning block grant monies associated with those jobs?

  • Mac

    “The case for reducing the rate of Corporation Tax is unassailable, it will benefit all sections in Northern Ireland with more jobs and prosperity and ultimately more tax paid.”

    It’s far from unassailable, reducing the corp tax here will create the situation where NI steals private sector jobs from the rest of the UK ontop of the disproportionate number of public sector jobs it already has, and will initially at least retain.
    That’s even if it brings real jobs rather than just monthly CEO meetings.

  • JH

    “reducing the corp tax here will create the situation where NI steals private sector jobs from the rest of the UK ontop of the disproportionate number of public sector jobs it already has, and will initially at least retain.”

    Yeah, God forbid we achieve a competitive job market…

    Of course there will be a little of UK companies moving their HQs into the new tax zone. More importantly though, reduced corporation tax will help indigenous startups. Coupled with legislation resisting the incoming overcautious UK internet data protection laws and the continuous output of skilled designers and developers from the two universities it COULD create a very startup-friendly environment in the north.

  • Reducing the top rate of corporation tax will do nothing for indigenous start-ups. Most local businesses are already on the reduced rate of 20%. There is more of a case for reducing that rate, than the rate for companies already making large profits.

  • DC

    @dave

    I was going to say that but I imagine that JH thinks that big business – those turning a profit of £1,500,000+ (over which levels the reduced corporation tax will apply) will spawn new SMEs who should be doing the supply side work, and feeding into the bigger companies demands for other services.

    For instance, the new Coca Cola bottling plant estimated that for every job it ctreated, ten new spin off ones were created by SMEs – who were working under contract providing electrical upkeep and maintenance work for the factory etc.

  • I’m all for this. It should be clear to everyone that the Norths reliance on the Public sector is unsustainable for a capitalist economy.

    When the threat of violence disappears for good the NI budget deficit will have to be addressed either by future British governments or by the north itself if re-unification is to be economically viable.

  • In isolation it could be said to be a convincing case, but equally so for Scotland, NE of England, NW of England….

    Without a substantial reduction in the size, scale and scope of the public sector in NI then this is like taking an asprin for the axe stuck in your head.

  • What are the businesses and investors going to do with the excess funds arising out of having to pay less corporation tax. Will they re-invest in their workforce and stop paying a ludicrous minimum wage? Probably not. A reduction in corporation tax will lead to the Managing Director and the managing board investing in extra golf club membership. Unless companies utilise the increased funds from a decrease in tax to plough into higher wages for their staff, then a reduction in corporation tax will be exploited to fatten the already fat cats.

  • The Raven

    “Without a substantial reduction in the size, scale and scope of the public sector in NI then this is like taking an asprin for the axe stuck in your head.”

    Mixing this with what DC has said, may I just add: if it comes to pass that this works, and extra revenue IS generated, should the Executive not now look to offer some sort of *real* re-training, or re-skilling of its own excess workers? And I don’t mean a desultory ECDL qualification or some such.

    This has to be a managed process. Each First Minister, and every Secretary of State before them has whinged about the size of the public sector – and then done nothing about it. You cannot just dump 30,000 odd workers on to a job market and not expect social disaster to ensue.

    I am very critical of the minority government we now have. I think, for me, the one thing that would turn my opinion around would be some leadership in this direction, and not just the ruthless wielding of a jobs-axe. Otherwise, we’re back where we started, and a new form of long-term unemployed will emerge.

  • ItwasSammyMcNally

    SF will presumably not agree to the rate being lowered below that in South – the DUP will presumably press that it is.

    Both will presumably be keen to avoid that disagreement until after powers are transferred.

  • To address the headline issue: no, there isn’t.

    There is, on the contrary a cast-iron case for all corporations to pay their share of tax.

    What is happening is that “big” firms are selling out to off-shore operations, who borrow from the Big Banks to pay for the purchase. This “debt” can than be set against tax (cf: Boots). Meanwhile the Big Bank doesn’t pay tax either, because it has a double-entry book-keeping commitment (and expensive company lawyers) to support.

    Result: a small “local” economy (e.g. Northern Ireland) is an out-house for UK operations. The UK operations are merely subsidiaries of a multi-nationals, with HQs in Maryland, and financial operations in the Bonga-Bonga islands.

    What is necessary, though, is support for those local operations which are local. And NI has the highest proportion of small enterprises in any UK region.

    A brutish change in corporation tax may persuade a few UK operations to put up a brass plaque on a solicitor’s/accountant’s office in Belfast. It won’t bring employment or cash.

  • aquifer

    Our economy needs rebalanced for sure.

    We have too many bureaucrats per capita. Some are smart, but many just slid up the grades due to undermanagment and the departure of the more energetic and able. Bullies and chancers can thrive in bureaucracies without the financial discipline that markets provide. Also much civil service recruitment was in a time where life was simpler and more routine, without the need to comply with EU directives or face large fines. We have paid too much incompetence tax the EU already.

    Many bureaucrats are sitting it out, waiting for a package. We should oblige them, reflating the local economy and giving younger colleagues a chance.

    We cannot absorb our large numbers of graduates into the public sector, so we must grow the private sector.

    Investing in R&D resource efficiency and skills alongside a series of programmed corporation tax reductions is probably the way to go to avoid too many GB brass nameplate operations, and would build on our role providing services to companies in ROI that already have the low rate.

  • Post has been updated.