Mainstream media should not abandon their independent judgement before the Grow NI campaign

The debate on the future of corporation tax tests the area where NI   journalism and comment is at its weakest – business and economics. It also tests of the robustness of editorial independence when commercial judgment is decisively on one side. Naturally business is rampantly in favour – how can turkeys do otherwise than vote for the permanent abolition of Christmas? Companies are clustering round the Grow NI campaign launched by the NI Chamber OF Commerce and backed by the Secretary of State. When you’ve got a campaign you gotta have a brand and a logo. Fair enough, though I still find it peculiar to see a cabinet minister in the position of lobbying his own government.

It’s all too easy for the media to surf the wave and abandon their own navigation.  It’s fair enough too for the company owning the Belfast Telegraph to make the natural commercial judgement that lower corporation tax would benefit them. But I hope this will not overbalance the paper’s editorial judgment. The paper catches the flavour of the Grow NI campaign with enthusiasm. Its authoritative columnist John Simpson traces the buildup of the campaign and only notes delphically.

Debate on the economy for political and business leaders is entering a demanding phase.

You could say that again John and maybe you should say more.

Apart from straight news reporting has anybody noticed much debate or analysis from the BBC at an important stage of the debate?  I hope they’ll fire up coverage to match the climax of the Grow NI campaign for the end of the Treasury consultation period on June 24. The government are unlikely to respond to the consultation before September, so they can return to it after the marching season.

A dissenting voice comes from a pro- union tax expert Richard Murphy writing in the Guardian who claims that 12.5% corporation tax in the Republic has been a disaster, adding:

For Northern Ireland the problem will be that of all tax havens: fly-by-night companies that have no intention of creating real jobs, and whose sole aim is to park profits in the province before moving them on to another tax haven as quickly as possible will be those attracted by this policy.

In addition we’ll see plenty of notional head offices set up, as abound in Dublin docks, many of them with no employees at all.

On top of that there will be plenty of artificial transactions relocated to the province, such as the repackaging of goods with minimal labour content added undertaken, all for the sake of shifting profit into Northern Ireland.

Just to show how even handed I am, this goes too far. The best way to avoid abuse is to grant corporation tax relief on the basis of the size of the company‘s local payroll.

Murphy’s may be a jaundiced minority view but at least it shows there are other arguments that should be aired. The Republic may yet have to face a modest increase in company tax in exchange for  improved bailout terms.

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  • Old Mortality

    Brian
    One issue which has not been addressed is which companies will benefit most. I am pretty confident that the largest corporation tax payers in Northern Ireland are the large retailers and (in normal times) the banks and, God forbid, proprty developers. Do we want them to enjoy a windfall? Let’s call it the Tesco question.
    It’s often overlooked in this debate that until about six years ago these types of businesses in the RoI were subject to a high rate of corporation tax (more than 30%, if I remember correctly). The imposition of a unified rate at the behest of the EU may have contributed to the speculative bubble that subsequently occurred.
    Growing companies, of the type that we presumably want to attract and encourage, would tend to have low effective tax rate because of investment allowances.
    If the corporation tax rate is such an important issue, it is almost bewildering that First Derivatives, a very successful indigenous company, should establish itself in Newry rather than a few miles away.
    Nor have I heard of any companies relocating across the border to avail of the lower tax rate.
    I am not against a lower rate in principle but I think that the potential benefits are substantially exaggerated.
    In any case, it remains to be seen whether the Skodariat will countenance the compensating reduction in the block grant with all those ‘vulnerable’ people to look after. Their enthusiasm for what was apparently a painless solution seems to have diminished.

  • Brian Walker

    Indeed, OM. What the public is being asked to accept is a major tax concession to companies of a certain size to deliver growth in exchange for a cut in public spending,

    This a new form of social contract. Most of the advantges lie with the companies who are minimally accountable to the public.

    We need to know more what they would do with the concessions, as would any private or pulbic investor in them. We should probably look at a social partnership arrangement as they have in the Republic although this is not a magic bullet either.

    To begin with what impressive investment plans are being considered by local business that do not depend on increased home consumption?

    The benign chain of lower tax, higher investment, more jobs, higher profit, higher tax take is far from automatic.
    The market is the main mechanism but it is far from perfect.

    We also need to know more about the prospects for direct foriegn investment.

    If we are to have faith, we need to have evidence, the business sector not being God.

    The alternative is to divert more public investment into spending on capital and public sector job creation.

  • Brian Walker

    I somehow manged to kill off by mistake a powerful commment I’d copied out for transmisison. I post it below. Would the writer like to claim ownership? Apologies..

    There were a couple of things which struck me about the NIAC report.

    1) NIAC seemed to think the legal hurdles were a lot lower than their main legal expert.

    They said they were “confident” the the plans meet the criteria of the Azores judgement.

    But Rosa Greaves, Professor of European Commercial Law at the University of Glasgow, said that two recent cases relating to the Azores ruling have only been ruled on by national courts, not the European Court.

    She said: “The gate was opened but we don’t know how wide,” and “it needs a European Court of Justice decision to be final”.

    2) The bunglers at our local banks who shovelled vast fortunes into wild property bets are going to get a by-ball.

    The committee acknowledged that a cut in the tax would create a form of “rough justice” where banks would experience a windfall gain without creating any new jobs.

    EU law means that any cut could not be applied preferentially to particular sectors, and could not be refused to particular sectors.

    The committee concludes that “such rough justice does not invalidate the wider benefit of adopting a lower rate.”

    They haven’t even raised the possibility of some form of windfall levy on the banks.

    3) They are proposing another by-ball by also taxing unearned income at the low rate. In the Republic unearned income is taxed at a higher rate.

    4) NIAC appeared remarkably credulous about the assurances that a reduced rate would not be abused by large companies. This seems very naive.

    One of the main campaigners for the cut is a tax consultant at a big four accountancy firm. When companies ring him up and ask ‘Where are the loopholes?’ will he just keep mum?

    5) Whatever they come up with Belfast will not come up with a credible rival to the IFSC because it thrives not on the headline rate but on other parts of the code. The IFSC is effectively a treasury operation for multinationals – they use if to suck in money, shake off much of the tax and then spit it back out to other (non-Irish) parts of the business. The Treasury is wise to this:

    ‘The Republic’s corporation tax system differs from the UK’s in respects other than headline corporation tax rates, which may result in companies paying less tax than the headline rate implies. In addition to an entirely different system of reliefs and allowances, significant differences between the corporation tax systems in the UK and the Republic relate to rules governing Controlled Foreign Companies, transfer pricing, thin capitalisation and the taxation of dividends.’

  • aquifer

    Protestants benefitted disproportionately from previous government expenditure to keep industry here, so maintaining the status quo is already unfair.

    So what now? Teaching a lot of students remedial maths would be an excellent investment of public money. There is no reason not to have the private sector deliver public goods such as business education or research, if standards can be assessed.

    There are numbers of socially useful products and services that require research and development. Each public body and department should be required to put out tenders for expenditure on 20 new products or services. There is no reason why the public sector should actually run water or energy efficiency campaigns for example. Being clear about what is to be achieved without being prescriptive may get creative answers that would not appear from within bureaucracies. e.g. How do we get the long term unemployed economically active?

    Expanding the education sector and attracting foreign students should also support our struggling property sector, which could also be incentivised to deliver modern premises with low overheads, good information technology, and expansion possibilities. Investing in better rental housing and public transport can make lower paid jobs more attractive, improving competitiveness. Reducing rates on cafes and clubs could help establish a 24 hour work and play culture.

    A combination of employment friendly investment and lower corporation tax will grow employment fastest and reduce ‘nameplating’.

    However, without notably lower headline rates, or maybe a timetable for their introduction, it will be difficult to attract or even keep the big corporations that often build long term private sector confidence and skills.

  • exsdlp

    Brian it would be nice to see a bit of consistency in your own analysis. Today you think it unusual to see the SOS lobbying his own Govt, two days ago you said he had washed his hands of the whole thing. Sort of undermines your analysis

  • Brian Walker

    No inconsisntency, exsdlp., same point. The SoS is campaiging for a policy the cabinet could deliver. Why is campaigning rather than delivering a firm policy the Executive coild accept?

  • jthree

    Brian,

    The post you coped is mine.

    Further to it a point you raised elsewhere about the investment plans of local business is a pertinent one.

    We have just come out of an unpredcedented, not-to-be-repeated-in-our-lifetime credit boom.

    What did Northern Ireland business do with all this cheap money? Massive investment in staff skills? R&D and innovation? Wholescale upgrading of plant and equipment? On the whole, none of these things. Instead most of the money went on the buying and selling of shopping centres.

    To a large part the banks were to blame – why bother trying to understand different buisness models when you can grow the book with vast amounts of secured property lending. But at the same time there were did not appear to be many people with the ambition to grow world class exporting businesses – with obvious exceptions like John Cunningham, Danny Moore and Brian Conlon.

    Declan Kelly alluded to some of this

    So will cutting the corporation tax rate suddenly result in a big change of attitude?

    Just one other point – this whole campaign is being dressed up as a common sense, non-ideological project when in fact it is profoundly ideological. But it is clear that our local political class have decided not to engage with it on those terms.

  • Old Mortality

    Brian
    The local press is ill-equipped to question the consensus. The journalists who staff the business pages, by and large, have little or no specialist training and are just getting their foot in the door hoping to switch to mainstream reporting or a more lucrative career in PR. The printed press can plead limited resources but the BBC has no such excuse and its choice of business correspondents clearly shows that it regards business as being of no importance compared with health and education which are entirely supplied by the public sector.

  • exsdlp

    bbc business reporting has been very poor for years. Hopefully Jim Fitzpatrick’s appointment can help shift the emphasis

  • FuturePhysicist

    If NI journalism is weak on the business and economic side, why would losing their independence really make a difference.

    We all know that the majority of NI journalists will not use empirical measures or economic precedence to make any judgement on economic matters. There are a few, Newton Emerson for one.

    Northern Ireland needs a regional based Economic Newspaper. We’ve heard the fiscal arguments and other basics, what the media has failed to do (and the Assembly election campaign) was to challenge the politicians on policy and infrastructure changes needed to make corporation tax a runner.

  • jthree

    A regional based Economic Newspaper…would, ironically, not make any economic sense.

    Another problem is that your basic laws of supply and demand means that the media here don’t have the resources (ie.cash) to hire people with the necessary economic skills.

    People like Stephanie Flanders (Harvard, IFS) and George Lee (LSE, Central Bank of Ireland) can charge a premium for their knowledge and ability to deliver it. Why would anyone with a good economics degree choose to work for the Bel Tel on £30k a year when they could be on double that in a bank?

  • Cynic2

    “Protestants benefitted disproportionately from previous government expenditure to keep industry here, so maintaining the status quo is already unfair.”

    Where’s the evidence for that sweeping statement?

    “Each public body and department should be required to put out tenders for expenditure on 20 new products or services”

    You really don’t get this free market thing do you? In most cases NI based companies will not have a competitive advantage in those issues so the money will go to companies outside NI.

    And Guess What? We don’t have that money to spend on the research nor to implement the “good ideas”.

    Furthermore the notion that the NI Civil Service might have 20 good ideas per Department is risible!!!

  • Cynic2

    “A regional based Economic Newspaper…”

    …..any body heard of the Internet thingy? And the whole concept is completely ad odds with the idea of competing nationally and internationally

  • FuturePhysicist

    jthree/Cynic2

    “A regional based Economic Newspaper…would, ironically, not make any economic sense.”

    Both the Financial Times and Irish Financial Times can manage, why not something local? … maybe not a newspaper but at the very least a decent pullout would be good. Nothing wrong with the internet to do the same thing but really there isn’t an impartial independent site there either. Such a paper would sell at the right price.

    jthree

    ‘Another problem is that your basic laws of supply and demand means that the media here don’t have the resources (ie.cash) to hire people with the necessary economic skills.’ People like Stephanie Flanders (Harvard, IFS) and George Lee (LSE, Central Bank of Ireland) can charge a premium for their knowledge and ability to deliver it. Why would anyone with a good economics degree choose to work for the Bel Tel on £30k a year when they could be on double that in a bank?

    But people with good economic degrees aren’t always working in banks anyway, not everyone with a good economic degree works in the bank. An unemployed economic graduate who is overlooked for the few banker’s jobs out there, or someone sacked from a bank may be far better in journalism circles than “know nothing” social journalists. Indeed there may actually be better people outside of the banking circles who are better in economic theory but don’t make the money simply through random chance.

    The fact that the assets of such people are overlooked for the sake of maintaining the status quo is a contributory factor to the economic problems as a whole. Paying too much for the elites but being unprepared to develop elites of their own.

    A demand for something we refuse to supply, and a supply of things we refuse to demand. It’s a dreamworld cycle in the worst way. We can’t look modestly at doing the best with what we have, instead of economizing, we pulverize any diverse practical developments lusting over the elites.

  • Brian Walker

    jthree an excellent fundamental analysis which cries out to be replicated in the mainstream media. I’ll certainly borrow it from time to time.Perhaps the BBC cover this on air but I don’t see it in the website.

    Journalism generally still has to shift further away from the Troubles mindset. Poltiics is still largely defined by it. There seems to be little interest in policy unless its part of the party battle not in its own terms.But then poltiics is so easy and familiar. Orginal journalism is more difficult and the level of debate outside is low. Bank analysis the only regular form of it is instinctively cautious and academe pronounces only from time to time.

    The NI debate badly needs attention from think tanks.
    The public should agitiate for the BBC with its well financed public service journalism to take a lead in developing better informed, more expert public debate.