Lady Hermon weighs in on Corporation Tax

With a couple of notable exceptions, there has been little political opposition to the proposals to allow Stormont to set the level of Corporation Tax. Indeed, it has been almost talked up by many on the hill as the silver bullet, while obviously being careful to not actually say as such.

Yesterday however, Lady Sylvia Hermon, the popular Independent MP for North Down gave an interview to Radio Ulster and made it very clear that she was unconvinced the move would be beneficial to Northern Ireland and was actually concerned it may be significantly detrimental in the short term.

Amongst her detractors, there are questions over Lady Hermon’s political calibre (though clearly not her ability to get elected) but the interview yesterday should at least go some way to addressing that fallacy. She may be ideologically opposed to much of the make up in Stormont, but her intelligence and aptitude should not be in question.

She also managed to get across her dislike for David Cameron in a way that can only be described as, well, Ladylike.

You can listen to the interview by following this link

  • OneNI

    Classic Hermon. All platitudes. No substance. Her alternatives – none. Her ability to do anything to influence Govt at Westminster or the council at Stormont – none whatsoever.
    Mind you she is a wonderful local MP – turns up at everything apparently

  • iluvni

    I’d rather see air travel taxes reduced to and from NI.

  • JH

    I hate to sound like Michael O’Leary but what would a lifelong politician know about it? Ask the people who are out there running businesses and creating jobs.

  • Lady Hermon is entitled to her point of view.

    That point of view is consistent with the left of the political spectrum.

    If you are from the left, you are always likely to be sceptical with the notion that reduced taxes will bring more jobs.

    However, she did try to substantiate her argument. She compared the situation when Ireland first lowered its Corporation tax with today and made reference to a much weakened American economy. Her view was also qualified. She kept repeating the words “at the present time”

    The counter argument to that is that a reduced corporation tax here now will attract businesses from other parts of the UK. If the introduction of the reduction in tax is delayed, the incentive to move to NI will be reduced since Corporation tax is being reduced in the rest of the UK in any event.

  • andnowwhat

    How much is it that the block grant will be cut by in the first year?

  • andnowwhat

    The counter argument to that is that a reduced corporation tax here now will attract businesses from other parts of the UK. If the introduction of the reduction in tax is delayed, the incentive to move to NI will be reduced since Corporation tax is being reduced in the rest of the UK in any event.

    Seymour Major

    As I understand it, companies from GB will not be allowed to relocate to NI to take advantage of the CT cut

  • JH

    Sorry Seymour I just don’t agree.

    It sounded like a party political broadcast. She covered all the major populist bases with head firmly in the clouds, because basically she can. She doesn’t really have to follow up on anything she does, such is the nature of politics here – particularly Westminster politics.

    And I come firmly from the left but wholeheartedly support the lowering of corporation tax because, frankly, there’s no other choice. The assembly are out of ideas, and so they should be because there aren’t really the levers to do anything about it, but the economy is in such a state that some fairly risky and innovative things have to be done. CT could be the start of that.

    It’s just a divide amongst people who are trying to run businesses, are passionate about innovation and business, and politicians like Ms. Hermon, who sit on their keysters and pontificate upon things they really don’t have a clue about.

  • andnowwhat @ 7:09 pm:
    As I understand it, companies from GB will not be allowed to relocate to NI to take advantage of the CT cut.

    And how, pray, would that be achieved? Are we to have an infinite bureaucracy of permits?

    The distant susurration is a whole writhing biomass of company lawyers working out how to fold a GB company into its NI subsidiary.

  • Cynic2

    While I respect her on many things on this she’s a plain old tax and spend socialist. The state knows better how to spend the money than those companies who earn it. It is as if the lessons of the last 15 years haven’t been learned. So I am sorry Sylvia but you are wrong on all counts

  • Crubeen

    Malcolm,

    “And how, pray, would that be achieved? Are we to have an infinite bureaucracy of permits?”

    The Revenue, I assume, would police that on the basis of the addresses from which a company conducts its business and cut off dates surrounding any changes. Any company that is minded to transfer should anticipate the reduction and move now.

    If the Executive is sharp it would fight any reduction in grant aid on the basis that inward investment should have a two-fold benefit on the public finances – reduction in benefits claimed plus a positive inflow of fresh PAYE and National Insurance.

  • Frustrated Democrat

    The Lady is now an expert on tax an economics, me I prefer to listen to the real experts in business and taxation who support CT cuts.

    The manufacturing economy in the RoI is actually booming proving low CT does work, facts are sometimes helpful in an argument, but it seems public sector jobs are more important to the Lady than private sector ones however she is just plain wrong and will use any argument to justify her prejudices.

  • andnowwhat

    @Malcolm Redfellow

    Don’t know. You’ll have to ask John Simpson for it was he who admitted this after much prompting on the radio last week.

  • IJP

    JH

    That’s the nail hit on the head.

    People are entitled – and actually correct in my view – to be wary about the effects of acreduction in business tax versus a reduction in grant (and I say that as a small businessman). Without changes to planning regulation, educational pathways and basic attitude (ie popular recognition of the need to pay our way), there is a risk the reduction would have scant positive impact.

    However, what we need from our politicians is ideas about what we should do, not just what we shouldn’t. I didn’t hear any of hose from Lady Hermon, but then I hear few from any other politician or party either.

  • Cynic2

    Sadly, Sylvia weighs light on this one. She really is an old style tax and spend socialist who believes that the state knows better how to spend our money than we do.

    Why all the focus on businesses coming in? What about the ones already here who are making investment decisions which have to factor in future corporation tax. A lower rate will make a significant difference in many of those decisions and lead to more indigenous investment as well as fly by night inward investors chasing the lowest rates

    Don’t wait for US investment to pour in here. The US companies are interested in asset stripping what they can out of here. For the long term we need partners who will stay and see this place as a major future base. For that they want stability, a reliable workforce, low costs by European standards and long term lower tax rates

  • Barnshee

    The big boys-the companies attracted to NI never paid any serious amont of corporation tax
    eg
    The man made fibre /artificial rubber outfits juggled (juggle) the price of their feed stocks or import “management services” to remove profits to other jurisdictions.
    European head offices are in Brussels (for tax reasons)

    Delorean money disappeared to Switzerland

    Any reduction in Corporation Tax will translate into bigger Mercs, BMs and villas in spain for some locals -not an unattractive result but hardly what is being sought.

  • cailleachdearg

    Andrew Samwick Chief Economist on Bush’s Council of Economic Advisers from 2003-2004:
    “You are smart people. You know that the tax cuts have not fuelled record revenues”

    If lower taxes for the wealthy and for corporations raise incentives for re-investment and entrepreneurial endeavour then US should have grown faster, in fact it has grown more slowly. This voodoo of ‘supply side economics’ is a ”
    crank doctrine that would have had little influence if it did not appeal to the prejudices of editors and wealthy men.
    Krugman, Paul R. (2009). The Return Of Depression Economics And The Crisis Of 2008

  • Comrade Stalin

    cailleachdearg,

    It’s simplistic at best to characterize reducing corporation tax as some sort of payoff for the rich.

    It’s not guaranteed that a company receiving a cut in the rate of tax will automatically direct that towards investment. But there’s a good chance that they will, especially considering the odds that their competitors will, and it essentially means that they can increase investment (hire more staff, train existing staff) while still declaring the same profit at the end of the year. The business investment in turn helps them grow their business and hire more people. It’s simple maths and it worked very well in the RoI.

    The Bush tax cuts on the other hand are simply about giving more money to obscenely wealthy people who already have more cash than they sensibly know what to do with. People with very large amounts of money quite arguably do not make what most people would consider rational financial decisions.

  • Comrade Stalin @ 7:42 pm:

    As used to be the meme: “I hear what you say”.

    However, I have here thetranscript of oral evidence to the Northern Ireland Affairs Committee on Corporation Tax, 27 October 2010. Here is Victor Hewitt, Director of the Northern Ireland Economic Research Institute …member of the Economic Reform Group:

    During my lifetime, my father’s lifetime and probably my grandfather’s lifetime, Northern Ireland has always been down in the bottom three of the UK regions. It has never exceeded 80% of the UK average in terms of productivity and output. Now, this is not for want of trying by Government, because very large quantities of money have been thrown at this problem in terms of infrastructure and of grants to try to bring in foreign firms in particular to transform the underlying base of the economy. Despite that, we are still below 80% today.

    One of the reasons why we are particularly interested in this policy instrument is that, in a sense, it changes the game, because all the previous policy instruments have been designed around promoting Northern Ireland as a relatively low-cost place to do business. The labour costs are low relative to the educational levels available; there are grants for capital and so on. All of those things attack the cost base and therefore attract companies that are interested in pressing costs down. In a sense it becomes a bit selfdefeating, because there are always going to be countries round the world that can offer a lower cost offer than you, especially on labour.

    The corporation tax, on the other hand, is a different instrument. It essentially would promote Northern Ireland as a profit location, rather than a cost location. It would be saying that Northern Ireland is a good place to make profits and to keep them. So it is a qualitatively different instrument from the other instruments that we have.

    Forgive the extended quotation and my emphases.

    I note there profit not jobs. Nor yet “re-investment”. For just one example, did it work with Dell in the RoI? As I recall, the Limerick plant shut, despite the attractions of corporation tax (which Dell happily continued to exploit), because the Polish government was prepared to subsidize a new plant, and Polish labour costs were lower.

  • IJP

    Malcolm, Comrade et al.

    The truth is, we don’t know what would happen if we reduced Corporation Tax. It may lead to masses of firms investing, growth in an indigenous “Mittelstand”, and decades of prosperity. It may make no difference at all.

    What we do know is what will happen if we don’t do it. Decades of talk with no action, our only real export being our brightest people, government dependence with resulting high unemployment (with all the social consequences), and so on.

    We are being asked to gamble £200 million on something which could rake in many times that (though there are no guarantees and transform this place into somewhere people want to live and work, with employment prospects, a healthy culture of self-reliance and so on. That’s £200m – the same amount tossed away by a single piece of bureaucratic incompetence (Crossnacreevy).

    As a wise woman once said: if you always do what you’ve always done, you’ll always get what you always got. Is anyone seriously suggesting we shouldn’t at least try something new?

  • Greenflag

    Coming late to this one but on balance given present economic circumstances for NI I think Lady Hermon is right to be unconvinced . Rather than admit that the cupboard of economic growth ideas and strategies is bare all of the NI parties ‘jump’ on the possibility of a reduction in corporation taxes as being the magic elixir to sustained economic growth . They are of course right -20 years ago . Since then the world has moved on and it now seems more than likely that even the Irish Government will be forced to up their rate over the next several years .

    It’s the old fallacy of composition conundrum coming back to bite . When everybody has a low corporation tax rate nobody has a low corporation tax rate . In today’s economy whether jobs are created or not hardly matters to most international corporations . Governments i.e elected politicians everywhere are desperate to climb on the backs of anything out there that would ‘create ‘ jobs . Even President Obama has hired as ‘jobs creation ‘ adviser a man who heads a company which reduced it’s workforce from some 400,000 to 240,000 over a period of a decade no doubt increasing productivity but at what cost . According to most economic statistics only those Americans in the top 20% of earners have had a real wage increase in the past 20 years -whereas the bottom 80% have seen real reductions or no increase at all . The top 1% have of course carved out most of the productivity gains simply because they could . in the absence of ‘regulations ‘ and trades unions throughout most of the private sector Americans have become almost ‘helots’ in their own country .

    The Irish Republic’s choice of this particular economic growth policy vehicle made sense given it’s past economic history and it’s paucity of enough local large industry to engender more widespread economic activity . Northern Ireland is in a very different situation given that some 70% of it’s economy is dependent on the public sector at this time. No easy solutions and no easy bullets but a strong possibilty of making matters worse IMO.

    Unfortunately our (ROI) public sector mandarins and their political masters decided to ‘cash in ‘ on the rising tax receipts and increasing revenues generated and when the Celtic tiger boat finally capsized they were left high and dry taking the entire economy with them and especially the public sector

  • orly

    I’m not sure she’s a tax and spend socialist like some have pointed out and I doubt shes entirely wrong about the lower rate too.

    What is the rate down south? 12.5% or thereabouts?

    For NI or the UK to be seen as significantly more attractive do you simply lower ours (28%?) to say 20% or do you need to match 12.5% or do you need to go even lower? How does each scenario work out in the wider economy.

    I don’t think these questions have been answered, or even asked…there seems to be a simpleton clamour from Stormont to simply reduce it without much reason or discussion.

  • cailleachdearg

    Comrade Stalin

    “It’s simple maths and it worked very well in the Rol”, really?

    There has been a low rate of corporation tax in the Republic for the last fifty years and it has made little impact on Ireland’s long term growth and had almost nothing to do with the Celtic tiger, a period during which the Irish governments refusal to raise income taxes or corporate taxes created a huge dependence on property taxes for revenue adding fuel to the property boom, and we know where that ended.
    In terms of attracting FDI with low corporation tax, PWC’s survey of businesses placed the rate of corporation tax as 17th in the list of factors for attracting FDI and I’m sorry but there is absolutely no guarantee that existing local businesses will not just pocket the additional monies as profit rather than use it for potential investments. Short termism based on maximizing share holder value is the orthodoxy of the day, look at Southern Cross…
    The North is and will continue to be a basket case, we won’t be risking 300 million from the block grant we’ll be losing 300 million, and all for an unproven economic dogma based on the lunatic ramblings of Rand, Hayek, Greenspan et al.

  • Greenflag

    orly ,

    ‘I don’t think these questions have been answered, or even asked…there seems to be a simpleton clamour from Stormont to simply reduce it without much reason or discussion.’

    Theirs not to reason why- theirs just to follow the pied piper wherever he leads . Of course it’s not just Stormont alone -it’s every legislative body in the western world dancing to the tune of the IMF/ECB -rat protectors in chief to the banksters and financial rapists and asset strippers of anarchic capitalism .

  • Greenflag

    @cailleachdearg,

    ‘The North is and will continue to be a basket case, we won’t be risking 300 million from the block grant we’ll be losing 300 million, and all for an unproven economic dogma based on the lunatic ramblings of Rand, Hayek, Greenspan et al.’

    And on the ramblings of the latter trio lunatic or otherwise this series gives some insight although the series of three programs by Adam Curtis was finished before the worldwide economic collapse 3 years ago . Here’s the first which has tens of thousands of viewers on video google if anyone prefers.

    http://www.youtube.com/watch?v=IDN6tIfWffg