Corporation tax powers huge test for Stormont

The word is out that the government will grant  Stormont control over corporation tax when the Chancellor makes his Autumn Statement on 3 December.  Peter Robinson is  talking with the confidence of a done deal.  David Cameron gave a broad hint this morning as he was  grilled by  all the select committees chairs in the Commons Liaison Committee this morning on his current thinking on more devolution  powers.

Laurence Robertson, the Conservative chair of the Northern Ireland committee.

Q: What are you going to do about giving Northern Ireland control over corporation tax?

Cameron says the government will set out its plans in the autumn statement.

He says Northern Ireland politicians make two arguments for Northern Ireland being able to cur corporation tax.

First, they say Northern Ireland has a land border with the Republic.

And, second, they say the Troubles have left the public sector too large in Northern Ireland compared to the private sector. So they want to give the private sector a boost.

Politicians from all side say this, he says.

But, he says, devolving a tax power is a serious matter.

 

Answering questions about Scotland, the prime minister replied:

 

Barnett, for all its faults, has worked.

As you devolve tax-raising powers, the size of the block grant gets smaller. So Barnett matters less, he says.

That’s the message. What would be the scope of corporation tax cuts? Limited, to prevent Northern Ireland becoming a tax haven and imitating the double Irish. Little chance of then matching the Republic ’s 12.5%.in one fell swoop from the present 21% UK rate.  And what is the trade- off between such cuts and a reduction of the block grant which will be squeezed anyhow? . Cuts would have to be phased in slowly to minimise the impact on the block  grant. Too slow and the attraction for fresh foreign direct investment would  be proportionally  less.  It’s very hard to see any short term benefit. The test of the Executive’s decision taking abilities is monumental.

Just to cheer you up this is the favourable  forecast of the now defunct Economic Advisory Group in 2011 – a long time ago

This paper provides independent estimates of the likely impact on the Northern Ireland economy of a reduction in its corporation tax rate to 12.5%. It is complex to estimate as there are a number of uncertainties.

The impact of reducing  corporation tax in Northern Ireland to 12.5% (relative to the baseline of no

change) is as follows:

Employment is anticipated to be 58,000 higher by 2030, representing a

6.7% increase from the baseline. This includes an average of over

4,500 additional jobs per year in the longer-term (2020-2030), peaking

at almost 5,800 per annum by 2030. Cumulative job creation from the

policy turns positive in 2017 and the public sector becomes a creator of

jobs from 2018.

 

Foreign Direct Investment comprises 42% of the net additional jobs

The standard of living in Northern Ireland, measured by GVA per

capita, is forecast to be £24,500 per person, which is 13.5% higher than

the baseline.

 Economic growth, on average, is forecast to be 1 percentage point

higher per year, with the economy 13.8% larger by 2030.

 Productivity, as measured by GVA per worker, is forecast to be 6.6%

higher than the baseline by 2030 (at £52,300 per worker).

Exporting (external to UK) activity from businesses located in Northern

Ireland is forecast to be 34% higher than the baseline, valued at £15

billion in 2030.  This induces a process of convergence with the rest of the UK rather than

the baseline forecast which has NI continuing to lag behind the UK. In

addition, there is a significant move towards a more private sector oriented

economy in NI.

Net corporation tax receipts are negative throughout the forecast period (up

to 2030) but break even in 2035. However, when all taxes are included the

break even point is in 2021, and if only income tax, national insurance and

business rate are included the break even is in 2023.

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  • Andrew Gallagher

    Still no indication of how the tax base is going to be calculated though.

  • Jon Hope

    “What would be the scope of corporation tax cuts? Limited, to prevent Northern Ireland becoming a tax haven and imitating the double Irish.”

    The double Irish depends on a characteristic of Irish tax law, specifically the way Irish tax law treats payments between international subsidiaries to their parent companies, not the rate of CT.

    I really don’t buy the idea that NI will become a tax haven for UK companies. Any corporation that has found a way to save substantial amounts of tax within the UK system is unlikely to see much further return for moving their operation here. Especially with the way the wind is blowing on tax avoidance.

  • Mister_Joe

    Once upon a time, taxation powers will have been devolved and everyone will be living happily ever after.

  • Have never understood the argument that Corp Tax powers are what NI neeeds/wants. Why? How will it benefit? It is one factor, and not even the most important. And as JH says, with large corporates not even paying close to headline RoI rate within the UK then how does it fit into an investment package. RoI has a particular system that rests within the grey, but even Bono had to go to the Netherlands….

  • Thomas Girvan

    I just don’t like the concept of me having to pay tax and Amazon doesn’t.
    We should be approaching this from the other end and stopping the tax dodging countries from undercutting the others.
    Particularly in the E.C.

  • barnshee

    The treasury is laughing all the way to the bank -Literally

  • NMS

    Jon, Your last paragraph is the key point, any cut can only relate to activities in UKNI. It will not be possible to relocate profits from other parts of the UK without relocating the activities.

    Much of the Irish tax avoidance is around using Ireland as the point of sale, i.e. you advertise on Google, your contract is with Google Ireland Ltd., and not your local Google subsidiary. Remitting the money onwards to the IRNR, (Irish Registered Non Resident) company uses a quirk in US tax law, which has been specifically used within Irish law, via a “look through” provision.

    The only activities likely to be attracted to UKNI will be low value, administrative projects. There will then be an effort made to say that they are more important than they actually are so as to allocate a greater share of the profit to them.