The Great Corporation Tax Reform Dilusion

Budget 2015 presented yesterday by George Osborne included another cut to the UK Headline Corporation Tax from 20% to 19% in 2017 and 18% in 2020 which means that the UK is now has the lowest Corporation Tax rate of the G20 Nations. The difference between the headline Rate in the Republic of Ireland and the UK will now be just 5.5% by 2020 and this single Budget change leaves the Northern Ireland Assembly blinkered policy of securing a 12.5% Corporation Tax Headline Rate headline rate at all costs look like yesterday’s news.

I have always believed that the strategy of securing 12.5% Corporation Tax Rate by our politicians was bad policy as they could have achieved the same inward investment targets by adopting a range of fiscal tools and delivering much needed structural reform and modernisation to the Northern Ireland Civil Service and making it fit for purpose.

Corporation Tax reform was first mooted in Northern Ireland back in 2010 at a time when Corporation Tax in the UK was running at 28%, a material difference of 15.5% and here we are in 2015 and still nothing has been delivered. The NI Assembly has also failed to deploy any other fiscal tools or implement the economic reforms that will succeed in attract inward investment to Northern Ireland in any meaningful way.

The Corporation Tax (Northern Ireland) Act 2015 that has been given royal assent and will deliver the 12.5% Corporation Tax rate but this does not take effect until 01 April 2017. The wording of the legislation is so restrictive that will have little or no affect in attracting business to Northern Ireland as in simple terms, only the profits generated in Northern Ireland will be subject to the lower rate which in global terms is likely to be immaterial for large companies. The fact we heard our wrong-footed politicians this morning flapping and calling for a Corporation Tax Rate lower than 12.5% tells you all you need to know about where we are on this one. They remind me of the Greek politicians in that they always want more than what they originally asked for and are never happy.

What Northern Ireland Citizens have not been told by our inept politicians is that  against the backdrop of our five years of lobbying , the rest of the UK quietly rolled out in 2013, 24 Enterprise Zones in economically disadvantaged areas offering simplified planning, reduced business rates and superfast broadband to inward investors. The UK Government  also reduced the regulatory burden on businesses and Local Authorities and now work with the private sector in a much more proactive way to ensure that the benefits available from inward investment comes to their town. These Enterprise Zones are not perfect by any means, but they are at least a strategy compared with the ‘do nothing’ until 2017 approach of our own politicians.

Meanwhile whilst the rest of the UK is getting on with building factories and creating jobs and economic growth has returned. It will not surprise the Northern Ireland electorate to hear that the Assembly has basically done nothing other than roll out a single Enterprise Zone pilot scheme in Coleraine in March 2014. In addition other than voluntary redundancies, no meaningful structural reform to the Civil Service has been mooted, never mind delivered.

The Northern Ireland Assembly needs stop talking and actually do something that will make a difference today. We know most of our Government Departments and Agencies are not fit for purpose, the planning service is broken and applications that take months in the UK, take many years here, a situation that has just got worse following the birth of the new ‘Super Councils’. This inability to make quick decisions is starving our economy of capital projects. In addition anyone who has had the misfortune to deal with Northern Ireland building control, a regulatory service which was delegated successfully to the private sector in the UK many years ago will understand how difficult it is to get projects built quickly across Northern Ireland. This is a complaint that the general public has across the board in Northern Ireland as most government departments seem to exist to serve their employees rather than deliver high quality public services to the general public.

In addition ‘Non Domestic’ business rates are so much higher than the rest of the UK both in terms of not only the level of NAV’s but also the rate ‘poundage’s’ which are used to calculate the actual rates paid by businesses. The level of non-domestic rates is now putting off inward investors and also destroying the industrial base of Northern Ireland’s indigenous business community as it stops their expansion plans and pushes many SME’s to the brink of bankruptcy.

If Northern Ireland really wants to  attract businesses to locate here, the NI Assembly needs to re-focus on delivering a range of fiscal incentives that will incentivise businesses  to locate to Northern Ireland and will all indigenous businesses to expand. Our economy needs practical strategies that will have an immediate effect, Corporation Tax reform in 2017 is just too little too late.

The one thing that Budget 2015 taught me is that Northern Ireland Corporation Tax reform is not going to deliver an economic miracle anytime soon.