Earlier today the Chancellor left the Northern Ireland Assembly’s Business Growth Strategy in Tatters following the release earlier today of Budget 2016.
Many of us have argued on the Slugger Platform in recent years, that the current obsession by Stormont to put all of its economic eggs in the 12.5% Corporation Tax basket was misguided and their efforts would be better served to create the economic conditions to enable our indigenous businesses, large, medium and small to thrive. This could be achieved through a variety of measures such as business rates reform, forcing local banks to lend to SME’s, slashing government red tape, driving efficiencies through NI government services, investment in infrastructure such as business broadband, airports, roads etc.
In the Chancellors 2016 budget earlier today, he drove another stake into Stormont’s business growth strategy by announcing a range of measures including:-
- infrastructure investment
- A further cut to Corporation Tax of bringing the UK rate down to 17% from 2020, (bringing the difference with the Republic of Ireland down to just 4.5%)
- Business rates reform
Our Northern Ireland politicians are now so disconnected from the electorate and business community that their current business growth strategy can today be shown for what it is, non-existent.
For example, with regards infrastructure investment, were the UK is investing heavily in assets such as High Speed Rail, and Aviation, Power generation, we have a public transport system which is not fit for purpose and have chosen to invest in the likes of Sports Stadia and Road improvements. If one looks at our key infrastructure assets, our International Airport (in the wrong location by the way) has received so little investment, it virtually looks the same visually as the day Bill Clinton flew into town to broker the Good Friday Agreement nearly 2 decades over ago. It is only when Belfast International Airport is visually compared with the improvements to Dublin Airport undertaken over the same period does one get a sense of how far behind the rest of the UK and Ireland we now are in terms of our key infrastructure assets. Many of our city centres are not even fully enabled for fibre broadband which is 2016 is ridiculous.
The Corporation Tax reform that Martin and Arlene have backed heavily has now turned out to be the damp squib many of us have been saying for years. Not only is the actual legislation , The Corporation Tax (Northern Ireland ) Act 2015 a very restrictive piece of legislation and when one considers that large global companies can remit a greater amount of their profits to ROI than they ever will be able to in NI, the difference will only be 4.5% from 2020. One only has to stand in the shoes of a large international corporation considering locating in NI and ask yourself if you could be bothered dealing with the red tape we are world famous for a 4.5% tax saving. (just ask John Lewis when their new store is opening to understand my point).
The Chancellor’s comments today suggests that he has listened to not only the business community but both the IMF and OECD and recognised something our local politicians are oblivious too, that structural reform is needed to boost long-term growth and that the most effective structural reforms include lowering the rates of distortive taxes to ensure that product markets are flexible and competitive, and cutting or simplifying business regulation and that these policies are critical to delivering sustainable growth for the next generation.
In Northern Ireland the most distortive tax we have is Business Rates. Not only is it the most economically damaging tax to the SME sector in NI, but it has literally destroyed every city centre, town and village in Northern Ireland and not only resulted in boarded up shows and offices, but stopped any form of new commercial development in its tracks to the point that the banks are no longer willing to fund commercial development projects or consider commercial property as collateral when making business loans.
To put the differences into perspective, summarised below is a summary of the NI Business Rates System compared with the reforms announced today by George Osborne which will apply to England. The Table below is a reproduction of Table 1.6 Section 1.164, Budget 2016 with Northern Ireland Business Rates calculations added.
As you can see from the above table, a ratepayer with a small shop with a NAV of £12,000 will pay rates of Nil in England and between £6,300 and £7,000 depending upon which district your business is located in NI. This is material, especially when one considers that not only are we the poorest region of the UK, that we have some of the lowest level of entrepreneur start-ups and higher levels of business of business failures as well as stubbornly high levels of emigration. Any reasonable person can only conclude that the current business rates policy in NI is sheer lunacy.
Yet again the Business Community of Northern Ireland demands our politicians to stop procrastinating and create the economic conditions in NI that ensures our SME’s have overheads, business taxes and red tape which are comparable to the rest of the UK and not only keeps our local economy competitive in terms of the UK, European and World markets but also allows our local SME’s to grow, create employment and enable employers to pay their staff better. It is now becoming clear that because the NI assembly has continually avoided the structural reforms to central and local government that NI urgently needs, kicking the can down the road, year after year, the politicians literally expect the local business community to pick up the tab for their waste and inefficiency.
Patrick Murdock is a dual qualified Chartered Surveyor and qualified Tax Advisor original from and currently in based Newry. An independent free thinking liberal at heart, prior to establishing his own specialist consultancy, Patrick has built a twenty year career working for a number of global advisory firms and continues to work across markets in the construction, property and final services industries and has considerable experience and practical knowledge of working day today in the UK, Northern Ireland and ROI markets.
He is also Cofounder and operator – The Hub, Newry.