Grow NI disputes British treasury estimate of corporation tax cut cost

Northern business umbrella group says figure would be close to £192m

The cost of introducing a lower rate of corporation tax could be dramatically less than previously projected.

The British treasury estimates it would cost the Northern Ireland Executive about £325 million (€440 million) to cut the corporation tax rate in the North.

But Grow NI, the business umbrella group which has spearheaded the lower corporation tax rates campaign, says its latest research – based on current UK statistics – shows the figure would be closer to £192 million.

Fiscal consequences

The treasury’s estimates are based on the “full fiscal consequences” that Northern Ireland would have to bear if it lowered the tax levels. That means the North would suffer a cut in the block grant it receives from the treasury in order to reflect the fiscal costs of a reduction in the tax rate.

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But Eamonn Donaghy, the spokesman for Grow NI and head of tax at KPMG Belfast, said the treasury estimates are not accurate because key factors used in their calculations have changed.

“Our analysis shows that by applying both published HMRC [Revenue and Customs] figures and recent ministerial statements to the treasury’s own calculations, the true cost of reducing corporation tax could be around £192 million per annum, less than 1 per cent of total public expenditure in Northern Ireland,” said Mr Donaghy.

He said Grow NI's research exposes "gaps" in the treasury figures, particularly in relation to five key areas. These include tax motivated incorporation which Grow NI says was estimated in 2011 to cost £50 million per year. Earlier this year, treasury minister David Gauke said the true cost would be closer to £5 million. Grow NI also highlights the cost of extending new corporation tax rates to existing companies.

Initially estimated at £225 million in 2011, it is now put at £182 million.

According to Mr Donaghy, the total benefits from new companies investing in the North if a lower rate of tax was in place – seen by the UK treasury as delivering an increase of £20 million in tax receipts – could be higher.

Francess McDonnell

Francess McDonnell

Francess McDonnell is a contributor to The Irish Times specialising in business