Northern Ireland offered deal to set own corporation tax rate

Northern Ireland will be given historic freedoms to set its own corporation tax rates, if politicians there can agree Stormont's budget, leaving Sinn Féin and the SDLP facing demands to accept major welfare spending cuts.

Making the conditional offer, British chancellor of the exchequer George Osborne said London would pass legislation before next May's UK general election if the Northern executive's future budget is agreed in the current interparty talks.

The Department of Finance said Dublin would be "fully supportive" of anything that "makes the island as a whole more competitive" – an opinion echoed by IDA Ireland.

Competition for foreign investment is “intensifying”, the IDA said, but it believed the Republic’s offering was “highly compelling” on many fronts – not just because of its 12.5 per cent corporation tax rate.Demanding powers over corporation tax “without conditions”,

Sinn Féin accused Mr Osborne of “breathtaking arrogance”, saying Stormont’s budget crisis has been caused by his spending cuts.

The conditional offer – the first time Westminster will have varied UK-wide tax rates, if it goes ahead – follows years of debate marked by treasury opposition. However, the North could need to find £400 million a year itself to replace lost revenues if it tries to match the Republic's 12.5 per cent corporation tax rate. This is because its treasury grant will be cut by a sum equal to the amount lost – in line with European Union rules. Corporation tax in the North stands at 21 per cent, but it is scheduled to decline to 20 per cent next year.

Spending strictures

The Executive needs to make £1.3 billion worth of budget savings to stay inside treasury-imposed spending rules, which NI Minister for Finance

Simon Hamilton

has warned will lead to public service job losses. The Executive has been fined £13 million for not introducing welfare cuts in force in the rest of the UK but this penalty could rise to nearly £120 million.

Scotland's finance secretary, John Swinney, said he could see "no reason why Scotland shouldn't have these powers", if the North gets them – but Scottish Labour and unions disagreed, fearing public service cuts.

Welcoming Mr Osborne's offer, the North's First Minister, Democratic Unionist Party Peter Robinson, blamed Sinn Féin, the SDLP, the Ulster Unionists and the Alliance Party for London demanding stiff conditions. Mr Osborne's action was "not unreasonable", he said because the North must show it can manage its budget.