NI Minister warns of uncertainty over tax cut

THE NORTH’S Minister for Finance Sammy Wilson has warned that lowering corporation tax must not be “debilitating” to the Northern Ireland economy.

He told business people at Stormont yesterday that harmonising such tax rates with the South could cost the North up to £385 million annually in reduced subvention from Westminster.

Mr Wilson said while the Northern Executive favoured reducing corporation tax there was a “huge amount of uncertainty” over what would be the impact of such a move on jobs, investment and public expenditure.

A British treasury consultation on whether the Northern Executive should be given the powers to reduce corporation tax is to end on July 1st.

British prime minister David Cameron, on a visit to the North last week, broadly signalled he favoured the extension of such powers.

Northern Ireland receives an annual subvention of £12 billion, and any moves on corporation tax would lead to a cut in this grant.

Different figures ranging from £200 million upwards have been mentioned about the possible level of grant reduction were corporation tax to drop from 26 per cent to 12.5 per cent, as in the Republic. This could cost as much as £385 million annually, said Mr Wilson.

The level of reduced subvention “could put considerable strain on public expenditure in Northern Ireland” leading to “less money being available for capital spending and supporting industry”.

Were the extra powers devolved to the Executive it would have a number of options such as phasing in the reduction of corporation tax, postponing reductions until a more economically propitious time, or even lowering the tax to 10 per cent, 2.5 percentage points under the Republic’s rate.

Mr Wilson said reducing the tax must “not be debilitating” for the Northern economy, and there would be “hard negotiations” on the issue with the British treasury.

“It must not be, it will not be, it cannot be, at any price. It must be at a price that is fair, reasonable and realistic.”

Esmond Birnie, a former Ulster Unionist Assembly member and now chief economist for PricewaterhouseCoopers in the North, said lowering corporation tax would be welcome but ideally must be part of a package of other economy-encouraging measures such as tax incentives and promoting the private sector.

He added, however, that there was still a question over whether it would be a “game changer” in terms of bringing in jobs and investment.

Dr Birnie also warned that reducing corporation tax could be the “nail in the coffin” of the current level of British subvention to Northern Ireland, which per capita was higher than that being spent in “deprived” areas such as Wales and north England.

He expressed concern that the EU would have worries about reducing the tax.

“It is not clear to me that the European Commission is entirely signed off on this.”