North corporation tax rate power looks doomed

It went with a bit of a whimper in the end, but perhaps that was predictable. After all, times have changed dramatically since the idea of the North setting its own corporation tax rate was first mooted several years ago.

As recently as early 2015, it looked as if all systems on the project were go, but things stalled later that year, and this week, the dream was officially killed by the North's new Minister of Finance, Conor Murphy of Sinn Féin.

Murphy told the BBC that Brexit “and the change in economic and political circumstances” had reduced the significance of the corporation tax campaign. Given that UK tax rates are now fair game in that government’s efforts to “take back control”, the comment fairly reflects reality.

Foreign investments

The catalyst for the original push for rate-setting powers for the North was rooted in the Republic’s 12.5 per cent corporation tax rate, long a key foundation of the State’s industrial policy and still often the hinge upon which foreign investments might rest. In the North at the time, the equivalent rate was 20 per cent (it is now 19 per cent), with the difference making the job of inward investment authority Invest NI just that little bit harder.

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The idea was that a lower rate would place the two parts of the island on a more level playing field, although it was acknowledged that this would involve an initial hit to the North’s tax revenues, probably of about £250 million (€296 million) per year.

Murphy said this week that the key issue was whether or not the North could really afford a lower corporation tax rate. This concern has always been in the background.

‘Common rulebook’

Under EU state aid rules, which presumably won’t apply directly in the North after Brexit (although a “common rulebook” has been proposed), a unilateral reduction of the North’s corporation tax rate wouldn’t have been allowed unless the cost of it could be borne within the North itself. This could only have been achieved through a reduction in the so-called block grant from Britain that underpins much of the North’s economy.

Campaigners argued a few years ago that this was doable, with the shortfall eliminated, perhaps within five years as business activity picked up, although others disputed this. As things stand, it looks like we're unlikely to find out how things might have been, despite the Chartered Accountants Ulster Society saying this week it believed "the ship had not sailed"on the issue. For now, it looks like a post-Brexit special rate for all of the UK is a more realistic possibility.