North risks losing chance to control corporation tax

What’s happening to Northern Ireland’s big plans to introduce a lower rate of corporation tax to rival that of the Republic’s and entice new investors to the North? Ask any of the leaders of the five main local parties and they will give you a long, convoluted answer.

The truth is much simpler: nothing is happening.

In the eight months since the Northern Ireland Secretary of State signalled that corporation tax could be devolved to the Executive, political leaders have gradually let the opportunity to grasp the devolution of corporation tax slip further through their fingers.

Today many in the business community believe it is hanging by a very precarious thread.

When they put the mechanism in place to potentially devolve corporation tax powers to the Executive, the British government made it perfectly clear that it all depended on the implementation of the Stormont House Agreement. This included primarily sorting out the Northern Ireland budget and implementing welfare reforms.

All of the political parties – who were vocal in their assertion that corporation tax devolution could help them “rebalance” the economy – signed up last year to the Stormont House Agreement after 11 weeks of talks.

Legislation was passed by the British government back in March to devolve tax-setting powers which could in theory have enabled the Northern Ireland Executive to introduce a new, lower rate in 2017 – the current UK rate is 20 per cent, compared to the Republic’s 12.5 per cent.

Lined up

So after years of campaigning to secure this power you would imagine that political leaders in the North would waste no time in getting everything lined up.

Not so. Northern Ireland’s political leaders have been unable to agree on pretty much anything to do with either the budget – which has a £600 million shortfall at the moment – or welfare reforms.

So where does this leave Northern Ireland and corporation tax? Perilously close to “losing out on the opportunity”, according to Eamonn Donaghy, one of the key campaigners for the devolution of corporation tax and a leading member of the business umbrella group, Grow NI.

Donaghy, who is head of tax at KPMG Belfast, says business people are "frustrated and very pessimistic".

“The growth and potential development of our economy is being overshadowed by the Northern Ireland Executive’s inability to agree a budget or resolve the impasse over the the Welfare Reform Act. Agreeing a budget should not be difficult – after all, the Northern Ireland Executive just has to spend, not collect, money.

“But the bigger issue now is whether the Northern Ireland Executive can function as an independent entity and sort out the budget or whether there is going to have to be direct intervention by the British government.

“Nobody wants Northern Ireland to lose out but there is an inevitably that is going to happen,” he says.

Donaghy says the default position for the local business community during any political crisis has always been to “keep the head down and stay out trouble”.

This time around, it could be different.

“It is hard for the business community to point the finger and say you’re to blame because they still have to deal with the same people for the foreseeable future.

“But when new investors or customers see what is going on in Northern Ireland and they tell you, ‘no thanks, we don’t want any of that’, then it is much more difficult to ignore,” Donaghy says.

He says the argument for cutting corporation tax rates to boost the local economy is as compelling today as it was when he first got involved in the campaign 18 years ago.

Two pieces of evidence

“It is right to do it and two pieces of evidence illustrate why: one is the continuing improving performance and success of the Irish economy; and two is the continuing cuts to corporation tax rates by the British chancellor – it will fall from 20 per cent to 19 per cent in 2017, and then to 18 per cent in 2020. The evidence shows that lower rates of corporation tax result in increased economic investment and job creation,” Donaghy argues.

The region’s Minister for Enterprise also maintains that it is “vital” that the North has control over corporation tax.

Jonathan Bell told The Irish Times: "Previous research commissioned by my department has shown that if we reduced corporation tax from the then UK rate of 20 per cent, to 12.5 per cent, we could create almost 40,000 additional net jobs; and grow our economy by 10 per cent by 2033. This would be a significant economic transformation, and there is no other economic lever within our control that would have such an impact on our economy within this time scale."

Latest cut

Bell believes the latest cut in UK corporation tax rates helps take Northern Ireland closer to its goal.

But Stephen McCully, president of Northern Ireland Chamber of Commerce and Industry, says the prospect of coming so close to introducing a reduced rate of corporation tax without actually achieving it is “not only frustrating but very damaging”.

“The future of our economy and the potential to create much-needed jobs right across Northern Ireland is too important to be sacrificed in the name of political stalling and grandstanding. The ongoing political instability and slow decision-making in Northern Ireland is harming the confidence and ambition of both local companies and potential investors.

“If corporation tax is not reduced now, the opportunity may not come our way again.”