North pins hopes on 12.5% corporate tax rate

Sinn Féin is apparently okay with giving tax breaks to big business and the DUP is fine with breaking the tax union with Britain, writes Carissa Casey

A few weeks ago, Northern Ireland's political parties were briefed on the proposed economic package being offered by the UK treasury as part of a return to devolution.

When the Northern Ireland Office officials left the room, all the parties - including Sinn Féin and the DUP - remained, for what one insider described as a "concerted discussion" about what was on offer. There also seems to have been agreement.

For all the public bickering over policing and deadlines, Northern Ireland's politicians are, not for the first time, finding common ground in tackling the economic issues facing them.

On the surface, Northern Ireland is relatively prosperous. There are huge building projects under way in Belfast and an air of determined optimism. Unemployment is running just over 4 per cent - similar to the Republic's - and house prices shot up in the last year.

There are areas of deprivation but there is an increasing number of people who are doing reasonably well for themselves. While it hasn't experienced the economic boom of its nearest neighbour, it hasn't done too badly either.

The problem is that this relative prosperity is heavily dependent on the public purse and the strings are beginning to tighten.

In recent months home owners got their newly increased rates bills. Water charges are in the pipeline. Meanwhile, the Celtic Tiger down south is purring away and people want to know why it can't be tempted North.

A new Northern Ireland Assembly will have to deliver on expectations, learn to manage its own finances and wean itself off the public purse.

"Now is the window of opportunity," says Sir George Quigley, chairman of the North's Industrial Task Force. "If it doesn't happen now, it never will."

He is talking about a cut in the Northern Ireland corporation tax to 12.5 per cent in line with the Republic's. This is not a measure that featured in British chancellor Gordon Brown's economic package and, if his public utterances are to be believed, not something he is in a position to provide.

The most obvious problem for the chancellor is why Northern Ireland, of all the regions within the UK, should be granted a special tax regime?

Why not his native Scotland or indeed Northern Ireland Secretary Peter Hain's constituency of Wales? After all unemployment in Northern Ireland is the fifth lowest of all the UK's regions.

Officially Mr Brown's people say that the EU will not allow different regional tax regimes. They point to the so-called Azores case in which Portugal was penalised for setting a different tax rate for the islands.

According to Sir George, however, the case has been misinterpreted. He says Europe has previously been sympathetic to the North's economic difficulties and that a special derogation might not be out of the question.

However, in a recently enlarged Europe, with new member states struggling with economic issues of their own, Northern Ireland may no longer be viewed as a special case.

A decade after the ceasefires and a peace dividend of hundreds of millions of pounds, compassion fatigue may have set in.

A tax cut for the North has, however, gained the support of all the political parties. Sinn Féin is apparently okay with giving tax breaks to big business and the DUP is fine with breaking the tax union with Britain. Unity is a rare animal here and nobody wants to scare it away.

The campaign to cut corporation tax has been well marketed locally. The Industrial Task Force's report, published this week, said that such a cut would mean 180,000 new jobs and £17.5 billion (€30 billion) in revenues - by the year 2030, that is.

Headline figures like these are attractive to politicians wading through the nitty-gritty of the package on offer from Mr Brown - a mixed bag made up mostly of commitments to public spending to 2011 and extending capital investment spending to 2017.

The low tax rate also been proven to work in the Republic. If the campaigners concede that cheap tax was not the only factor behind the economic boom south of the Border, there is still a widespread belief that it was one of the most important.

Besides, the alternative, according to Sir George, is stagnation. "If it [ a tax cut] doesn't happen, we will simply go on, stuck at 20 per cent below the UK average, heavily dependent on the public purse with everybody telling us we're not sustainable but not prepared to make us sustainable," he says.

Sir George has plenty of local backing including Prof Desmond Rea, better known as chairman of the Policing Board - still the hot political potato - but also the editor for the last 20 years of First Trust's economic review of Northern Ireland.

"If we are to do what Gordon Brown and Peter Hain want us to do, which is to reduce the size of the public sector and grow the private sector, in the short run, it seems to me, that you'd need some kind of stimulus," he says.

Investment in infrastructure and education are important in the medium term, he agrees, and political stability itself would be a pretty powerful stimulus.

"Devolution would be the most positive signal for investment, sending very powerful signals to the world."

He is equally adamant however that corporation tax is a significant part of it. "This has been enormously successful for the Republic. This part of the island is simply learning from its neighbour."

Despite the high-profile advocates, the campaign to cut corporation tax in Northern Ireland is getting a lukewarm reception in other circles. Only a handful of business groups are prepared to back it exclusively, which would seem wise given the odds.

Invest Northern Ireland, the agency tackled with stimulating the private sector, points out that while a cut in tax would encourage investment, "the potential impact on other parts of the United Kingdom and the legal position in relation to EU legislation needs to be addressed".

Frank Bryan, chairman of the Institute of Directors Northern Ireland, talks about a range of fiscal incentives that might produce the same outcome.

Sir George claims that nobody has actually come up with an alternative suggestion to cutting the tax rate, although this isn't strictly true.

The Federation of Small Business has proposed a system of cutting rates bills in return for certain types of business investment.

Nearly everyone agrees that to attract and retain high-end jobs, there must be fiscal incentives directly aimed at stimulating research and investment.

Various business groups have, in recent months, briefed politicians on a variety of other options - the creation of enterprise zones and enhanced allowances for training and marketing among them.

The problem with all the other suggestions is that they are a little more complicated than a straightforward tax cut, which has already been seen to pay huge dividends in the Republic. Its simplicity gives it broader appeal.

And of course, nobody wants to be seen to scotch the idea - just in case.

Whatever the outcome - and even the most optimistic have to concede it's a long shot - the corporation tax campaign has succeeded in putting an economic issue on to the political agenda.

The fact that there is political consensus is an added bonus.