British caution over North rate cut

Northern Ireland secretary of state Theresa Villiers has said cutting the North's corporation tax rate to match that in the Republic would be "a significant constitutional change".

Her comments reflect London's caution in advance of a meeting later this month in London between treasury and Northern Ireland Executive ministers.

Speaking in Birmingham, she said: "I have been struck by the arguments that have been on this issue. I understand it, I am discussing it with colleagues in government in London.

"I am making sure that they are in doubt about the strength of support in Northern Ireland for this change," she told a gathering organised by Champ, a peace and reconciliation group.

"But it would be a significant constitutional change, and there do remain some real practical issues that would have to be resolved before the government could decide in principle whether, or not to proceed," Ms Villiers said.

Privately, British ministers are fearful that a concession to Northern Ireland could fuel demands for greater tax freedom for Scotland, which faces an independence referendum in late 2014.

However, Northern Ireland politicians and business leaders bluntly made clear to Ms Villiers that the British government must accede to demands to cut corporation tax to 12.5 per cent.

The Stormont minister for enterprise, Democratic Unionist MLA Arlene Foster, said the decision cannot be put off "beyond the end of this calendar year".

"We can't allow it to drag on much further," she said, adding that uncertainty about the final decision to be made by London is affecting efforts to attract foreign industry: "This is affecting Northern Ireland right now."

Northern Ireland, she said, is frequently reminded that it is a net beneficiary from the treasury: "I look forward to the day when Northern Ireland is a net contributor. The way to do that is by cutting corporation tax."

Pressed by some to go lower than 12.5 per cent, Ms Foster said 'we are not stuck on 12.5 per cent: "Essentially, the rate will be talked about when the power is devolved."

Dismissing fears that a Northern Irish corporation tax cut would provoke similar demands in Scotland, Sinn Féin West Tyrone MP Pat Doherty said Scotland has never used the tax freedoms that it was given under devolution.

Ian Coulter, the chairman of Northern Ireland's branch of the Confederation of British Industry, emphasised that Northern Ireland's primary competition for foreign direct investment comes from the Republic.

"We have got to be competitive with the Republic," he said, adding that people "need to understand" the scale of economic problems faced by the North and the actions that will be needed to get through them.

He disagreed with the secretary of state's judgement that a decision on corporation tax is a constitutional question, saying: "I do not believe that this is a constitutional issue."

The chairman of the Conservative Party in Northern Ireland, Irwin Armstrong, said Northern Ireland has fallen behind the Republic on foreign direct investment because the Irish Government has acted quickly and decisively.

In her speech, Ms Villiers said the "unsustainable property boom" had been even more severe in Northern Ireland than in other parts of the United Kingdom, leaving behind "a painful hangover of negative equity and debt".