Posted on Wednesday 16 May 2012 by Ulster Business
The campaign for lower corporation tax has attracted cross party political support
A series of events this week will provide a final push by Northern Ireland’s business community to get their message across about the need for lower corporation tax to reinvigorate the region’s economy.
CBI Northern Ireland will highlight the importance of gaining corporate tax setting powers to the business community at its annual economic briefing on Friday, which will be followed on Monday by a presentation to MLAs at Stormont by Grow NI – a coalition of business organisations in favour of lower CT - with a focus on how our SMEs will benefit.
The following day, May 22, will see CBI, representatives of around 60 local businesses, the First Minister, Finance Minister and Secretary of State Owen Paterson host a reception in Westminster to hammer home to MPs and Treasury officials the case for granting Northern Ireland devolved powers.
“This is the last public push. What we want to do is send a strong message… that there is a groundswell of support for this,” CBI NI chairman Ian Coulter told journalists.
He stressed this opportunity to lower corporation tax represents a one off chance to narrow the gap with the rest of the UK economy by creating more jobs and increasing the quality of life across society.
“I’ll be pointing out on Friday that, since the Good Friday Agreement our economy has not changed to any great extent. I could give the exact same speech as the chairman of CBI at that time gave,” he said.
“If we can get this it will transform the economy overnight… But once this is gone, it is gone – it won’t come around again. The fear I have is about the long hard slog we’re facing if we don’t get it.”
After a consultation almost a year ago that gained an overwhelmingly positive response, the challenge is now to convince the Treasury and Chancellor of the Exchequer George Osborne the corporation tax change could and should be done.
Those in favour argue that lowering the top corporate tax rate to 12.5%, in line with the Republic of Ireland, is the fastest way to boost Northern Ireland’s economy. It will, they believe, make Northern Ireland more competitive and create jobs, by both attracting more foreign direct investment (FDI) and giving indigenous firms more money to reinvest.
Anecdotal evidence suggests Northern Ireland often gets to the final three or four for large FDI projects, particularly from the US, that eventually end up in the Republic.
With Selective Financial Assistance set to come to an end at the end of next year competition is only going to get tougher for the Invest NI sales force.
Critics have pointed to the resulting reduction to the block grant such a move would incur under law – still unclear but estimated at between £200m-£300m – and the time it would take for this loss to be recovered by increased income from private sector businesses.
But this should actually make it an easier sell to English MPs whose electorate are currently subsidising us, with subvention to Northern Ireland increasing from £6.3bn in 2003 to around £10bn in 2012.
“We want to be able to say that we may not contribute that much but we’re not costing you much,” added the CBI NI chairman.
A decision is expected from Treasury in the next three months and if given the green light the necessary the legislation needed to implement the cut could be included in the 2014 Finance Bill.
Eamonn Donaghy, a tax specialist at KPMG who has participated in many of the meetings with Treasury officials and is involved in Grow NI, says a lot is riding on the decision.
“In the almost 12 months since the consultation I’ve asked pretty much everyone, including GB and Northern Ireland politicians and civil servants and people in business, what’s plan B? The response has always been silence. Plan B tends to be the status quo, and the status quo is not a clever place to be,” he said.
Donaghy believes that George Osborne’s actions since becoming Chancellor – lowering the top rate of corporation tax from 28% to 22% by 2014 and noting his aspiration to move to 20% - indicate that idealogically he believes it is a way of driving economic recovery.
He acknowledges a lot of details still need to be agreed about who will be eligible to benefit from a lower tax rate in Northern Ireland, and measures taken to ensure it doesn’t encourage tax evasion or make administration more complicated.
But he said there is no technical reason it can’t happen and the legislation could be refined within 18 months if Osborne gives the thumbs up, he thinks.
“If they announce it, it will be a significant event,” says Donaghy. “People may say it will take two years to be implemented but I think once it is out there, for the people trying to attract business, that two years will pass very quickly. The vital date is not when this will be implemented it is when it is announced.”
All eyes will be on the Treasury this summer.