Posted on Wednesday 6 March 2019 by Ulster Business
It’s hard to believe we were (almost) gifted a low-rate of corporation tax four years ago. John Mulgrew takes a retrospective look
over the business levy which slipped out of our hands
Newspaper journalists are sceptical people. They have to be. Taking everything at face value will likely mean not getting to the root of a story. And speaking to politicians in particular, means asking the right questions.
Just a few weeks into my time as business correspondent for the Belfast Telegraph, having already written extensively about corporation tax while working in business reporting elsewhere, I was thrust into the offices of the Camlin Group in Lisburn, for the then Secretary of State Theresa Villiers to officially unveil the publication of the Bill which would allow Stormont power over the business levy.
But there was a caveat. One which I made sure to quiz her on. We needed a balanced budget, and a stable devolved government. I felt she thought my question trite and overly cynical.
At the time, Ms Villiers said the new powers could bring a “transformative change” to Northern Ireland’s economy. And Prime Minister David Cameron – remember him? – said it was a “great opportunity” which he hoped Northern Ireland’s leaders would “grasp with both hands”.
They didn’t. Flash forward four years down the line, with Brexit looming, still no government and an already shifting tax landscape, is there an appetite for bringing down the rate?
In essence, the argument was always that Northern Ireland, given its border the Republic, was at a disadvantage, due to the higher (UK-wide) tax rate – pushing business and businesses south of the border for a seemingly more favourable landscape.
Initially, the idea was to reduce the tax rate to 12.5% – bringing it in line with the Republic. There was even talk of making the Northern Ireland economy look more appetising to foreign investors, bringing it to just 10%.
However, since then the overall UK tax rate on company profits is due to be cut from its current level of 19% to just 17% by the end of the decade. There had also been talk of slashing it to 15%.
And with that, as with lowering the devolved taxation rate, comes a loss in revenue for the State. An analysis based on HMRC data has suggested that the loss of revenue from the planned cuts could add up to more than £6bn.
Recently in the Republic – used as a marker for the argument in reforming Northern Ireland’s own tax regime – corporation tax revenues are under threat as an international reform process kicks off in earnest.
The Organisation for Economic Co-operation and Development (OECD) is looking to change the way big technology companies are taxed. It has now said it will consider moving to a system where companies will be taxed, at least in part, according to where users are based rather than where the company is based.
Ireland had opposed a similar plan at EU level, not least because a small population means it will reduce the tax take.
The late Sir George Quigley was one of the initial proponents of cutting corporation tax in Northern Ireland, to match the rate south of the border.
But, the first snag was the Azores ruling, which would mean Northern Ireland’s block grant cut due to the shortfall in taxation upon reducing the business levy’s rate.
Andrew Webb is director of economic advisory at Baker Tilly Mooney Moore. He’s not unfamiliar with corporation tax, having assessed the economic impact of chopping the duty more than a decade ago. He also thinks it’s still something businesses are keen to see happen, once we get the other stuff out of the way.
“The corporation tax discussions have slipped down or off the agenda,” he says. “I’ve noticed Invest NI make no reference to it anymore. Brexit has consumed all the bandwidth.
“There is still an appetite from business to see Northern Ireland’s competitiveness improve, of which corporation tax is a part, but the urgent fight is to determine the terms of trade after Brexit.”
According to Secretary of State Theresa Villiers at the time of the initial announcement, trading profits from most business sectors – such as manufacturing and retail – would have been eligible for the Northern Ireland corporation tax rate, including large corporations and small and medium firms.
But, it would also mean larger companies such as the big supermarkets, would only be taxed at the Northern Ireland rate on profits made here, with the rest charged at the UK rate.
“The inability of our politicians to get the hard fought for corporation tax reduction over the line is an area of deep disappointment,” Andrew says. “We can match our near neighbours for talent and technology and while we are behind on tolerance, tax was the big differentiator.
“One look at inward investment announcements in the Republic shows that 2019 has already brought announcements of over 2,500 more jobs. That is a level of performance we can only dream of.”
The political chaos and inability to continue working in a devolved government means that the sales pitch and carrot by which business groups had been selling Northern Ireland, has become something rotten. How do you go back to your potential foreign investors and say, ‘everything’s OK now, we had a slip up, but it’s just around the corner… I promise’.
In May 2017, The Department of Finance finally admitted that an original April 2018 deadline for the tax move “may slip”. That was some time ago, obviously.
Then, a report later that year warned that the huge delay in getting a low rate of corporation tax caused by Northern Ireland’s political impasse is one of the biggest challenges facing the office market here.
In March, a report by the Ulster University Economic Policy Centre, which was commissioned by the Department for Enterprise, Trade and Investment, predicted around 32,000 jobs could be created and an additional £4bn thrust into the Northern Ireland economy over the next 15 years as a result of cutting corporation tax.
Meanwhile, CBI regional director Angela McGowan said Northern Ireland is becoming “toxic” to investors and damaging its global business reputation if it cannot deliver a low rate of corporation tax.
So, will we ever see the corporation tax cut? “At the moment it is hard to see how we would achieve the necessary political and budgetary stability to enable the Treasury to give the green light,” says Andrew Webb. “But perhaps a post Brexit scenario could see planned UK wide corporation tax reductions get more dramatic as part of emergency measures to protect the economy.”