London’s offer to give the Northern executive powers to set its own corporate tax rate was welcomed in Dublin, but there was confidence that such a move would not erode investment south of the Border.

With manufacturing wages lower in the North than in the Republic, the development presents a big opportunity for Invest NI to enhance its offering to potential investors.

In Dublin, however, industry sources said the Republic’s leading position in high-tech and pharmaceutical as an investment location would continue to provide a big advantage.

A spokesman for the Department for Finance said the business taxation in the North was a matter “in the first instance” the Northern Ireland Assembly and the Westminster government. “Ireland would be fully supportive of any measures that would make the island of Ireland, as a whole, more competitive,” the spokesman said.

Competition for FDI

In a statement, IDA Ireland welcomed “all efforts” to support the economy of the island of Ireland.

“Some of the world’s most well known companies have established significant operations throughout the Republic of Ireland. IDA is confident it can continue to attract diverse and sustainable investment from leading corporates well into the future,” it said.

“While competition for FDI is intensifying from a number of locations, IDA believes the offering for businesses locating in the Republic of Ireland is highly compelling across a range of criterion, including corporation tax, where a highly competitive 12.5 per cent rate applies.”

Danny McCoy, chief of business lobby Ibec, said the lower income tax rates in Britain could yet present more of a threat than corporate tax if the corporate tax rate was cut.

“Anything that can make the all-island a stronger economic entity is ultimately in everybody’s interest. It will bring into sharp relief the fact that the UK more generally and Northern Ireland in particular is becoming more competitive in this space.”