Plans by Northern Ireland's power-sharing executive to stimulate foreign investment by cutting corporation tax have been dashed.
In meetings with local politicians and business leaders last week Sir David Varney, a former head of the UK Inland Revenue appointed to consider changes in Northern Ireland tax policy, poured cold water on the idea. Demands that business tax rates be dropped to 12.5 per cent to allow the North to compete with the Republic would encourage transfer pricing, he said.
Sir David, who was accompanied by three officials from the UK Treasury, "absolutely dismissed the idea", said one of those present at the meeting. "He discussed a very wide agenda, but it was clear corporation tax was not part of that agenda at all."
The decision will come as a serious blow for the ambitions of the new assembly and executive. It had set great store by persuading the British government of the case for special treatment for Northern Ireland, emerging as it is from 30 years of civil strife.
A report commissioned by the Treasury last year concluded that a cut in corporation tax across the UK to the same level as the Republic would result in a 60 per cent increase in investment and a 9 per cent stimulus to output.
The case for Northern Ireland has been championed by local business leaders such as Sir George Quigley, a former head of the Northern Ireland civil service and chairman of Ulster Bank.
Nigel Dodds, Democratic Unionist economy minister in the 12-person executive, reiterated that "a reduced rate of corporation tax - though not a silver bullet - would make the single biggest contribution to accelerating economic growth and to reducing our dependence on the public sector".
It is also not clear that a special low rate for Northern Ireland, even if given the go-ahead by the Treasury, would get approval from Brussels.
MEP Jim Allister said a reply he had received from Neelie Kroes, European competition commissioner, made it clear the North could not meet EU conditions the EU sets for a region to set its own corporate tax rate.
