BRITISH PRIME minister David Cameron’s expressed willingness at Stormont yesterday to open the door to a reduction in Northern Ireland’s 26 per cent corporation tax rate represents a welcome and significant advance in political devolution and economic empowerment. The decision is not made yet – the consultation process launched by the Treasury will not close until June 24th – but strong expectations have been raised which are unlikely to be dashed.
That said, the devil will be in the detail. Issues ranging from the timing and scale of the cut – some parties want to go lower than the Republic’s 12.5 per cent – to the scope of tax-varying powers devolved, have the potential sharply to divide the Northern parties from each other and from London. And, not least, on how to deal with the effects of the likely knock-on cut of some £300 million a year in the North’s block grant from London.
Mr Cameron dodged that issue explicitly but his message was clear. A price would have to be paid. “Northern Ireland continues to receive 25 per cent more per head in public spending than England ... The days are over when the answer to every problem is simply to ask the Treasury for more money.”
However, Mr Cameron’s main thrust was music to the ears of the cross-community political and business consensus that has in recent months loudly embraced the idea that competing on business tax rates with the Republic can be a powerful engine for growth. Deputy First Minister Martin McGuinness insisted yesterday that the move could “dramatically change ... employment prospects”. A recent report by the North’s independent Economic Advisory Group argues that pre-announcing a cut by next year would help create 58,000 extra jobs by 2030.
The consensus is not unanimous. Unions worry where the spending axe will fall. A Trades Union Congress report, addressing both the North’s and Scotland’s demands for corporation tax devolution, warns it would reduce vital tax revenues without benefit to ordinary taxpayers. It points out that 90 per cent of businesses pay the small business rate of 20 per cent while the effective tax rate for big companies is estimated to be 23.2 per cent.
At a meeting two weeks ago of the Joint Ministerial Committee of the three devolved administrations and the UK government, Welsh First Minister Carwyn Jones warned there could be a “spiral to the bottom” if control over corporation tax is devolved.
But Scotland’s First Minister Alex Salmond, currently negotiating new economic powers in the Scotland Bill, is watching with considerable interest. The bill provides for more borrowing powers for the Scottish government and Mr Salmond has added devolution of corporation tax, return of the Crown Estate revenues from the seabed around Scotland and a greater share of excise duty to his wish list. His enthusiasm may be tempered by the warning from the North’s First Minister Peter Robinson that a Scottish corporation tax cut could cost it a whopping £1.5 billion off the block grant.