Bunting on NI Corporation Tax

It appears that Gordon Brown has set his face firmly against giving Northern Ireland a 12.5 per cent corporation tax in spite of a formidable campaign.

Not everyone in the North thinks a regional corporation tax rate is the way forward in any case. Peter Bunting of the Irish Congress of Trade Unions has delivered a strong critique of the campaign for a cut. He makes a formidable argument, but let me try and point to some weaknesses.

There are fewer than ten PLCs in NI, ten firms account for over 50% of NI exports and the region has the second-lowest level of business formation in the UK. Most private sector economic activity is carried out by companies that pay the reduced corporation rate of 19%. Only 4% of NI companies pay the full 30%, although this sector dominates the Industrial Task Force, which commissioned the ‘independent study’ that found, among other claims that 180,000 new jobs “could” be created by 2030 and that growth “could” be doubled. (ICTU)

Surely this is precisely the point. Part of Northern Ireland’s problem is that it is failing to attract precisely the kind of companies that would pay the full rate of corporation tax.

Politically, it would be impossible for Gordon Brown and Peter Hain, MPs in Scotland and Wales, to slash taxes in one part of the UK and not in, say, Scotland and Wales.

True, but it should also be politically impossible for Brown to slash corporation tax in Scotland and Wales and not Northern Ireland. The pressure from Hoyrood and Cardiff is not going to go away. Neither should the pressure from Stormont.

Further, a recent ruling by the European Court of Justice agreed that Portugal could apply differing rates of tax for economically deprived regions, but could not continue with economic subsidies.

This is a clear admission that a regional tax rate would be legal. It would mean giving up the Westminster subvention, but some observers believe that is acheivable.

The larger point is that the subsidy is already vulnerable because of the outworking of Anglo-Scottish tensions over the Barnett Formula and the West Lothian Question. Dropping the corporation tax issue could leave Northern Ireland facing the worst of all possbile worlds: British tax rates without British subsidies.

The belief in the magic bullet of slashing corporation tax is sustained by the voodoo chant that a similar stroke was the midwife of the Celtic Tiger.

This is a straw man. Few of the advocates of a corporation tax cut would see it as a single factor solution. See for example Brian Cowen’s speech earlier this year which gave a favourable mention to the SDLP’s support for an all-island rate, as well as annnouncing new investments in infrastructure and education. Interestingly, a similar prescription is now being advocated by some London-based economists to address the growing regional disparities in the UK.



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