NI Corporation Tax

The UK Budget was published yesterday. One of the noteworthy changes announced as part of this is a reduction in corporation tax:

“a reduction in the main rate of corporation tax by a further one per cent. From April 2011, the rate will be reduced to 26 per cent with further yearly reductions of one per cent until 2014 when it will reach 23 per cent”.

In addition the UK Treasury has published a consultation document entitled Rebalancing the Northern Ireland Economy, which specifically considers the potential for, and costs and benefits of devolving the power to vary the corporate tax rate in Northern Ireland, potentially reducing the rate in Northern Ireland to the 12.5% that applies in the republic of Ireland.

In the context of the pressure from France and Germany for the Republic of Ireland to raise its corporation tax rate, both the reduction in corporation tax rates in the UK and the potential harmonisation of the corporation tax rate to 12.5% on the island of Ireland are an interesting development.

9 thoughts on “NI Corporation Tax”

  1. P19 “This reduction supports the Government’s aim of creating the most competitive tax system in the G20 and will benefit Northern Ireland alongside all other parts of the UK”

    Does this strike anyone else as deeply hypocritical in the sense that the UK frequently criticises Ireland for our 12.5% which is perceived as stealing away businesses that would otherwise locate in the UK.

    With respect to the North adopting a different tax rate to the rest of the UK, the EU’s Azores Principle bars regional variations in a country unless they are fiscally sustaining. NI has made great strides in recent years towards developing a sustainable economy but remove Westminster’s largesse tomorrow and there would be queues for bread next week. NI will not be self-sustaining for a decade plus. As the report from HM Treasury says (p55):

    “However in order to meet the EU Azores criteria on State Aid, the NIE would have to meet the conditions of institutional, procedural and fiscal autonomy. As part of this Northern Ireland would have to bear the full fiscal consequences of a reduction in the corporation tax rate. This would be achieved by a reduction in the Northern Ireland block grant. Various options to manage the fiscal cost are explored, including deferring or phasing implementation. This chapter also examines the benefits and costs of granting Northern Ireland other tax reliefs. However these options face various difficulties and could run into State aid issues;”

  2. “Does this strike anyone else as deeply hypocritical in the sense that the UK frequently criticises Ireland for our 12.5% which is perceived as stealing away businesses that would otherwise locate in the UK.”

    No. Its Osbourne. He of 2006 Ireland: “They have shown us the way”.

    It is Tory ideology to minimise taxes. It isn’t about a UK view.

    Osbourne would have 12.5% corp tax tomorrow if he could. He would not get broard public support in the UK for doing so. In that respect there is a big difference between the UK and Irish public.

    Part of the support for his move of yesterday is public recognition that business has been lost to Ireland through the tax difference and people are fed up of (rightly or wrongly) feeling like mugs. If you can’t beat’em, join ’em.

  3. @Jagdip Singh – “With respect to the North adopting a different tax rate to the rest of the UK, the EU’s Azores Principle bars regional variations in a country unless they are fiscally sustaining. NI has made great strides in recent years towards developing a sustainable economy but remove Westminster’s largesse tomorrow and there would be queues for bread next week.” – this is the crux of the issue. Devolving the corporation tax would involve a loss of block grant. The benefits of lower corporation tax (whatever they might be for Northern Ireland) would accrue over time, while the block grant would be cut immediately. This might be possible if Northern Ireland were not so dependent on the public services and thus on London.

    In 2000 public expenditure accounted for about 52% of gross value added rising to 63% in 2009 (these calculations are done using identifyable expenditure on public services from the Treasury’s PESA, divided by GVA from the ONS. They are rough calculations as the expenditure is for tax years while the GVA is for calender years).

  4. Not only is it about the loss of £300m of block grant, it is about whether this is the best use of that money. PWC did a detailed analysis which was very sceptical of the value for money of this measure. Economists I have spoken to think it would be much better value to improve educational standards and promote SMBs as without these the tax cut will have little effect. This is a ‘magic bullet’ proposal which evades the really tough choices – perfect for the NI Executive so.

  5. I welcome this development.

    Should help in rebalancing the real_economy/public_sector+Westminster_transfers ratio …. and a boost to real economic activity.

    Positive in terms of ‘these islands’ and ‘this island’ ….

  6. @grumpy

    Yes – in recent yrs quite a significant number of UK firms have moved HQ to Ireland for ‘tax planning’ purposes.

    In the non-EU battle on corp tax, the UK is our strongest supporter.

  7. @Bond Eoin Bond

    Off thread: what is your interpretaton of Moody downgrade of 30 Caja Spanish banks this morning?

  8. Lowering taxes and price cutting are seen by many as being the product of bankrupt minds. The simple minded can easily engage in both activities. The British are not the only ones on the slide downhill. Soon there will be a couple of dozen countries scrambling for crumbs off the MNC table. The easy way out is often the worst way out. It appears to me that the English speaking world is in slow economic decline starting in 1918 with the British Empire and continuing since 1945 with the American Empire. Canada with its dual French and English culture is holding up fairly well although the influx of wealthy Chinese with their business knowhow and money is having a positive effect. Is Mandarin and Cantonese being offered at any Irish school.

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