Britain pledges to devolve corporation tax to North

The power to set corporation tax rates in Northern Ireland will be devolved to the power-sharing Northern Irish Executive if the region’s politicians can reach agreement in an ongoing all-party talks initiative, the chancellor of the exchequer has announced.

George Osborne said the devolution of the power was dependent on a successful outcome of the negotiations aimed at resolving major logjams creating instability in the Stormont administration.

As well as long-standing peace process disputes on flags, parades and the legacy of the past, the talks between the five parties in the mandatory coalition are also trying to find consensus on budgetary disputes, including the failure to implement the UK Government’s welfare reforms in the region. In his autumn statement to the House of Commons, Mr Osborne directly linked the devolution of the tax powers to progress in the talks.

“The Treasury believes it can be implemented provided the Northern Ireland Executive can show it is able to manage the financial implications,” he said of corporation tax responsibility.

“The current talks will see if that’s the case and, if it is, the Government will introduce legislation in this parliament.”

Legislation would have to be passed both at Westminster and Stormont before the Northern Ireland rate could be cut from the current 21 per cent UK rate. The Executive has identified the power as a potentially key economic lever to attract new business investment and therefore drive private sector growth in a region viewed as overly-reliant on the public sector.

In a long lobbying campaign for the taxation power, ministers in Belfast have repeatedly stressed that Northern Ireland was a special case in terms of the rest of the UK as it shares a land border and therefore directly competes with the Republic of Ireland, where business tax rates are significantly lower.

The Executive argued that the damaging legacy of the Troubles also made the need for private sector stimulus in Northern Ireland more acute. But the issue is far from straightforward.

Any loss in revenue generated from cutting corporation tax to the 12.5 per cent that operates across the Irish border would result in a reduction in Northern Ireland’s block grant funding allocation from the Treasury. So, if they are given the powers, Stormont ministers would have to determine whether the economic kick-start they hope to deliver will, at the very the least, off-set a loss to the public finances that could be in the region of hundreds of millions of pounds annually. Unions have warned against taking such a hefty chunk of public spending.

The Northern Ireland Chamber of Commerce and Industry has welcomed Mr Osborne’s comments, saying devolution was now dependent on the Executive’s willingness to cooperate on the issues that have challenged them.

"With the powers now sitting firmly in our hands, our politicians must grasp this opportunity whilst using the two years prior to the implementation of the new tax rate to ensure that we maximise the opportunity," said NI Chamber president Kevin Kingston.

The Royal Institution of Chartered Surveyors Northern Ireland said while it would have preferred movement now, it welcomed the chancellor’s comments about his support for the devolution of powers over corporation tax to the North.

"The onus is now on the NI Executive to demonstrate that it can make progress on key issues like welfare reform. It is also important that Northern Ireland continues to work in the meantime on some of the other foundation stones for attracting inward investment, such as enhancing our infrastructure, encouraging more Grade A office space, developing the skills of our workforce, and fostering a conductive social and political environment that is diverse, tolerant and outward looking," said director Ben Collins.

The Chartered Institute of Taxation described devolution of corporation tax as an exciting opportunity for Northern Ireland.

“A big rate cut would send a message that we see ourselves becoming a more entrepreneurial society with a growing private sector. As the ‘shop window’ for a broader package of enterprise-friendly measures, it could help grab the attention of the international business community,” said the institute’s NI chair Malachy McLernon.

Additional reporting: PA Wire