Belfast Telegraph

Sunday 13 July 2014

Business Soapbox: Rob Heron

What we need to be truly 'game changing' is a significant measure which is attractive, transparent and, perhaps most importantly, simple to articulate locally and globally. A reduced corporation tax meets these criteria

Rob Heron

Game changing" is a much hyped expression in the modern business world.

However, in my view the outcome of the consultation document, on rebalancing the Northern Ireland economy, issued last week, warrants such a description when considering its potential impact on our economic future.

Depending on the source of data, the Northern Ireland economy is 60-70% reliant on the public sector. This is simply unsustainable in the long term. Wealth per capita in Northern Ireland remains significantly lower than the UK average. This is a clear indication of the immediate need to promote a strong, self sustaining and globally competitive private sector.

The consultation document focuses on the potential benefits and risks associated with a lower rate of corporation tax rate in Northern Ireland - currently at 26% but confirmed to be reduced to 23% by 2014. Whilst it is accepted by many that something needs to be done to promote private sector growth in Northern Ireland, opinion is divided on the merits of reducing the rate of Northern Ireland's corporation tax further, with some instead favouring an innovation fund or enhanced support for R&D.

In my view, whilst these alternative options have their merits, experience has shown us that they can suffer from being overly complex, subjective and lacking in transparency.

The result is that these alternatives may become difficult to "sell to businesses" on both a local and global basis.

Taking just the R&D support as an example, there remains subjectivity around what exactly qualifies for R&D tax credits, despite this incentive having been introduced several years ago. Northern Ireland needs a competitive edge to help differentiate the region from the rest of the UK. Yes, we have low wage costs, but our enduring status on the economic periphery of the country suggests more radical thinking is required.

What we need to be truly 'game changing' is a significant measure which is attractive, transparent and, perhaps most importantly, simple to articulate locally and globally. A reduced corporation tax meets these criteria as it is easily understood whatever the business type, language or culture.

So what should the reduced Corporation Tax rate be? Almost as if by default, the rate which commentators seem to be focusing on is 12.5%. Indeed, this is the rate that the consultation document used to estimate potential cost of such a reduction - projected to be less than 3% of the regions annual block grant over the next five years. One can only assume that this position has become most commonly suggested because this 12.5% rate has proven to be so effective in promoting growth in indigenous businesses and helping attract foreign direct investment south of the border. However, the rational for selecting a rate on this basis needs to be challenged.

Whilst a thorough costing exercise needs to take place before any rate adjustment is considered, the question remains as to why Northern Ireland should not go a step further, by applying a truly 'game changing' corporation tax rate of say, 10%.

Even if this new rate was phased in over a number of years, the benefits alongside our highly skilled workforce, competitive labour costs and good infrastructure, would surely provide a rich cocktail for growth in the region especially if it is coupled with a reform of the planning system and a genuine focus on training in the STEM subjects.

Of course it is going to take time to reverse problems which have developed over decades and any major change to corporation tax will have to be well researched in terms of cost, implementation and promotion. However, this feels like a pretty unique opportunity for the future of Northern Ireland, and one too good to miss.

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