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Corporation tax cut far from certain as economy struggles, warns think tank

By John Mulgrew

Published 08/12/2015

Paul Mac Flynn of the Nevin Economic Reseach Institute (Neri)
Paul Mac Flynn of the Nevin Economic Reseach Institute (Neri)

A corporation tax cut is only a "distant possibility" for Northern Ireland, with many pitfalls ahead, it has been claimed.

Think tank the Nevin Economic Research Institute (Neri) releases its quarterly economic survey today - which will state that economic recovery here is continuing to stall behind the Republic.

And Neri economist Paul Mac Flynn said he believes that a cut in corporation tax to 12.5% is still only a remote possibility, despite being included in last month's A Fresh Start: the Stormont Agreement and Implementation Plan.

Mr Mac Flynn said celebration over getting a lower rate in 2018 "doesn't pass" muster, with the terms indicating Northern Ireland's finances must be on a sustainable footing for it to be introduced.

"This was a policy that was born in a very different economic era," he said.

"(It's) as much of a distant possibility as it was before ... it wouldn't surprise me if this trips us up down the road."

Neri's report also said that nearly a third of workers in pubs, restaurants and hotels will see their pay packets grow with the introduction of the National Living Wage next year.

Some 13% of businesses in Northern Ireland will be affected by the pay rise when it is introduced in April.

And, as predicted, it's bars, restaurants hotels - the hospitality trade - and high street retailers which will be facing the biggest impact.

A quarter of those working in wholesale and retail will see a rise, while a third of food services and accommodation will witness a change.

The industry has warned of the impact that the spike could have on business.

But Mr Mac Flynn has said the rise "could balance out" as people will have more money to spend on areas such as socialising and eating out.

"The same thing happened when the minimum wage was introduced," he said.

"(There will be) an impact on the wage bill, but whether it is as drastic, remains to be seen."

The National Living Wage will be £7.20 an hour and is due to be introduced next April. It is due to hit £9 by 2020.

But aside from hospitality, manufacturing will also see around 9% of the workforce enjoy a pay increase as a result of the National Living Wage.

And it's the food manufacturing sector, which could include some of Northern Ireland's biggest producers, which will see the biggest impact, along with rubber and plastics.

While the National Living Wage is planned to increase to £9 in the next five years, Neri director Tom Healy says it remains to be seen "whether that actually takes place".

As outlined in other surveys, Northern Ireland's economy is continuing to lag behind the Republic's.

In fact, Neri said the economic recovery here "stalled halfway through 2015".

It said the announcement of a raft of major job losses - including Ballymena-based tyre giant Michelin cutting its 860 strong workforce - "compounded the disappointing data for the first two quarters of the year".

It said overall, Northern Ireland "may struggle to sustain growth in the medium term".

Mr Mac Flynn also said Northern Ireland had "dodged a bullet" when it came to Chancellor George Osborne performing a U-turn - for now at least - on tax credit cuts.

He said it would have had a "significant impact on Northern Ireland".

Belfast Telegraph

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