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Enterprise zone status for Northern Ireland 'could cushion pain' of Osborne's tax-cut move

Bosses say we may still able to make a 12.5% business levy work

By Margaret Canning

Published 05/07/2016

Tax announcement: George Osborne
Tax announcement: George Osborne

Northern Ireland must argue for enterprise zone status to avoid economic isolation after its low corporation tax policy appeared to take a hit from Westminster, it's been claimed.

Lowering the province's corporation tax rate to 12.5% to compete with the Republic of Ireland and its record on attracting foreign direct investment (FDI) has been a cornerstone of economic policy in Northern Ireland for at least a decade.

But after Chancellor George Osborne yesterday announced he may implement a rate of 15% or under UK-wide to help the post-Brexit economy, one tax expert said the argument for Northern Ireland to have what would be a slightly lower rate has been neutralised.

Glenn Roberts of Deloitte said the lower UK rate would mean Northern Ireland had to pay less towards making up the cost to the UK Treasury of a lower tax take. 

But he added: "If the UK's main tax rate is coming down to less than 15% then it makes it more difficult to see a special case for a separate rate for Northern Ireland."

The Treasury has agreed to Northern Ireland having a 12.5% rate from April 2018.

Mark O'Connell of OCO Global, a consultancy which advises foreign companies wanting to set up in the UK, said Northern Ireland had now lost much of its allure for foreign direct investors. It had already losing out on the advantage of offering access to the EU single market following the UK's vote to leave the EU.

"Now we have to accentuate our other advantages, such our lower labour costs - and our political leaders must look to secure enterprise zone status.

"That could mean R&D incentives or capital grants for the businesses setting up in the region - and we must use the fact of the land border with the Republic to add to our argument."

He said George Osborne had already embraced a low-tax policy, with rates due to drop to 17% by 2020. But he added: "The timing feels a little desperate, and hot on the heels of significant announcements from the financial services sector (JP Morgan, Fidelity) that they are moving jobs from London."

Meanwhile, Rob Heron, tax partner at EY, said Northern Ireland may not ultimately be competing with just the UK for foreign direct investment.

Instead, Belfast could find itself competing with other European cities, in which case a 12.5 % tax rate could provide a stronger differential.

And Stephen Kelly, the boss of Manufacturing NI, said that in the event of the UK adopting a 15% rate, the 2.5% difference could be enough to give an advantage, and to help Northern Ireland businesses save money on tax and reinvest in their businesses.

"Our support of low corporation tax has always been predicated on the benefits for indigenous business and we don't think a lower rate UK-wide will do much to affect that."

Mark O'Connell also said the 12.5% rate was still "worth fighting for" though other exemptions or compensations may be needed.

"Our own tax case for 12.5% by April 2018 will be somewhat undermined by a national 15% offer by 2020, but is still worth fighting for as it may allow some of the expected flood of new investment in Republic of Ireland some additional capacity as we could offer co-location solutions."

And he said enterprise zone status "is one potential response to avoid even more acute isolation and peripheral status for Northern Ireland".

CBI director Nigel Smyth said there was no need to panic. "We have been told our rate will prevail from April 2018 but the Chancellor does not put a timescale on his plans.

"Looking ahead, there could also be a chance of government and an abandonment of his low-tax policy."

Belfast Telegraph

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