Economists have said Deputy First Minister Martin McGuinness’s suggestion that banks could be excluded from a future cut in corporation tax is in defiance of European law.
Mr McGuinness, who has welcomed the launch of a Treasury paper into cutting company tax in the province, said banks, under fire for their lending policies to small businesses, should not share in the windfall for companies which could result from a tax cut.
He said: “I would hope the banks wouldn't benefit from this.
“I think it's a duty and a responsibility on us, as we negotiate this through, to ensure that the full benefit of this goes towards the people that we represent and not towards those who, in my opinion, have effectively betrayed the people in the recent past.”
Economist John Simpson said such a pre-condition would be in breach of European rules on state aid.
“The rules of the game are that any concession has to be applied to all equally, therefore it’s impracticable to suggest banks could be excluded,” Mr Simpson said.
One banker, who did not wish to be named, said Mr McGuinness was “electioneering”.
“The banks always come off badly in politicians' public statements as we near election time.
“We've just got to turn the other cheek.”
KPMG partner Eamonn Donaghy, a member of the pro-tax-cut Northern Ireland Economic Reform Group, added: “If you want to comply with EU law, a
tax cut will have to apply to all companies and all industry.”
Last week’s Treasury paper looked at the possible costs and benefits of cutting the rate of corporation tax in the province from the current rate of 28%.
It gave consideration to both an immediate cut to the Republic’s rate of 12.5% and a more gradual reduction, putting the cost of an immediate cut at £300m per year.
A spokesman for the British Bankers’ Association said banks would study the Treasury paper, and recognised “the special responsibilities they carry, both in the wake of the economic crisis and as engines of the economy”.
He said banks shared the priorities of business people and policy makers “of ensuring financial stability and promoting economic recovery”.
Story so far
Martin McGuinness has said that banks should be denied any benefits from cuts in corporation tax. A consultation paper examining the case for lowering corporation tax was published on Thursday. Low corporation tax is considered an important means of attracting overseas investment. However, the Treasury has said giving us the power to set the rate could cost the Executive up to £300m a year.