There's no 'silver bullet' to solve economic woes
Kate Barker, who recently chaired the Economic Advisory Committee, tells us why it is so important to devolve tax raising powers to Northern Ireland
Last year I was privileged to be invited by Enterprise Minister Arlene Foster to chair the Economic Advisory Group (EAG). It was established to provide the minister with independent advice on the economy and the group comprises representatives from economics, business and skills.
The EAG has recently embarked on a series of reports to help inform and influence economic policy in Northern Ireland. Our work aims to address some very significant economic challenges.
Recently we launched a paper which outlined the potential impact of a reduced corporation tax on the Northern Ireland economy.
The report has three key messages.
First, if there is no significant policy change, Northern Ireland is unlikely to improve its prosperity relative to other parts of the UK.
Second, with a lower rate of corporation tax (we used the assumption that a rate of 12.5% was preannounced next year with full implementation in 2014) the economy would rebalance with more robust private sector economic growth.
Third, the Executive should ask for the power to vary the rate of corporation tax and that this could and should be granted in a manner that is affordable.
The 20% prosperity gap with the rest of the UK has persisted despite very significant levels of financial assistance to industry and the deployment of the economic tools presently available. An additional challenge is now posed by the reduction in EU regional aid which limits the ability of Invest NI to provide Selective Financial Assistance to industry. This has already changed since January and may change again significantly from as early as 2013.
Research indicated that, under the status quo, it could be over a decade before employment levels return to their 2008 peak. Further more, living standards will continue to lag behind the rest of the UK and the region will remain one of the UK's poorest.
However, with the introduction of a reduced corporation tax rate (to 12.5% by 2014), the group believes the private sector will grow significantly. Some of our key conclusions are:
- 58,000 extra jobs by 2030;
- A large increase in Foreign Direct Investment (FDI) into NI - accounting for 40% of total job creation;
- Material convergence with UK living standards;
- Much faster economic growth, with the NI economy predicted to be 14% larger by 2030;
- A more export intensive economy, with exports forecast to reach £15bn in 2030, 35% higher than if there was no change in corporation tax.
Any reduction in the block grant as a result of reducing corporation tax should be viewed as an investment for the future.
We don't consider corporation tax as a 'silver bullet' to improve the economic underperformance of the region.
We've already indicated that it needs to be accompanied by the effective and timely deployment of an economic strategy that prioritises investment.
The EAG therefore calls for a package of economic reform measures. The key issue is for the Executive to secure the power to lower corporation tax.
Getting the right policy levers is only the first stage.
It will then be up to the Executive and Assembly to ensure the policies are effectively deployed for the good of everyone in Northern Ireland.