Belfast Telegraph

Tax changes postponed - that's the unavoidable consequence of Brexit

By John Simpson

The ambition to give Northern Ireland a corporation tax advantage over other GB businesses is now on hold for good and understandable reasons. If the original plans had been implemented, corporation tax for local businesses would have been reduced to 12.5% from next April. That is now virtually impossible.

First, the change needs a functioning Executive to introduce a stable government budget for the next few years. That is not in sight. Equally, the proposal needs approval from the Treasury which will check the arithmetic and policies being introduced by the Executive. The Treasury has not yet been offered that assurance. Second, the logic of a 12.5% rate of tax needs to be reconsidered when the result of the General Election is known. If there is a Conservative-led government, then there is a prospect of a reduction of the UK rate to 17% and possibly lower in the years ahead.

If perchance there is a Labour government, with corporation tax going up to nearer 25%, then the Barnett consequentials of that tax rate become much more costly.

Third, and more pervasive, the decision on corporation tax for NI may be derailed by the outcome of the Brexit negotiations.

If the Brexit negotiations take the UK out of the Single Market and out of the Customs Union, as is expected by the approach from the Prime Minister, then the future trading deal and any arrangements to maintain the acceptability of retaining EC standards will open the way for NI, within the changed UK trading environment, to think radically outside the former constraints of the rules on State Aid. At that point, a full range of incentive policies come back on the agenda and changing corporation tax will need to be assessed as a choice compared to one (or some) of a number of other financial options.

Brexit conclusions will create a completely new environment and set of constraints that could mean a major rethink for attracting investment to NI.

If the Brexit conclusions kept the UK and NI within the Single Market and Customs Union, then the bid to bring corporation tax at 12.5% may still be valid. However, this is not a likely option.

For now, corporation tax changes in NI are postponed probably, at least, to 2020. The postponement is not really a surprise. The moment the UK decided to leave the EC, there was an inevitable extra period of uncertainty. Uncertainty means investments delayed. That, however, is the unavoidable consequence of Brexit. Now is the opportunity to work on the other factors making investment and productivity in NI persuasive effective selling points.

There is plenty to do whilst the uncertainty continues.

Belfast Telegraph


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