Low tax hopes are shattered

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Cut in corporation levy ditched by Varney report

Monday, December 17, 2007

By Noel McAdam

Stormont Ministers were today planning to examine the details of the long-awaited report by Sir David Varney into the case for a special low Corporation Tax level for Northern Ireland.

The Executive, at its last meeting before Christmas tomorrow, will assess the impact of the study which was expected to reject a special cut in the rate for a region of the United Kingdom.

And a renewed demand for another face-to-face meeting between First Minister Ian Paisley and Deputy First Minister Martin McGuinness with Prime Minister Gordon Brown could be on the cards.

While widely anticipated, the refusal to accept a lower official Corporation Tax level for the province - a campaign supported by the Belfast Telegraph and small businesses lobby as well as politicians - is a blow to the devolved administration.

But with the Assembly risen for its Christmas recess, MLAs will have to wait until the New Year to raise questions with Finance Minister Peter Robinson - who met with the Varney review team - and others.

The long-delayed report by Sir David, chairman of HM Revenue and Customs, was initially expected to have been completed by the end of October.

While ruling out a corporation tax cut, however, the report was expected to argue the effective rate of tax for businesses is already below the headline figure.

Most of the province's estimated 60,000 companies pay a lower rate of 19%, which is due to be increased to 22% in 2009.

The Varney document was also thought to suggest a range of measures to exploit the province's lower operating costs and better telecommunications infrastructure.

The report may contain proposals for other tax incentives benefiting companies who invest in research, development and skills training.

In discussions leading up to the restoration of devolution, including a high-profile summit at Downing Street more than a year ago, all the main political parties reached a consensus demand for a Corporation Tax reduction from 30% to 12.5% - in line with the Republic - which they regarded as essential to help attract foreign investment.

Sir David was appointed by Mr Brown to conduct a review, although it became increasingly clear the Government was reluctant to grant a concession which would put Northern Ireland ahead of Scotland and Wales.

Scottish First Minister Alex Salmond and his Welsh counterpart Rhodri Morgan would also be expected to demand a similar cut.

It also remained unclear whether a separate rate of corporation tax between the regions of the UK could be interpreted as a form of state aid and be declared illegal under the rules of the European Union.

There were further fears that allowing a separate rate for Northern Ireland could allow UK multinationals to relocate to the province in a bid to reduce their tax bill.

In a related case before the European Court of Justice last year, the Inland Revenue unsuccessfully challenged the right of Cadbury Schweppes to move its treasury operations to Dublin for that purpose.

At the first British Irish Council meeting since devolution returned, Mr Paisley said he intended to meet former Chancellor Brown over the controversial issue again.