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Large firms face 'huge impact' from Brexit, MPs told

Published 03/02/2016

George Osborne has said the UK-wide tax rate will go down to 18% by 2020
George Osborne has said the UK-wide tax rate will go down to 18% by 2020

Brexit could have a "huge impact" on large firms' plans to establish bases in Northern Ireland once corporation tax is cut, an academic said.

In the short term it would create added complexity, and could slow down the flow of investment in the first couple of years, according to Professor Neil Gibson, director of the Economic Policy Centre at the University of Ulster.

He gave evidence to the Northern Ireland Affairs Committee of MPs at Westminster which is investigating the impact of any UK exit from the EU on Northern Ireland.

Mr Gibson said: "An exit vote would weigh on traders' considerations in the short term, I would not underplay the impact on Northern Ireland, having made its biggest policy choice ... in the first two years not much is happening.

"There would be added complexity under a new arrangement ... they were not able to fully articulate how that would look.

"In the short run just the particular timing of that would have different implications. It would be a factor in those firms' decisions.

"If there were to be an exit vote, the ability to make those positions clear would be absolutely paramount, to happen almost immediately, because otherwise it would have a huge impact."

As part of last year's Fresh Start political deal, the date for a tariff reduction in the business levy, to 12.5%, will be April 2018, matching the Republic of Ireland in an effort to compete for investment. Currently the rate is 20%.

Advocates of a lower rate of tax on business profits in Northern Ireland point to a potentially transformative impact on a local economy that shares a land border with a jurisdiction - Ireland - where the tax is only 12.5%.

Business leaders envisage tens of thousands of new jobs and prosperity for all.

But critics claim reducing the local rate so significantly from the UK's would damage public spending, as it would see the Treasury cut an estimated £300 million off the Executive's annual funding from the rest of the UK to offset the loss in revenue. It could also help encourage businesses in the UK to relocate.

The Chancellor has announced that the UK-wide rate will come down to 18% by 2020.

While narrowing the gap would mean less of a reduction in Treasury funding known as the block grant, it would also diminish the advantage for Northern Ireland over the rest of the UK in attracting big businesses to invest.

Local economist Eamonn Donaghy has recently suggested that the cost of implementing the lower rate of tax could be as little as £100 million per year by spreading the early years costs, so the impact on the block grant would be much lower than initially forecast.

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