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'Devolving corporation tax could make Northern Ireland's woeful economic performance worse'

By Henry Reilly

Published 31/12/2013

'Devolving corporation tax could make Northern Ireland's woeful economic performance worse'
'Devolving corporation tax could make Northern Ireland's woeful economic performance worse'

As the party conference season concludes, most parties can agree on one thing. It’s not flags, parades or ‘the past’ - it’s corporation tax.

It’s argued responsibility for corporation tax locally should be devolved to Stormont. In return, our annual subvention from Westminster will be reduced, with less money for transport, schools, hospitals and local government.

If you believe the local parties once corporation tax is devolved, we’ll enter an age of unparalleled prosperity. But UKIP believes the reality might be very different. For the gamble to work, the corporation tax take must be greater than the reduction in the annual subvention, requiring a significant increase in economic activity.

But any sudden hike in economic activity will not go unnoticed by HM Treasury. George Osborne will not stand by and watch jobs and investment disappear from mainland UK. Instead, he’ll introduce a corporation tax rate comparable to Northern Ireland, or possibly undercut.

An outflow of investment and jobs from Northern Ireland back to the mainland will follow. At the same time, the Republic of Ireland will not sit on its hands, watching jobs, capital and investment disappear across the border. Invariably, they’ll respond to, reducing their corporation tax rates still further.

At that point, we’re back to square one, but with a less generous subvention from Westminster.

All this assumes corporation tax is as significant as we’re told. I believe it’s not. Indeed, I know of no business which uses single headline tax rates and determine their next investment. Instead, they consider total taxation. And according to KPMG, the UK is already one of the most competitive business tax jurisdictions on earth.

Nobody of course disputes that Northern Ireland’s current economic performance is woeful. But rather than addressing the issue, devolving corporation tax could make it worse. It’s telling – if not surprising that some of those campaigning for the devolution of corporation tax were once poster boys for the Euro. And that in itself, perhaps tells us everything we need to know.

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