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Corporation tax: Stormont must show it is up to challenge


Economist John Simpson

Economist John Simpson

Economist John Simpson

The decision over whether London approves special legislation to allow Northern Ireland to set its own corporation tax rate comes alongside another political judgment - has the Executive shown enough political stability to deliver this important change?

The degree of competence demonstrated by our politicians will be a continuing challenge as the legislation and detailed arrangements are developed and approved in London, Brussels and Belfast.

Northern Ireland is taking a risk, which brings a cost.

One major feature of new arrangements will how much will be deducted from Northern Ireland's block grant - so that the cost of the scheme falls on the local budget - and how this will be phased in. There is no guarantee that increases in business investment will quickly justify the initial losses to Stormont's spending power.

Northern Ireland will also be challenged over how it will enhance and improve supportive investment to strengthen the wider economy.

When the formal decision to devolve the powers to set corporation tax rates is announced the immediate interest will focus on the details. The preliminary work by the Minister of Finance and officials will be needed to set out the proposed details over which businesses will be eligible to claim the lower rate of tax and from when.

Critically, the rules on eligibility will be significant. The agreement is expected to limit eligibility only to trading activities in Northern Ireland.

Even where a business is locally owned, profits earned on trading outside Northern Ireland may not be eligible.

John Simpson is a leading economist and business analyst