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Deal on corporation tax will dominate New Year headlines

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The approval for corporation tax devolution, to become effective in April 2017, is essentially a test of the wider performance by the Executive.

The approval for corporation tax devolution, to become effective in April 2017, is essentially a test of the wider performance by the Executive.

The approval for corporation tax devolution, to become effective in April 2017, is essentially a test of the wider performance by the Executive.

As the old year ends and decisions are being made for the better management of the regional economy, there are serious challenges for the business community and Government in setting economic priorities.

In 2014, there was some comfort in the steady, if slow, strengthening of the economy. In 2015 continuing recovery in the private sector must be enhanced and set alongside the increased challenges faced by the public sector as ministers try to improve efficiency in the delivery of public policies and services as well as rationalising the public sector staffing numbers and structure.

For many businesses in the private sector one of the tensions will be whether they can enhance their productivity and efficiency sufficiently to improve their competitiveness in the wider marketplace and also improve the earnings of employees sufficiently to generate an increase in real earnings.

Most of the impetus for improving competitiveness lies within the discretion of each management team. Nevertheless there will also be an impact from a range of government actions including infrastructure investments, skills enhancements, energy policies and prices, and direct and indirect taxation.

There is work to be done on selected topics.

The Strategic Investment Board (SIB) has been operating without offering strong leadership ideas on the critical ways in which public sector infrastructure should be enhanced and performance improved. The performance of the board would be greater if it openly shared its appraisal of the relative investment priorities and the investment mechanisms that it suggests should be used.

At the current critical juncture for economic policy, the Economic Advisory Group (EAG), which advises the Enterprise Minister, might lead an informed debate on how that group now assesses the strengths and weaknesses of current policies and might add some indications of where subtle changes in priorities should lie in 2015 and beyond.

Neither the SIB nor the EAG are so complacent that they would have nothing to offer on the merits of expected actions by the Government, the locally based banks, or the business community.

One danger, during 2015, is that the main focus of attention will be the potential benefits of the devolution of corporation tax. That change is a major development.

The Executive must play its part by early agreement on a final balanced budget for 2015-16 creating a 'permanently sustainable footing for the future'.

A second specific condition is that the welfare reform bill will be well advanced in Stormont before the end of February.

The approval for corporation tax devolution, to become effective in April 2017, is essentially a test of the wider performance by the Executive.

The logic is that an agreed implementation timetable will serve, first, as a marketing strategy to influence future investors and, second, as an assurance of Executive cohesion.

Changes in corporation tax will be a strong headline message. However, the prospect of lower corporation tax on trading profits must be assessed as part (admittedly an important part) of business performance which is more widely secured in costs, productivity and efficiency.

The Treasury has now clarified some of the ground rules for the devolution of corporation tax. Devolution will allow the Assembly to set a tax rate 'for trading profits' which means that some businesses will pay the UK rate on non-trading profits. In addition, 'the responsibility for allowances and credits (will remain) at Westminster'.

To limit the scope of the devolved powers, the Treasury will adjust the block grant to reflect the corporation tax revenues forgone by the UK Government 'due to both direct and behavioural effects but it will not take account second round effects on other taxes'. That now excludes a suggested device to try to reduce the effect of the tax change on the block grant.

The Executive now have operating guidelines which will put a significant onus on the improved functioning of the local institutions.


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