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Scotland poses major threat to region's search for investment

Scotland could provide a more attractive venue for foreign direct investment than Northern Ireland, even if both regions get the power to drop corporation tax rates.

This is the message from a new report issued by business advisory group PricewaterhouseCooper (PwC), which has also warned that fears over the eurozone debt crisis, US economic recovery and a new global financial crisis are all combining to slow Northern Ireland's growth and reduce the prospects for export and recovery.

The quarterly Northern Ireland Economic Outlook (NIEO) cuts PwC's economic growth forecast for Northern Ireland, saying the local economy can expect to grow by no more than 0.8% in 2011.

It also contrasts the Northern Ireland and Scottish economies and warns that, if both regions get the power to cut corporation tax, Scotland could prove a more attractive region to new investors.

Supporters of a cut in the rate say lowering the levy from 24% to match or better that of the Republic, set at 12.5%, would make Northern Ireland more competitive and will attract more jobs through foreign direct investment.

A Treasury document on the possibility of Northern Ireland being able to set its own tax powers closed in July.

The latest UK-wide economic outlook study features a comparison of the Northern Ireland and Scottish economies, prompted by the launch of consultation from the new Scotland Bill Committee of the Scottish Parliament on future devolved powers for Scotland.

These could include devolving new borrowing and tax-varying powers to the Scottish Assembly, including reducing Corporation Tax to 12.5% and creating a Scottish Income Tax.

PwC concludes that, after London and the South East, Scotland is one of the best performing of the 12 UK regions, with above-average growth in recent years. However, Northern Ireland's long-term growth performance has, at best, only tracked the UK average.

PwC's chief economist, Dr Esmond Birnie, said that one of the key factors accounting for the prosperity gap between the regions is their relative levels of productivity. Scottish private sector productivity in manufacturing, construction and agriculture is significantly above the UK average, while comparable sectors in Northern Ireland fall well below the UK average.

"The real gap in relative performance between the two regions is epitomised by difference in the subvention from Westminster," he said.

"Per head of population, this is 180% more in Northern Ireland than in Scotland, even when we exclude the revenues from North Sea oil and gas.

"Scotland has a significant advantage over Northern Ireland and, if the proposed amendments to the Scotland Bill are accepted, Scotland will become a strong competitor to Northern Ireland, even if local corporation tax is reduced to match the Republic's 12.5%. So, it is perfectly possible that Scotland can attract investment from other UK regions, reinforcing the region's productivity lead still further."