Proposals to examine cutting corporation tax in Northern Ireland will be published by the Treasury today.
The Secretary of State will launch a paper on rebalancing our economy, which will then be put out for a public consultation.
The Chancellor George Osborne made the announcement in the House of Commons yesterday.
Companies in Northern Ireland have to compete with those in the Republic, where the lower rate of 12.5% has attracted increased foreign direct investment. Corporation tax is set at 28% in the UK but Mr Osborne announced yesterday that British corporation tax will be cut to 23% to stop international firms from quitting the country.
Mr Osborne told MPs: “To deal with the unique issues posed by the Irish Republic's business tax regime, it (the Treasury paper) considers the case for Northern Ireland having an even lower rate of corporation tax than the rest of the UK. I look forward to engaging with all parties there on the way forward.”
One option in the consultation document is expected to be handing the Assembly the power to set its own rate of corporation tax. Estimates put the cost over
five years of an immediate cut at £1bn, while a phased cut, it is argued, would cost up to £300m in five years.
Campaigners argued that bringing the tax in line with the Republic could help invigorate Northern Ireland’s economy. However, there are Government concerns that any reduction would be paid for in a cut in the block grant from Westminster. The Irish government is under pressure to raise its level of corporation tax following talks on changing the terms of the European bailout.
Ernst & Young tax partner Rob Heron said news of the accelerated cut in the overall company tax rate was “a positive surprise”.
“Whilst this cut will be welcomed there were no additional reductions in the small companies rate of 20% which is more relevant to the majority of local businesses,” he said.
The proposed cuts, which will ultimately take the main rate of corporation tax to 23% by April 2014, is unlikely to have a transformational impact on the Northern Ireland economy.
Attention will obviously therefore turn to the release of the consultation document today which is expected to consider a reduced rate of corporation tax for Northern Ireland.”
PricewaterhouseCoopers economist Esmond Birnie said: “For a Chancellor with little spare cash, this was better than expected.”