Northern Ireland should slash corporation tax in line with the Republic of Ireland to drive growth in the cash-strapped region, according a proposal from the region’s biggest business lobby group.
The gulf between the UK’s 25 per cent headline corporation tax rate and Ireland’s rate of 12.5 per cent for small firms and 15 per cent for large companies is making it impossible to compete for investment, said the Federation of Small Businesses.
The group has outlined its plan to the finance ministry at Stormont and UK officials ahead of detailed talks on the subject.
Ireland’s rate of corporation tax, well below the EU average, has driven a budget surplus and the FSB says reviving mothballed plans for Northern Ireland to cut its rate could create jobs and boost the region’s economic fortunes.
“We are massively disadvantaged,” said Roger Pollen, FSB head of external affairs. “Aligning with the Republic of Ireland isn’t going to impact the UK but it would dramatically affect our local economy.”
The vast majority of Northern Ireland’s funding comes from an annual “block grant” payment of £15bn at present. The Stormont executive raises less than £1 in every £20 of the region’s tax revenue — some £1.5bn in 2023-24.
Northern Ireland contributed £1.2bn to the UK Treasury from corporation tax in 2021-22, the latest year for which data is available, according to the Office for National Statistics.
The UK passed legislation in 2015 to allow Northern Ireland to set its corporation tax rate. But the act was never implemented because of frequent political crises and the stipulation that the region would first have to demonstrate its finances were sustainable.
Under an agreement dubbed “Safeguarding the Union” that helped restore Stormont in February after a two year hiatus, London promised to “swiftly progress” its corporation tax devolution commitments “supported by the necessary resource from within HM Treasury”.
Under the FSB’s plan, sums raised would not be deducted from the block grant for several years under a kind of “overdraft facility” to give the scheme time to get established. The business body argues that a lower tax rate would attract more global manufacturing investment and thus boost receipts.
“We need to be imaginative about it,” Pollen said. “What do you do in a company if you don’t have the cash to buy a business? You borrow and pay it back from the increased value and revenues of the business.”
Despite the trade-boosting prospects offered by Northern Ireland’s unique post-Brexit access to both the EU’s single market for goods and Britain, the former linen and shipbuilding powerhouse is struggling financially.
Ministers have warned they cannot afford to continue to deliver even the current level of crumbling public services. Productivity is 11 per cent below the UK average and the region has the UK’s second highest number of people neither employed nor looking for work.
The UK government wants Northern Ireland to raise revenue by introducing water rates and increasing other charges that are lower than in Britain. But Pollen said the answer was “revenue raising not by increasing corporation tax but by growing the corporation tax pie”.
Higher investment would also mean more jobs and thus more payroll and other tax revenue that would continue to flow to the UK Treasury, according to the FSB.
A low tax policy has paid dividends for the Republic of Ireland with corporate tax receipts more than doubling since 2019, to a record €24bn last year. However, Dublin has warned that the bonanza is already waning.
Slashing corporation tax in a region that already enjoys better post-Brexit access to the EU than the rest of the UK would be a “hard sell” in Britain, said Lorraine Nelson, tax partner at consultancy BDO Northern Ireland.
Caoimhe Archibald, Northern Ireland’s finance minister, said she was discussing a new fiscal framework for the region with the UK government.
“It is my intention that this would also include how increased fiscal powers could be devolved to the executive,” she told the Financial Times. “l welcome any proposals or evidence that could inform this work and my officials and I are happy to engage with business leaders on this.”
London, which has agreed £3.3bn in extra financing for Northern Ireland to ease current pressures, said it was working closely with Stormont on its Safeguarding the Union commitments.
“This includes further work on the devolution of the rate of corporation tax to Northern Ireland,” it said.
