Stormont should press ahead with a corporation tax cut

Morning View
Morning View

The UK vote for Brexit has thrown up legal and political and financial complications that will take decades to resolve fully.

The impact of the decision to leave the European Union on Northern Ireland’s corporation tax rate will be a minor consideration in Downing Street at the moment, or for many months to come.

In a bid to reassure markets and existing businesses, George Osborne has – among other proposals – suggested that he might cut the overall UK rate of corporation tax from 20% to below 15%.

This is an interesting and sensible proposal for the City of London. The chancellor has already been steadily cutting corporation tax in recent years,

If Britain was remaining in the EU, then Brussels would be unhappy at such a low rate of corporation tax undermining other member states (as it has been unhappy with Dublin’s ultra low 12.5% rate).

But we are leaving the EU, so that is no longer much of a consideration.

London has long traded on its business friendly, lightly regulated, modestly taxed reputation. Low corporation tax is an attempt to push along the sense of an offshore Hong Kong-Singapore style UK on the edge of Europe.

But any such cut in corporation tax lessens the appeal of the Republic’s rate and Northern Ireland’s mooted matching rate of 12.5%. If GB has a 15% rate, then many businesses that would prefer to be in London than in Ireland, north or south, might just pay the small extra percentage points in tax.

Even so, Theresa Villiers is right to say that the NI plan should not be derailed. While it makes the tax competitiveness of the Province less obvious, it will cost less (in terms of reduction in the Block grant).

Corporation tax will never in any event be a panacea. It is one of a number of levers that we must try in the urgent bid to wean our economy off subsidies.