Stormont’s central economic policy – cutting corporation tax to 12.5 per cent in April 2018 – has been dealt a second major blow in the space of little more than a week.
The commitment to slash the business tax was agreed by the DUP and Sinn Fein in last year’s Fresh Start Agreement, despite the reluctance of a section of left-wing Sinn Fein to accept a strategy which is central to right of centre economics.
Nevertheless, Martin McGuinness joined Arlene Foster in the US earlier this year as the First and deputy First Minister attempted to sell the looming tax cut to potential American investors.
But in the aftermath of the Brexit decision, the policy came under further pressure, with a period of looming uncertainty and the end of Northern Ireland as an English-speaking region within the EU from which major US firms could base their operations for access to the Single Market.
Economist Richard Ramsey said that the vote to leave the EU meant that it was “game over” for the plan to slash corporation tax in 2018 from the current 20 per cent rate,
Then on Sunday the Chancellor, George Osborne, pledged to cut the tax to less than 15 per cent in a bid to boost the economy in the wake of financial uncertainty created by the Brexit vote. Such a move would significantly reduce the estimated £250 million cost to Stormont of cutting the tax. But it would also remove one of the key selling points – that Northern Ireland, while still a part of the UK, had a far lower corporate tax rate.
As BBC business correspondent Julian O’Neill today highlighted, when Stormont began lobbying for the power to cut corporation tax to match the Republic’s 12.5 per cent, the UK rate was 28 per cent – meaning that Northern Ireland’s rate would have been less than half that of the UK.
First Minister Arlene Foster reacted bullishly to the Chancellor’s announcement on corporation tax, saying that she was not entirely surprised by it.
Speaking at the North-South Ministerial Council in Dublin, the DUP leader said of the decision to cut the UK corporate tax rate: “I don’t fear it,” adding that it could be “good for the UK.
But Ulster Unionist MLA Steve Aiken contrasted the Chancellor’s rapid decision with “the dithering and uncertainly of the Stormont Executive on this key element of attracting foreign direct investment”.
Sinn Fein Finance Minister Máirtín Ó Muilleoir said that he would bring a report to the Executive on “the Corporation Tax options post-EU referendum and following the latest announcement”. Mr Ó Muilleoir said that despite the “dramatic change in circumstances since the referendum” he remained committed to “devolving corporation tax powers from London” but did not explicitly say that he remained committed to slashing the rate if the power is devolved.
But southern Sinn Fein hinted at the unease within the party at low corporate tax rates, with Dail finance spokesman Pearse Doherty saying that the Chancellor’s announcement “shows how volatile a tax policy built on corporation tax receipts is”. He added: “Relying on exceptional corporation tax receipts as a base for other tax cuts is a dangerous game to play and, as we have seen, we [the Republic] are not the only players on the pitch.”