Corporation tax cut to benefit 34,000 firms in Northern Ireland

Secretary of State Theresa Villiers
Secretary of State Theresa Villiers

Around 34,000 businesses in Northern Ireland are set to benefit from a cut in corporation tax after the Government tabled a bill devolving powers to the Stormont Assembly.

Ministers said the change could be “transformative” for an economy which for years has been over-dependent on the state.

Legislation introduced in Westminster on Thursday is expected to be completed before May’s general election and should allow Northern Ireland to set its own tax rate from April 2017.

Chancellor George Osborne said: “This will give the Northern Ireland Executive greater power to rebalance the economy towards a stronger private sector, boosting employment and growth.”

Northern Ireland Secretary Theresa Villiers has said the coalition Government is prepared to try to legislate for the change before the general election if the local parties implement a deal on financial issues and other problems which have threatened political powersharing at Stormont.

She said: “In the light of an economy that for many years has been over-dependent on the public sector, allowing the Assembly to set its own rate for corporation tax offers the prospect of a transformative change in Northern Ireland.”

The plan is a key part of the Stormont House Agreement aimed at breaking the political stalemate.

The Stormont House Agreement, forged on December 23 after 11 weeks’ discussions, has resolved destabilising wrangles over the administration’s budget and its non-implementation of welfare reforms while establishing new structures to deal with the legacy of unsolved Troubles killings.

It achieved less progress on other vexed disputes over the flying of flags and parading, but did set out new processes to examine how to find solutions to those matters in the future.

Much of the plan has been facilitated with a £2 billion financial package from the UK government - an offer that combines some new money from the Treasury with enhanced borrowing access and flexibility.

All parties in Northern Ireland have called for responsibility over the levy on business profits to be devolved in an effort to revitalise an economy emerging from decades of conflict.

A reduction in the rate from the UK-wide 21% to match the 12.5% for firms in the Republic of Ireland, a competitor for foreign direct investment, has been described as a “game changer” by advocates who consider it valuable in persuading firms to create jobs in Northern Ireland.

But it could lead to a substantial reduction in the block grant paid by Westminster to run public services.

Ms Villiers said, if the rate was lowered, around 34,000 businesses in Northern Ireland would stand to benefit, including 26,500 small and medium-sized enterprises.

She told a group of business representatives near Belfast there was strong support for this change across all five parties in Northern Ireland’s ministerial Executive and the business community, which believes it would provide a major incentive for domestic businesses to invest further in Northern Ireland and significantly increase foreign direct investment.

“Given the land border shared with a lower corporation tax jurisdiction, this measure has the potential to create thousands of new jobs and stimulate crucial growth in Northern Ireland’s private sector, leading to a stronger, re-balanced economy.”

She added: “The Bill is subject to the important conditions contained in the Stormont House Agreement, reached with the Northern Ireland Executive parties in December after 11 weeks of negotiations.

“That agreement involves compromise on all sides, including from the UK and Irish Governments. But it is fair and balanced and provides the opportunity to build a brighter future for Northern Ireland.”

Mr Osborne said he wanted to work with the Executive to ensure that Northern Ireland will attract investment and become more competitive, boosting the entire UK economy.

Danny Alexander, Chief Secretary to the Treasury, said this Government was committed to devolving powers across the UK where there is a strong argument for doing so, from giving Scotland control over income tax to Thursday’s corporation tax announcement for Northern Ireland.

He added: “Within the UK, the case for devolving corporation tax setting powers to Northern Ireland is unique. It shares a border with Ireland, where a far lower rate exists, and the economy faces other special challenges.

“However, this agreement is conditional on the Northern Ireland Executive continuing to work to balance Northern Ireland’s budget, to ensure that people across the UK can benefit from a stronger economy and fairer society under this Government.”

Ministers want the Northern Ireland corporation tax regime to be attractive to businesses, minimising the administrative burdens and encouraging genuine economic activity.

The NIO believes costs for the Executive must be proportionate and kept to a minimum. It must also satisfy EU state aid rules, which aim to prevent the state from distorting competition in a way that harms companies in the Union.

This means the amount of block grant paid from London to Belfast is likely to be cut in line with a fall in the business tax take.

The Assembly will have the power to set the corporation tax rate over most trading profits. It does not include non-trading profits such as income from property.

One concern weighed by ministers in London was the potential for companies to move from Great Britain to Northern Ireland to take advantage of a favourable new tax system.

Another was the impact of the change on Scotland.

On Thursday, The Scottish National Party (SNP) deputy leader Stewart Hosie said: “It would be completely duplicitous and utterly reprehensible if Westminster was to deny to Scotland what it is keen to offer to Northern Ireland.”

In response to the SNP challenge an NIO spokesman added: “Northern Ireland faces a set of unique economic circumstances, including the cross-border challenge from the Republic, an over-reliance on public sector employment and the difficult legacy of the Troubles.”