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Reform Group Urges 12.5% CIT Rate For Northern Ireland

Thursday, February 18, 2010

Establishing Northern Ireland as an enterprise hub by cutting the corporate income tax to 12.5% – equal to that of neighboring Republic of Ireland – would be the best way to turn around the Northern Irish economy, according to a report to a Northern Irish think tank, that warns that the territory will otherwise continue to depend on UK subsidies.

The report, released on February 16 by the Northern Ireland Economic Reform Group, which comprises senior economists, accountants and business leaders, argues that a low rate of corporation tax is the only way to correct the gap between the UK and Northern Ireland.

The report observes that, 12 years after the Good Friday Agreement, Northern Ireland remains the UK’s poorest region, with the lowest average wages and low productivity, and exceptionally high unemployment. Around half of all government expenditure in the region is subsidized to the tune of GBP9bn per year by taxpayers in Great Britain. This is despite the highest levels of government support for business in any UK region.

The report claims that current policy is insufficient to “turn around the Northern Ireland economy, alter the balance between the public and private sectors or significantly narrow the prosperity gap with the rest of the UK.” It also raises concerns over EU limits, to be imposed from 2011, on the level of investment grants that can be claimed by businesses, with the possibility that such grants may not be permitted at all after 2013. Attracting foreign direct investment by introducing incentives to prospective international investors – namely lower corporation tax – would, the report states, be a “fast track solution to increase economic prosperity and achieve job creation”.

“The experience of the Irish Republic shows the ability of a highly competitive corporation tax regime to attract Foreign Direct Investment. … A low tax regime would also of course act as a spur to investment by indigenous companies,” the report observes.

The report claims that this could bring around 90,000 quality jobs to Northern Ireland in the space of 20 years, and thus increase the UK Treasury’s tax take from income taxes, national insurance, and VAT – and reduce subsidies from the mainland by over GBP1bn in the same period.

Previous suggested corporate income tax rate reductions for the region have, however, been rejected by the UK authorities for fear that UK businesses would establish shell companies in Northern Ireland to avoid paying the UK corporate income tax rate of 28%, significantly lowering the UK tax-take.

But the Shadow Secretary of State for Northern Ireland, Owen Paterson, supports the idea. “The authors make a very coherent case for a reduced rate of corporation tax in Northern Ireland,” he said. “The Conservative Party has been saying for some time that a radical, long-term strategy is required to end Northern Ireland’s dependence on the public sector and to boost private sector investment.”