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Cameron facing new showdown

Northern Ireland ‘poised to control corporation tax’

David CameronDavid Cameron risks deepening the rift with Holyrood this week by agreeing to devolve corporation tax powers to Northern Ireland.

An announcement is due to coincide with Wednesday’s Autumn Statement in the Commons and sources claim the Prime Minister is close to allowing the province to set its own level of tax for businesses.

If Mr Cameron agrees to hand control to the Northern Ireland Assembly it is likely to exacerbate the row with Holyrood that erupted immediately after Lord Smith published his commission’s report on new powers for Scotland and urged the two governments to work more closely together.

Mr Cameron’s case will be based on different circumstances and geographies, including Northern Ireland’s ability to compete with the Republic of Ireland which has a much lower rate of corporation tax.

But granting Northern Ireland power over one of the levers of the economy would expose Westminster to accusations of double standards and betraying the spirit of The Vow or pledge by the main Westminster parties to devolve powers to Scotland.

The nationalists said that many believed the Vow would involve transferring everything apart from foreign and defence matters.

The Smith Commission yesterday published its report which proposed switching some control of income tax, a proportion of VAT receipts and air passenger duty. But most taxes, including fuel and excise duties, inheritance tax and capital gains tax remain reserved.

First Minister Nicola Sturgeon and her deputy John Swinney were highly critical of the Commission for failing to devolve corporation tax and a number of other taxes to Scotland.

Ms Sturgeon said the “serious levers” of power could have been recommended but she said the proposals fell short of Home Rule or giving Scotland proper control of its taxes. She did not accept that the Vow had been delivered and said the issue was now in “the court of public opinion”.

Business leaders may also express concern that granting power to the province will put the issue of corporation tax back in the spotlight. They believe they can manage income tax variations, but have been particularly opposed to devolving corporation tax.

A source close to the Scottish Tories said: “The two parts of the UK are very different and business organisations told us this was a red line for them. They do not want corporation tax devolving to Scotland, they want Great Britain to remain a single market.”

Fevered speculation about getting control over corporation tax is now gripping Northern Ireland’s commentators and economists who believe it would help stimulate the province.

Mr Cameron, who would require clearance from Jean-Claude Juncker, the European President, is thought to have based his judgement on the province’s relatively exposed economy. Scotland has an energy and financial services sector which underpin the economy and which are integrated within the UK. It is also an exporter whereas one Northern Ireland economist described it as a  a “hopeless importer”.

It also faces competition the republic which retains a 12.5% corporation tax rate against the UK’s 21%. This differential has enabled the republic to lure a number of lucrative US businesses. Sharing a 220-mile border with a eurozone country also marks it out as different to Scotland.

Dr Mike Smyth, a leading Northern Ireland economist and a UK representative on the European Economic and Social Committee, told the Belfast Telegraph that he believed Europe would object to Scotland ever getting corporation tax powers – but would be more open to allowing Northern Ireland to control it.

“Scotland is already well above the European GDP per head so to allow it a lower rate of corporate tax within the UK could be seen as state aid,” he told the paper.

“Scotland has a huge chunk of the UK financial services sector and it is an energy exporter whereas we are a hopeless importer. Here we only need two or three big pharma companies to open up and that will change the entire outlook fairly quickly.”

 

 



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