Power over corporation tax is "not a good candidate for devolution" to the Northern Ireland Executive, the highly
respected London-based Institute for Fiscal Studies has warned.
In a blunt analysis, the Institute said freedom for Northern Ireland to set its own corporation tax rates would encourage companies based in the rest of the UK artificially to shift profits into their Northern Irish operations and would add “complexity” to existing practices.
Acknowledging Northern Ireland’s “special circumstances”, the institute nevertheless said three years of consultation had taken place and yet there were still no details to show it could work or clarity on whether Northern Ireland would also have powers over how profits were calculated.
Revenue and Customs, for example, believed that £450 million was raised annually in corporation taxes in the North, but the figures produced by Stormont indicated that the figure was significantly higher, reaching £650 million.
Treasury grant
Equally, the institute added, there would be issues in calculating the treasury block grant due to Northern Ireland, since it would be difficult to calculate the effect of profit-shifting and “tax-motivated incorporation” by companies setting up in the North to benefit from lower rates.
On the offer by chancellor George Osborne, the North's Minister of Finance Simon Hamilton said: "It's disappointing it isn't a final decision, in that it's not affirmative decision to devolve these powers."
Urging Northern Irish businesses to “be patient” while politicians tried to fix the problem, Mr Hamilton told a business conference in Belfast that they must “encourage” parties such as Sinn Féin “who are not showing leadership around welfare reform and budget issues, to get on with it”.
Meanwhile, former Northern secretary Owen Paterson said he believed that Northern Ireland could afford the loss of corporation tax revenue, which he put at £200million a year out of total public sector spending of £23 billion.
“There are huge benefits to getting the private sector going in Northern Ireland,” Mr Paterson said. “It would transform society, bringing prosperity and jobs to the hardest-hit areas where things have been really tough in recent decades.
“By giving Stormont this tool, businesses can help grow the economy, grow tax revenues in Northern Ireland and reduce the dependency on the taxpayer. I congratulate all those involved in getting this far.”
Significant caveats
However, there is a growing realisation that Mr Osborne has placed significant caveats on the offer.
Last year, the British government and the Northern Executive agreed that a final decision would be announced in the chancellor’s autumn statement, with Whitehall promising best endeavours to have it passed at Westminster before the Commons rose for next year’s general election.
Minister of State for North- South Co-Operation Seán Sherlock meanwhile said lower corporation tax rates in the North “would boost the economies on both sides of the Border”.
