TAX RISES could cost the Northern Ireland economy millions of pounds in lost revenue from cross-Border shopping and jeopardise jobs, key business and retail leaders warned last night following the emergency budget.
But specific incentives for businesses, including a cut in corporation tax levels and boosts for pensioners and low-paid workers, could ease some of the pain.
The surprise decision by UK chancellor George Osborne not to increase taxes on alcohol, tobacco and fuel duties will be seen as a welcome break for many. However, trade unions in the North said this will be of little comfort to many who will be hit by a budget which they described as “regressive and short-sighted”.
Avril Hall-Callaghan from the Irish Congress of Trade Unions (Ictu) said the budget would “disproportionately affect women” because, as workers and mothers, they would suffer a double blow through welfare cuts and pay freezes in the public sector which is a female-dominated environment.
Ictu said the hike in the UK’s VAT rate from 17.5 per cent to 20 per cent from January next would hit most people’s pockets. It is also likely to act as a major deterrent to euro shoppers, according to the Northern Ireland Chamber of Commerce.
Francis Martin, president of the chamber organisation, said the increase in VAT could in general have a “negative effect” on small enterprise in NI because it will increase the cost of doing business.
But the independent retail trade association in the North said it could result in a much worse scenario, costing the local economy jobs and business closures. Glyn Roberts, the organisation’s chief executive, said the budget was far from fair and the VAT increase was a “regressive move” that would hit everyone in the North from low income families to pensioners.
A range of measures designed to shake up the welfare system, including new limits on housing benefits, will also be significant in a region where a large proportion of the population receive benefits.
The chancellor intends to reduce public expenditure by £17 billion between now and 2014/15 and freeze public sector pay. But it will be October before full details of the cuts will be revealed when he publishes the spending reviews.
According to Hugh Crossey, managing partner of PricewaterhouseCoopers in Northern Ireland, the chancellors’s plan to cut £17 billion from public expenditure by 2014/15 could mean that the North might have to axe a further £300 million from local budgets.
Business leaders in NI remain anxious about how the proposed cuts to public expenditure will affect a weak economic recovery.
The Institute of Directors said: “George Osborne has faced up to the challenge. The economy needed faster and deeper deficit reduction and that’s exactly what the chancellor has delivered.Knowing that the public finances are being brought under control is one less worry for companies and will also help long-term interest rates and business investment.”
The treasury said new budget measures should also mean that up to 15,000 businesses in the North will be eligible to take part in a new initiative that exempts new firms from up to £5,000 of employer National Insurance payments for each of their first 10 workers hired.
Nigel Smyth, director of the Confederation of British Industry, said the reduction in the headline corporate tax rate to 24 per cent was clearly welcome “but it is disappointing that some of Northern Ireland’s larger companies will lose out from reductions in RD tax credits and changes, albeit delayed, to capital allowances”.
The budget also contained a key announcement that the UK government intends to produce a paper specifically on rebalancing the North’s economy. It said it intends to do this in consultation with the Northern Ireland Executive and will examine in detail the argument for changing the corporation tax rate.
“Northern Ireland has no alternative but to forensically analyse its current public expenditure programmes and come up with a shopping list of public expenditure cuts and new sources of revenue,” said Richard Ramsey, chief economist with Ulster Bank.
