North reactionAn increase in small business tax announced in yesterday's British budget will have a disproportionate effect in Northern Ireland, where 98 per cent of companies are small- and medium-sized enterprises (SMEs), according to business leaders in the North.
While welcoming a two percentage point cut in corporation tax, business leaders said the matching increase in small business tax would have a negative impact on the 60,000 SMEs that dominate the North's private-sector economy.
There was widespread agreement that the British budget provided cold comfort for the North's business community ahead of today's meeting between Chancellor Gordon Brown and the North's main political leaders, at which details of a financial package for Northern Ireland will be unveiled.
According to Alan Bridle, head of research with Bank of Ireland in Northern Ireland, hopes are fading that Mr Brown will offer a significant economic boost as part of a devolution deal.
"People on the other side of the Irish Sea could be forgiven for questioning the need for a peace package. There's also the question of whether we need self-help tools rather than more public expenditure, which will only have short-term implications," he said.
The increase in small business tax was roundly criticised. Wilfred Mitchell, policy chairman of the Federation of Small Business, described it as a "kick in the teeth" for his members.
"We had hoped that the chancellor would have been even more generous with corporation tax given that Northern Ireland is struggling to attract foreign direct investment with competition with the Republic of Ireland, which has a much lower rate," he added.
This view was echoed by Philip McDonagh, chief economist of PricewaterhouseCoopers in Belfast. "Cutting the [ corporation tax] rate by two percentage points across the UK won't add much of a sparkle to the Northern Ireland investment offering, while increasing tax by 2 per cent for a quarter of all small, local VAT-registered companies ups the cost of doing business in Northern Ireland."
Frank Bryan, chairman of the Institute of Directors in Northern Ireland, said the budget did nothing to redress the balance between risk and reward that was needed to create a more entrepreneurial Northern Ireland. "Business leaders await with some trepidation [ Mr Brown's] announcement [ today] of an economic package that would accompany devolution," he said.
Mr Brown mentioned yesterday the establishment of a Northern Ireland innovation fund, but did not disclose details ahead of today's meeting.
Mr Bryan expressed scepticism that the fund would provide the range of measures needed to regenerate Northern Ireland's private sector, or create the 140,000 new jobs that will be needed over the next decade.
A statement by Northern Secretary Peter Hain following the budget announcement did little to allay business fears of a less than generous economic package for Northern Ireland. He said the financial package announced last November was subject to devolution happening next Monday.
"If it doesn't, then Northern Ireland will have to join the queue and await the outcome of the comprehensive spending review, which the chancellor has announced will be in autumn.
"That may mean less money for Northern Ireland and will mean delays in developing priorities and associated spending plans. That must not be allowed to happen," he said.
