Corporation Tax

Committee Business – in the Northern Ireland Assembly at 11:30 am on 28 June 2011.

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Photo of William Hay William Hay Speaker 11:30, 28 June 2011

This item is a joint motion from the Committee for Finance and Personnel and the Committee for Enterprise, Trade and Investment. The Business Committee has agreed to allow up to two hours for the debate. The proposer will have 10 minutes to propose the motion and 10 minutes to make a winding-up speech. All other Members who are called to speak will have five minutes.

Photo of Conor Murphy Conor Murphy Sinn Féin

I beg to move

That this Assembly supports, in principle, the case for the devolution of corporation tax powers to the Northern Ireland Assembly; and looks forward to the outcome of the HM Treasury consultation on ‘Rebalancing the Northern Ireland Economy’, the provision of further information on the associated costs and benefits, and the development of more detailed proposals for implementing and exercising the powers.

Go raibh maith agat, a Cheann Comhairle. In its emergency Budget in 2010, the British Government signalled that they intended to examine mechanisms for rebalancing the economy here, including, among other things, the possibility of allowing a more competitive corporation tax rate. The resultant consultation was launched by the Treasury in March 2011 and was extended to 1 July. The initial closing date of 24 June did not afford enough time to bring forward a co-ordinated response on behalf of the Assembly. The joint motion has, therefore, been tabled by the Finance and Personnel and the Enterprise, Trade and Investment Committees to help to inform any response that they or any other Committees or individual Members may wish to make to the Treasury consultation. Moreover, by agreeing the motion, which proposes cautious support for pursuing the devolution of corporation tax powers, the Assembly will send a collective message to the Treasury at this important point in the ongoing negotiations over the possible terms on which such powers could be exercised.

Members will be aware of the fundamental weaknesses in the local economy, which have been well documented and include, for example, greater reliance on the public sector, higher rates of economic inactivity, relatively low incomes, high rates of poverty and a legacy of capital underinvestment. Some of those issues were touched on in the Treasury consultation paper, not least and significantly the lower productivity in terms of gross value added (GVA) per capita compared, with a few exceptions, with regions in Britain.

There is no question that a new approach must be taken to the economic challenges that face us. An economic strategy based simply on more of the same will not achieve the step change that is needed in the economy or go far enough in closing the productivity gap. In its recent report, the Westminster NI Affairs Committee noted that many of those who gave evidence to its inquiry considered:

“that previous policies had not had the desired effect and a significant reduction in corporation tax would be the dramatic change that business” here needs.

The case for a more competitive rate of corporation tax and the impact that such a step would have on the local economy has been fairly extensively examined over recent years. As well as that recent NI Affairs Committee inquiry, investigations have been undertaken by, for example, the Economic Research Institute, the Economic Reform Group and, more recently, the Economic Advisory Group (EAG), which advises the Minister of Enterprise, Trade and Investment. The evidence from those investigations points to the potential net gains from a more competitive corporation tax rate. The issue was also examined in previous Assembly mandates, including by the previous Finance and Personnel Committee, which tabled a joint motion, again with the Committee for Enterprise, Trade and Investment, on the Economic Reform Group’s report. The Assembly debated and unanimously supported that motion in May 2010.

There can be no doubt that attracting investment here will have a positive impact on the local economy. Among the key benefits of an attractive corporation tax rate that is cited in various reports is an increase in foreign direct investment (FDI). The Economic Advisory Group has highlighted that experience in the South as suggesting that low corporation tax is an important factor in attracting FDI. It also notes that corporation tax incentives in countries such as Estonia and Singapore are one of a number of policy measures that have attracted increased FDI and contributed to significant increases in output and employment.

In its report, the NI Affairs Committee noted that the rate of corporation tax is considered by many to have been a “game changer” in reviving the Southern economy. It also pointed to the Dublin Government’s clear belief that an attractive corporation tax rate remains an “important tool” in helping the South out of its present difficulties.

A Department of Finance and Personnel (DFP) briefing paper issued to all Members in advance of the debate advises that the mid-point estimate for a gross FDI increase is £160 million in year 1, rising to £310 million by year 10. Domestic investment would increase by an estimated £110 million by year 10. The DFP paper also notes that a study undertaken by Oxford Economics on behalf of the Economic Advisory Group estimated that an average of 4,500 net additional jobs a year will be created in the longer term and that the measure would go some way towards creating a more private sector-oriented economy.

Although considerable effort has gone into examining and establishing the theoretical case for a competitive corporation tax rate, it must be recognised that a number of practical issues require more detailed exploration. In a paper commissioned by my Committee, the Assembly Research and Information Service sets out a series of questions to which the Department responded in its own paper. Further clarification is needed in some areas, not least with regard to the implications for the block grant. Members will be aware by now of the Azores judgement, which is an EU ruling that requires that a region bear the cost of any reduction in tax revenue and states that it cannot be compensated by the member state authority.

There appears to be a lack of clarity or agreement on precisely how much corporation tax is collected locally. Therefore, it is difficult to predict what the cost may be. Most assumptions are in the region of £200 million to £300 million a year, although the Assembly Research and Information Service paper notes that DFP has suggested in the past that the figure may be in excess of £400 million by year 5. In its paper, DFP states that:

“The public expenditure implications of this are significant and it is vital that we know precisely how much corporation tax is collected”.

Perhaps the varying estimates arise from different calculation methods, but, nonetheless, I call on DFP to press the issue with the Treasury as a matter of urgency.

In oral evidence to the Committee, Kate Barker, the chairperson of the Economic Advisory Group, reminded members that, at the same time as the public sector bears the cost, there will be immediate benefits to the private sector. Kate Barker also said:

“it is sometimes put as a gamble … To be blunt, doing nothing is much more of a gamble.”

By that, she was cautioning that it would be a gamble to simply expect that the block grant will continue at the same rate as at present and that we would have:

“passed up ... an opportunity to change the game.”

It should also be noted that the Economic Advisory Group report considered that it would be important for the Executive to retain yield from other taxes that would be expected to increase, such as income tax and National Insurance contributions. The NI Affairs Committee called on the British Government to provide clarity on the issue. If that were possible, it could evidently help to mitigate some of the costs that are associated with the rate of reduction. That aspect should, therefore, form a critical part of the negotiations with the Treasury.

Concerns have also been raised that a reduction in corporation tax here would encourage brass plating, profit shifting or tax evasion and that relocation from Britain would result in a net loss to the Exchequer. I do not seek to minimise such concerns. However, the NI Affairs Committee stated that its evidence suggests that that risk:

“is sufficiently well mitigated against for it not to present a persuasive argument.”

DFP also stated that it expects measures to be put in place to minimise profit shifting.

Members will be very mindful that, by itself, a competitive rate of corporation tax would not be enough to rebalance the local economy. Rather, it is one strand in a strategy that should include, among other things, investment in research and development, innovation, education and skills. It should be accepted now, however, that a strong theoretical case exists for the devolution of corporation tax powers. It is clear that much more detailed work has to be done, and much will depend on the outcome of ongoing negotiations with Treasury on how attractive the measure would be in practice.

The motion has been crafted to maximise support among Members. It is vital that the Assembly sends a strong message to the British Government, in particular that fair and reasonable working arrangements for devolving corporation tax powers need to be agreed with the Executive. The negotiations must have the central aim of rebalancing the local economy and must not result in terms that are skewed purely in the self-interest of Treasury.

For my own part, I feel that, as I said, the motion was crafted to ensure a broadly positive response from the Assembly, even in the context of ongoing negotiations. It is recognised that there are concerns, but they echo those that we had in the previous mandate with the devolution of policing and justice powers, when it was felt that the issue was too complex and sensitive for the Assembly. Quite clearly, we have demonstrated since then that the Assembly is well capable of handling those powers.

As has been suggested, this is not the silver bullet to address all our economic woes, but it begins to give us control of the fiscal levers that allow us to shape our own economic destiny, recognise our particular circumstances and not be subject to the whim of ideological changes brought about by a Tory-led Government in Britain. As is evident from the business community across the island, it would also allow us to begin to strengthen the all-Ireland links so that we could harmonise an all-Ireland approach to economic recovery. That has been accepted very publicly by business. Indeed, it has been accepted publicly and privately by many in the Chamber. It affords us the opportunity to begin to seize some measure of control over our economic destiny and to try to shape economic recovery, both in this region and on the island as a whole, and to decide our economic future.

On behalf of the Committee for Finance and Personnel and the Committee for Enterprise, Trade and Investment, I commend the motion to the House.

Photo of William Hay William Hay Speaker 11:45, 28 June 2011

I call Mr David McIlveen. The Member has five minutes.

Photo of David McIlveen David McIlveen DUP

I am grateful for the opportunity to speak on the subject, and I support the motion wholeheartedly.

Less than two weeks ago, I had the privilege of visiting Wrightbus in my North Antrim constituency. In the presence of the Chancellor of the Exchequer, the Minister of Enterprise, Trade and Investment and other representatives from the business community, we heard, one by one, the CBI, the FSB and the Chamber of Commerce speak with one voice. It said that the Assembly should be given the powers to set its own rate of corporation tax, which, although not a cast-iron guarantee of success, is the best — perhaps the only — way that we can reinject some life into the Northern Ireland economy.

There have been many debates surrounding budgets and cuts to public spending in this short term of the Assembly. However, on this issue, talking must be coupled with listening. That means listening to the members of the private sector, on whom to a large extent, most of us agree, the success or failure of our economy relies.

Of course, the cynical among us will say that asking a business owner whether they want to pay less tax will not provoke an entirely surprising response, but we must remember that the majority of small businesses will not benefit directly from a reduction in corporation tax, if we choose to reduce it. However, even the small businesses support it, because they know that the secondary spend that comes from jobs created through foreign direct investment will benefit small retailers also.

If we reduce corporation tax, we must not be unmindful of the cost. We cannot be complacent about that. If public services suffer as a result of a reduction in corporation tax, we, as elected representatives, will have considerable explaining to do. However, the most conservative estimates of economic growth as a result of a reduction in corporation tax see our economy rising by something in the region of 6% a year. Given that the most optimistic forecasts see our current output at around 1·9%, the gains in revenue would comfortably mitigate any losses that we would incur through a reduction in the block grant.

There are huge challenges ahead for Northern Ireland in rebalancing our economy. However, with challenges come opportunities. The Celtic tiger economy in the Republic of Ireland was built predominantly on foreign direct investment from the USA. Given the investment that we have put into the US markets, we should continue to work hard to attract further investment from that area. However, with emerging economies becoming ever stronger in India, China and other parts of the Far East, we are extremely well placed to attract investment from those areas if corporation tax powers are devolved to the Executive. In that regard, there is a huge strategic advantage to our being part of the UK, as it enables foreign businesses to set up a much-coveted base in Britain. If we can further incentivise those companies with a lower rate of tax than the other devolved regions, we will have an opportunity to move Northern Ireland forward to a new level of economic growth.

I conclude by paying tribute to Invest NI, which has exceeded pretty much every target that has been set before it in the past four years. In particular, I pay tribute to Alastair Hamilton, whose leadership, vision and passion for business in Northern Ireland has been and, I believe, will continue to be a major contributor to rebalancing Northern Ireland’s economy.

Photo of Leslie Cree Leslie Cree UUP

I welcome the opportunity to speak in the debate, as the devolution of corporation tax to Northern Ireland is such an important issue. I also welcome the fact that the two Committees, the Committee for Enterprise, Trade and Investment and the Committee for Finance and Personnel, have brought the matter before the House today. The Committee for Finance and Personnel has looked at the issue and received representation from the Finance Minister. The positives for the devolution of corporation tax to Northern Ireland are well documented. They are increased economic growth; the attraction of foreign direct investment; an increase in jobs, leading to lower unemployment; and the rebalancing of the Northern Ireland economy, which is over-reliant on the public sector.

I want to focus on how a reduction in corporation tax would be implemented, should we have the power to alter the tax devolved to Northern Ireland. Any reduction in corporation tax should be done incrementally. That can be seen through the actions of the coalition Government, who announced major reforms to corporation tax with four 1% reductions to the main rate. The rate was reduced to 26% in April of this year and, by 2014, will be reduced to 23%. In Northern Ireland, we should look at a similar system, whereby we gradually reduce the rate of corporation tax with a view to competing on a more equal playing field with the Republic of Ireland’s rate of 12·5%.

There are a number of reasons why I believe that corporation tax should be lowered incrementally. First, due to the Azores ruling by the European Court of Justice, regional differences in direct taxation must satisfy fiscal autonomy. That means that Northern Ireland’s block grant would have to be adjusted to reflect the cost of a reduction in corporation tax. In order to ensure that we do not inflict too severe a cut on the block in one go, an incremental lowering of the tax would mean that the reduction of the block grant would be spread over a longer time and would have the minimum impact possible on the provision of services to the people of Northern Ireland.

Secondly, incrementally lowering the rate of corporation tax would allow the Executive to respond flexibly to any change in the economy. The economic landscape is unclear in Northern Ireland, especially with a questionable four-year Budget that fails to protect front line health services and includes revenue-raising methods that lack sufficient clarity. I knew that the Minister would appreciate that comment. In those circumstances, it is vital that we have the ability to react to the particular challenges that the economy will present. Altering the rate of corporation tax on an incremental basis will allow us to do that.

Finally, it is essential that the devolution of corporation tax powers be used as one of a basket of measures to increase economic growth in Northern Ireland. The Treasury consultation sets out proposals such as research and development tax credits, an enhanced annual investment allowance, training credits and even a National Insurance holiday. All those measures need to be explored because only a combination of mechanisms will lead to a successful rebalancing of the Northern Ireland economy.

Bearing in mind the points that I have raised, I support the motion.

Photo of Dominic Bradley Dominic Bradley Social Democratic and Labour Party

Go raibh maith agat, a Cheann Comhairle. In my party’s view, lowering the rate of corporation tax in Northern Ireland will be a major tool in helping to rebalance the economy here, which is over-reliant on a public sector that is all too often at the mercy of the political whims of whoever is in power at Westminster. The current tools that we have to develop the private sector are useful and necessary but have not been successful in bringing about the growth that we require. We need to develop the private sector in order to generate more employment and spending and to deliver the revenue that we need to provide the best possible public services.

Foreign direct investment will be a major influence in rebalancing the economy, and a lower rate of corporation tax will be a major element in attracting it and closing the productivity gap. Indigenous businesses will also benefit from a lower corporation tax rate, and it will provide our SMEs with additional capacity to invest to grow their businesses.

If the powers are devolved, we should not rush into reducing the rate without knowing the full fiscal implications of that decision. At present, we do not know how much corporation tax is taken in Northern Ireland. There are varying estimates from DFP and the Treasury, and we need an accurate baseline figure so that we can assess the true impact on the block grant and manage the shortfall. We know that corporation tax is volatile and that its take can vary greatly from year to year. To offset the costs associated with the devolution of corporation tax powers, it is important that Northern Ireland is in a position to avail itself of any indirect benefits that result from increased economic activity, such as receipts from increased income tax, VAT, National Insurance, excise duty and, indeed, corporation tax itself.

Although the devolution of corporation tax powers and the lowering of the rate here is not a magical mist that will cure all our economic ills, it is an essential tool in rebalancing the economy, making Northern Ireland a more attractive prospect for foreign direct investment and enhancing indigenous economic activity, which will result in a more prosperous Northern Ireland for all our people. We need the House to unite with enthusiasm behind the motion to ensure that we send a positive message on the issue. Those who negotiate on our behalf on this matter must put forward the strongest possible case for the devolution of corporation tax powers. It is an essential tool in advancing the prosperity of this region, and the SDLP fully supports the motion.

Photo of Trevor Lunn Trevor Lunn Alliance

I support the motion as proposed, particularly as it specifies the words “in principle” in stating that the Assembly supports the case for the devolution of corporation tax powers.

I feel that the next time we come to this matter, when we have the outcome of the Treasury consultation and all the cost-benefit information available to us, we will have a major decision to make. However, for today, I am happy to support the motion in principle, although I have some misgivings about the best way to proceed in the long term.

If we have a lower corporation tax rate, what will the benefits be, and will it work? I heard the Committee Chair mention that 4,500 jobs would be created per annum over the next 10 years. That figure at least sounds realistic, unlike some of the figures that have been bandied about in the past year. The other day I heard that there would be 90,000 jobs. We would have to find more immigrants from somewhere to fill those jobs — it is just not possible. However, 4,500 sounds like a figure worth going for.

There is no doubt that the overwhelming weight of opinion in Northern Ireland advocates the measure. Indeed, the Northern Ireland Economic Reform Group said:

“it is, without exaggeration, the only means we know of comprehensively changing the economic environment, within a timescale of years rather than decades.”

It is fair to say, however, that there are also well-informed voices, including some who would benefit from a reduction in the corporation tax rate, who take the opposite view. I wonder what the most important criteria are for an industrialist or an investor when deciding where to locate worldwide. I wonder where corporation tax ranks on the list of priorities. That list would include the availability of skilled labour; political stability; good infrastructure; closeness to markets; energy costs; wages levels; and the amount of government support available to establish incoming business. Some of those criteria we meet and some we would struggle with. However, I have heard it argued that no level of corporation tax would compensate for not ticking most of the boxes on that list.

The argument is forcefully made that, to compete for inward investment, we need a rate comparable with that of the Republic of Ireland. Compared with us, Ireland has certainly benefited from a level of inward jobs, but, again, given the present circumstances, what will happen to the Irish corporation tax rate? The pressure is on from big hitters in the EU for Ireland to come more into line. It is a pressure that Ireland has so far resisted manfully, but is that position really sustainable? If the Irish have to go back to the EU for a further bailout, one condition will certainly be a rise in their corporation tax rate. The further argument is which line of investment to prioritise. Should it be this initiative, investment in our universities and further eductaion facilities — we had a good discussion about that yesterday — or support for small indigenous businesses? I imagine that the way forward is a cocktail of all three.

I can think of some people who started small in this country and went on to great things. I remember Allen McClay starting his business, Galen, in Portadown as a one-man band and where it led to. I think of Fred Wilson of FG Wilson, part of Caterpillar. Corporation tax was not a big factor for them when they started their businesses. Eddie Haughey of Norbrook is another example. As a young insurance man, I was famously asked to insure Norbrook when it first opened, but the company that I worked for decided that it did not like the look of it and that it would not go anywhere. [Laughter.] Mr Speaker, I can tell you that, if that company had made a different decision, I would not be here now, that is for sure.

(Mr Principal Deputy Speaker  [Mr Molloy] in the Chair)

We are right to support a full investigation of the costs and benefits of devolving corporation tax powers. The final decision regarding public expenditure will require the biggest leap of faith that we in the Assembly have ever had to make. We should not rush our fences on this matter; it is far too important, and there is no reason for haste. Other Members have said that we should take it as it comes. Let us make a balanced, well-informed decision at the end of the day. So, with the caveat that I expressed and those contained in the motion, I support the motion.

Photo of Simon Hamilton Simon Hamilton DUP 12:00, 28 June 2011

I listened to the Member talk about a leap of faith, but I am not sure which side of the classic Alliance fence he wants to leap to. Having listened to his five-minute contribution, I am still not sure whether he is in favour of devolving powers.

Photo of Trevor Lunn Trevor Lunn Alliance

Just to be clear: I said at the beginning and at the end of my speech that I support the motion.

Photo of Simon Hamilton Simon Hamilton DUP

Very good. The Member’s use of “in principle” was key, though.

I welcome the debate, not least its timing, which allows the House to offer its support, I hope, to the Treasury consultation, ‘Rebalancing the Northern Ireland economy’. It is a very timely debate to have to allow the Assembly to endorse in principle, or however we want to do it, the devolution of corporation tax powers.

In the general chorus of positivity on the motion, many Members have said that we would be naive in the extreme to think that devolving corporation tax powers would be an instant panacea to all our economic ills and that looking at corporation tax levels would be the only consideration that an investor would make before investing. Even with 0% business taxes and a low-cost regime across the board, foreign direct investment will not come to Northern Ireland unless we have the infrastructure, the skills and the telecommunications in place. Indeed, businesses will not come here unless we have golf courses, theatres and so on. There is a cocktail of measures that we must have. Companies such as Citigroup and the New York Stock Exchange have come to Northern Ireland, while HBO is making films and TV programmes here. Such things would never have been considered possible 10 years ago. Therefore, Northern Ireland already has huge attractions for investors. We have an almost unbeatable product, but the addition of a low rate of corporation tax would take that almost unbeatable product to a whole new level.

Photo of Gregory Campbell Gregory Campbell Shadow Minister (International Development), Shadow Minister (Transport)

I thank the Member for giving way. He outlines some of the very positive advantages, which I think are recognised across the House. Does he agree that the competitiveness that we could gain versus the cost is something that we will have to analyse? We need to concentrate on the rate — 15%, 10%, 12% or whatever it might be — and be sure that we are concentrating on its competitiveness. The one rate that has a political connotation, and about which people would have very strong reservations, is the 12·5% rate, because some people would use that as a harmonising tool rather than as a competitiveness tool.

Photo of Francie Molloy Francie Molloy Sinn Féin

The Member has an extra minute.

Photo of Simon Hamilton Simon Hamilton DUP

Thank you, Mr Principal Deputy Speaker. The Member’s point is an important one. If we get the powers to reduce the rate of corporation tax, we need to strike it at a rate that is right for Northern Ireland. There is a whole other discussion to be had on how we reach that figure, but the Member is absolutely right. We need to get the right rate for Northern Ireland to allow us to be competitive in what is an increasingly difficult global market.

Quite a few naysayers have said that we should not be discussing the issue at all. As Mr Lunn said, this may be, if not the biggest, one of the biggest policy decisions that we will ever face in Northern Ireland, and we should not face that decision lightly. We should be very careful and considered in our approach. Therefore, I welcome the naysayers’ contribution to the debate, although I do not necessarily agree with what they say. However, we should be cognisant of the concerns raised.

In some ways, though, this is a simple decision to take. Whenever I look into the cupboard of possible policy interventions that would allow a step change to occur in our economy to right the imbalance between the public sector and the private sector here and that would close the gap in living standards — we sit at only 80% of the UK standard of living — the cupboard is pretty bare. In not going after a reduction in the rate of corporation tax, given the positive changes that its introduction might make to bringing investment and jobs to Northern Ireland, making indigenous companies beneficiaries in the process, we will be consigning Northern Ireland to more of the same — a sort of as-you-were economic future. That is not acceptable. We should not be looking at simply trundling along, with more of the same for ever and a day in Northern Ireland. We should be looking at something different and something better for our people.

The benefits are well known: jobs; foreign direct investment (FDI); and spin-offs for local companies. Although colleagues and I have laughed at and ridiculed the basket case that is the Irish economy in some respects over how the bubble down there has burst, I did note that ‘The Irish Times’ last week reported that the Central Statistics Office in Dublin has said that the export market in the South is now at a record high. Irish exports in the first quarter of 2011 were up some 3·8% on the final quarter of 2010, and up 20·6% — valued at €1·5 billion — over the past year.

In spite of that bubble bursting, the Irish export market is doing well. That success is driven by the companies attracted by lower corporation tax. Why do the Irish jealously guard their power to have low corporation tax? We must consider the cost, but our approach must be that we want a lower rate. After that, we can discuss how. Mr Cree left out the issue of skills. If we reduce the rate, we need to have people available to take up the jobs in any number of years’ time. There are a lot of things to be discussed but, in principle, we should respond very positively to the consultation. We should tell the Treasury that we want those powers and make our own decisions thereafter on the future.

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin

Go raibh maith agat, a LeasCheann Comhairle. I welcome the debate and the momentum for change that has built from a fairly lethargic beginning some five or six years ago. We have followed a trajectory that followed the all-party agreement during the Preparation for Government discussions and brought us to this point. The change of Administration at Westminster and the coalition Government taking a different approach from that of the previous Labour Administration have also contributed.

During every debate on the economy here, and we have debated it during much more benign circumstances than exist at present, everyone commented on, lamented or criticised the imbalance in the economy. It is a simple statement of fact: the economy is out of balance. Consequently, it is uncompetitive, underdeveloped and more vulnerable to the global and international economic trade winds. Up to now, the Assembly has experienced extreme difficulty, within its powers and resources, in responding appropriately to grow the economy, which was the number one priority established early in the previous mandate. The difficulty in addressing that was that the Assembly simply did not have the economic and fiscal tools in its toolbox.

I have heard comments on the dangers of harmonised tax regimes on the island of Ireland. That is a particular, sectional view. My opinion is that there are significant advantages in being able to market the island economy and its harmonisation of rates as an economic opportunity for inward investment. The island could be marketed on the basis that it would be location indifferent because no fiscal advantage would apply on any part of the island. Up to now, the one-way street placed one part of the island at a significant disadvantage. However, a race to the bottom does not bode well for any economy, as we have seen over and over again.

I note that the Finance Minister has been careful to say continually to the Assembly that we must be responsible and careful. At times, he came across as negative, but he has done a service to the debate, because lowering corporation tax is not a risk-free option. No MLA will approach the decision not having been alerted to the possible downsides. A lower rate is not a silver bullet, and the decision requires a careful and, in my view, informed judgement. There has been considerable debate, study, research and consultation. Many exchanges have taken place, particularly between business, economic leaders, academia, trade unions and stakeholders. At the end of the day, all recognised the opportunities as well as the dangers.

I want to respond briefly to the warning about incremental change. That is a prudent and correct approach, and I do not argue against it. However, I do argue against — this is not a party political point — taking too conservative an approach. If we go for a lower rate of corporation tax but are afraid to be bold or imaginative, it could deny people the ability to produce early evidence that it is the correct strategy for growing and rebalancing the economy.

Although we should continue to be vigilant of the steps that we take if the power is devolved, there is as much danger in being too cautious and careful as there is in overreaching. Were we given the additional powers, the collective wisdom in the Assembly and the experience and support of Ministers would ensure that —

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin

— we could deliver on the number one objective of growing the economy.

Photo of Paul Girvan Paul Girvan DUP

I speak in favour of the motion, on the understanding that a reduction in the rate of corporation tax is only one of a number of measures to try to rebalance Northern Ireland’s economy, albeit that I believe that it is one of the greatest opportunities that we will have to attract inward investment. If used correctly, it could reduce the Northern Ireland economy’s reliance on public sector employment. It would be a great revenue generator, not only through the taxes received but for the wider economy, particularly the retail end, which would benefit from the money generated.

A reduction in the rate would give Invest NI a great opportunity to go out and sell Northern Ireland on the world stage. Like my colleague Mr Campbell, I fear our going down the route of setting a target of 12·5%. We should not be aiming to be on a par with what is a small economy of five million in the Republic of Ireland, given that the United Kingdom has a population of more than 60 million.

Photo of Dominic Bradley Dominic Bradley Social Democratic and Labour Party

The Member warns the House about establishing a rate of 12·5%. Does he agree with the First Minister, who has espoused the view that a 10% rate might be appropriate?

Photo of Paul Girvan Paul Girvan DUP

Our manifesto states that our ultimate goal is 10·5%. I am happy enough to say that if that were to happen, we would be an even more attractive region in which to invest, I hope and pray. It is not just about inward investment; a number of local companies would take advantage of and benefit from that rate.

There is a fear that we would end up with a number of companies coming in and brass plating, as it is known. I appreciate that measures would have to be put in place to ensure that that did not happen. Look at what the Exchequer in London has done: it has already made changes to the way in which corporation tax is worked in that economy. There is a view to bring it down to 23%, and hopefully that will help there.

Northern Ireland is the gateway to Europe, and I appreciate that America is one of our key markets. The UK has a population of more than 60 million, and I think that we have to look at the strength of the British economy. We know about the fears of all those in the euro zone at present, and we need to take those fears into account. Northern Ireland has the opportunity to look not only to America for inward investment but to one of the world’s leading economies, China. We have a wonderful workforce and a great skills base here. The universities gave a presentation in the Long Gallery yesterday that showed off some of the innovation and ability that Northern Ireland as a region can sell on the world stage. We have to look at that, too.

Corporation tax is only one tool in the box, so we need to consider others, such as how to work with the Planning Service to encourage investment. One of the problems in the past was that businesses were put off because of the protracted experience that was planning process bureaucracy. There was some reform in that area and that is the sort of area that we need to encourage, to open up our economy to a large extent.

I appreciate that the consultation is under way. I have received many positive messages from local businesses, not only from small businesses but from some larger employers such as FG Wilson and other companies that are based in my constituency. It is vital that we encourage them and give them the confidence that we are using every tool in the box to grow our economy and to encourage the creation of jobs in Northern Ireland.

Photo of Mike Nesbitt Mike Nesbitt UUP

I also support the motion. We in the House are here to make the big decisions. Those decisions do not necessarily have a right answer, an exact formula or a scientific equation such as E=mc², and that is the case when it comes to something like corporation tax. The only wrong decision would be to do nothing. The world is moving on, and I know that the Minister of Finance and Personnel will tell the House that all the models and the predictions are based on a fundamental assumption of all other things being equal. I also know that he could tell us that in English and in the original Latin.

There is another Latin phrase that is appropriate; it translates into English as “buyer beware”. As we consider taking the power to set our own rate of corporation tax, there are uncertainties that must be resolved, such as whether Europe will support us or whether we will end up in the European Court of Justice. We must also consider whether we can agree with HM Treasury on the exact current tax take from corporation tax and its implications for the block grant, and whether we can agree with Treasury on what will happen to additional tax revenues and receipts from sources such as National Insurance contributions and VAT.

The world is moving on, not least with Europe ending selective financial assistance (SFA), which was the main tool used by Invest Northern Ireland and its predecessors to attract foreign investment here. For me, corporation tax is not just a replacement for SFA; it will represent a transformational change. SFA traditionally tended to attract cost centres and operations that do not necessarily make a profit for their parent company, and which, therefore, do not find themselves liable to any form of tax, never mind corporation tax. Corporation tax is more likely to attract profit centres, such as those that deal in manufacturing and tradable services, and that will attract taxation.

For me, corporation tax is a starting-line tax. Without the power to set that tax, FDIs will look elsewhere to do business, but having it gives us the opportunity to get them to the starting line and encourage them to delve deeper into our offer. We have heard from other Members about that offer and the package, toolbox and elements that are needed, including improved planning and taxation law, the removal of red tape, and, above all else, the creation of the necessary skills base. Indeed, in a debate yesterday, we talked about the need for our further and higher education colleges to ensure that the ever-widening demand for highly skilled workers is met in the coming years.

I would like to remind the House of why we want the power to vary the corporation tax rate and why we want to lower it. It is not to make the fat cats of business any fatter; rather, it will address some fundamental flaws that have been in our economy for decades. Those include under-productivity and lagging behind the UK average in our prosperity. It will make our citizens better off by creating the environment in which businesspeople can generate the jobs that create the income that yields the taxes that fund excellence in our public services.

In conclusion, this is an opportunity to show the indigenous and international business communities that we, as an Assembly and an Executive, are up to the challenge of transmitting the message of political cohesion and confidence that they are looking for. Finally, if I may refer back to Mr Lunn’s contribution and his honesty in admitting about the one that got away, I am interested to know what he first thought when he heard the Beatles and whether that is why he is not the Alliance Party’s music spokesman.

Photo of Francie Molloy Francie Molloy Sinn Féin

Order. As this is the first debate in which the Assembly will hear from Mr Lynch, I remind the House that it is the convention that a maiden speech is made without interruption.

Photo of Sean Lynch Sean Lynch Sinn Féin

Go raibh míle maith agat, a LeasCheann Comhairle. Ar dtús, ba mhaith liom mo bhuíochas a ghabháil le muintir Fhear Manach agus Thír Eoghain Theas as deis a thabhairt domh bheith i mo Chomhalta den Teach seo. I would like to take the opportunity to thank the people of Fermanagh and South Tyrone who elected me as a Sinn Féin Member of the House.

In thinking about my speech, I was interested in what a Member from the opposite Bench Mr David McIlveen said in his maiden speech a number of weeks ago. He dedicated his victory to his grandmother, an Irish republican, Mrs Evelyn Margaret McIlveen, who hailed from Bailieborough in County Cavan. My grandmother Margaret Hogg came from the Protestant tradition. She was a Methodist, but she changed her religion when she married at the time of partition. She suffered as a result, and it is from her side of the family that I get my republican beliefs. Mr McIlveen said that he was glad that he could be found on the side of the House on which he sits. Tá mé an-bhródúil a bheith ar an taobh seo den Teach mar phoblachtánach. Equally, I am proud to be on this side of the House as an Irish republican.

Our stories highlight the fact that we are not that far apart despite our histories. If we go back a few more generations to the late 1700s, when the United Irishmen and United Irishwomen fought for separation from England, we see that they consisted mainly of people from the Protestant tradition. It is my hope and vision that we all converge on the same path and build an Ireland that we can be proud of and which reflects our traditions. I dedicate my speech not to any one individual but to my family, particularly my parents, who are in their eighties and nineties and are currently in Donegal, and to my friends and comrades who placed their trust in me during many years of personal struggle.

I move to the motion. Devolution of corporation tax powers is a complex issue. I am not an economist. However, many stakeholders believe that it is one of the key economic levers that can rebalance and kick-start the economy in the North of Ireland. Some experts estimate that over 90,000 new jobs can be created over 20 years by reducing the rate of corporation tax. Central to the argument for reduction is the premise that the probability of attracting foreign direct investment will be enhanced. Attracting FDI is seen as the way to create high-skilled and high-wage jobs. It is also assumed that lower corporation tax will encourage businesspeople to reinvest.

However, I have spoken to businesspeople in my constituency and attended a recent conference on the issue in Enniskillen. To say the least, many are not convinced that all boats will rise with the tide of FDI, particularly in a county that has to rely on indigenous business to sustain the local economy. Fermanagh could be further disadvantaged due to the fact that it relies mostly on the public sector. Any move on corporation tax should be used not as a tool to downsize the public sector but a lever to rebalance the private sector with the public sector.

I contend that, at the macro level, a lower corporation tax level can be an advantage in driving the economy forward but it should not be viewed in isolation. High levels of educational attainment, an increased skills level, increased research and development spending, and increased investment in training all have a part to play in developing a sustainable economy. We must continue to support and, indeed, increase our efforts with regard to small and medium-sized enterprises.

I support the motion, in principle, as a first step towards taking responsibility for influencing the future sustainability of our economy and harmonising corporate tax rates throughout the island of Ireland, particularly for border constituencies, such as Fermanagh and South Tyrone.

Photo of Margaret Ritchie Margaret Ritchie Shadow SDLP Spokesperson (Environment, Food and Rural Affairs), Shadow SDLP Spokesperson (Energy and Climate Change)

I very much welcome the debate, which is extremely timely. Our thanks are due to the two Committees that have set it up. The debate comes at a time when the Treasury consultation on devolving tax-varying powers to the Northern Ireland Executive is drawing to a close. It comes just before the time when really detailed engagement on the cost of lowering corporation tax in the North is due to begin.

I have made it clear many times that the SDLP’s position is one of strong support for the devolution of tax-varying powers to the Northern Ireland Executive and for the subsequent lowering of corporation tax, although I recognise the fact that there is a downside in the cost, which I will come to later. We also believe in varying other taxes, and we have argued repeatedly that, if we are to move our economy out of recession and onto a new growth trajectory, we need to take control of more economic levers.

The ability to vary taxation in the North is a major new economic lever, and even though it comes at a price, it must be cost-neutral to the Treasury, and, therefore, we have to grab it with both hands. Given our failure to do much for the economy using the only other economic lever currently available to us, which is public expenditure, with our, I suppose, policy-lazy and unimaginative Budget, we must surely try to make the most of this opportunity.

Happily, the vast majority of public representatives and the five parties in the Executive are fully behind a lower rate of corporation tax. However, although some of the trade unions and the MP for South Down — sorry, North Down, I hasten to correct myself — are opposed to a lower rate of corporation tax, I am particularly concerned about one politician, our Finance Minister, Mr Wilson. Not only has he stated his scepticism on numerous occasions but he has made it clear that he does not share his party’s enthusiasm for a lower rate of corporation tax. I will go further. On a spectrum of support for lowering the rate of corporation tax, Mr Wilson is closer to the outright opposition of Lady Hermon than to the unequivocally in-favour position of his DUP colleague, the Enterprise Minister, and he is completely at odds with the position of his colleague and party leader, the First Minister, who not only supports the lowering of corporation tax but argues that it should go below 12Times New Roman'; ">∙5% to 10%, a point already referred to by my colleague Mr Bradley.

I know that the DUP is an increasingly broad church, which we welcome. However, in this case, the problem is that the dissenter is the Finance Minister, and he is the person whose job it is to lead the team that will negotiate the terms and, ultimately, the cost to all of us of lowering the rate of corporation tax. How can he lead a successful negotiation for a concession that he does not believe in? How can he make sure that the cost is closer to, say, £100 million than £500 million if he does not believe in the project in the first place? I believe that his opposition is fundamentally misplaced. As with the Budget, there is a policy-laziness and a lack of imagination at work in DFP. His position is one of excessive caution and fear of change, masquerading as prudent management. So who should lead the negotiation on the ultimate cost of this proposition?

Let me immediately correct myself and tell you that, when I raised the matter with the Chancellor of the Exchequer at our meeting last week, he told me that there would be a price but not a negotiation. The cost of lowering the rate of corporation tax would be determined independently by the Office for Budget Responsibility. However, although the Chancellor has kindly described the process, he is wrong about the negotiation because no instant calculation can objectively determine the correct cost to the Treasury of lowering the rate of corporation tax in Northern Ireland. Too many fundamental assumptions are open to question, and there are many complex and debatable variations in that calculation.

Ultimately, the bottom-line figure will be arrived at following intensive discussions between economists and their political masters from all sides, and that is effectively a negotiation. It is not only prudent but vital to our interests that we put forward the strongest possible economic argument for the lower end of the range of possible costs, and the only people whom I have heard put forward a credible argument here are from outside the government service.

Let us be clear: we fully support the lowering of the rate of corporation tax, while recognising the downside.

Photo of Francie Molloy Francie Molloy Sinn Féin 12:30, 28 June 2011

Will the Member please bring her remarks to a close?

Photo of Gordon Dunne Gordon Dunne DUP

I welcome the opportunity to speak to the motion.

There is no doubt that there is a real need to grow the economy in Northern Ireland, as the current balance is considered overly dependent on the public sector. Our economy needs to be driven more by the private sector. With a vibrant private sector, Northern Ireland would benefit greatly from more wealth and prosperity, economic opportunities and jobs through new investment. A reduction in corporation tax would encourage investment and provide a much-needed boost to our local economy, which has, unfortunately, become too dependent on the public sector.

Much of the current infrastructure is already well placed to complement a competitive and vibrant private sector. Northern Ireland enjoys good transport links, a modern telecommunications framework and, thanks to our two leading universities, an excellent skills base. Although there is always room for improvement in those areas, we currently have a good base from which to start as we seek to grow Northern Ireland and make this country the best place to do business.

Foreign direct investment (FDI) has the potential to be highly successful in achieving the required rebalancing of the economy. However, it also depends on a corporation tax rate that will enable Northern Ireland to close the gap with the rest of the UK and compete for investment with the Republic of Ireland, which currently has a tax rate of 12·5%. That rate looks set to continue long into the future.

A reduction in the rate of corporation tax is a long-term policy, as it is a long-term economic plan designed to benefit this country and ensure a prosperous future. It is inevitable that such a reduction in corporation tax will have short-term effects. One such impact that we will have to face is a reduction in the block grant. This is a central issue, and it is important to have clarity on it. It is imperative that we do not create an extra burden on ourselves by reducing public spending. It would be foolish significantly to reduce public spending in areas that help to attract and maintain a good business-friendly environment. It is essential that we are not short-changed and that we get a good deal.

There is clear evidence that a reduction in the rate of corporation tax would attract FDI to Northern Ireland. We require more direct manufacturing jobs. Northern Ireland must return to being a place where engineers carry out research and development on future projects, which they take through to development, production and manufacturing in a competitive marketplace. Having listened to the views of important professional bodies, such as Invest NI and the Federation of Small Businesses (FSB), who are undoubtedly better placed than many of us in the House today to assess the benefits of reducing corporation tax, I feel that this is an opportunity to bring real and lasting benefit to our economy.

Photo of Jim Allister Jim Allister Traditional Unionist Voice

The Member said that he had listened to views. The one report not mentioned in the debate — doubtless, the Member has read it — is that by PricewaterhouseCoopers (PWC). Will he comment on the fact that it states that there is no clear evidence of a correlation between low corporation tax, per se, and high levels of FDI? The Member seems to think that it is a magic formula for increasing FDI. What about the PWC report?

Photo of Francie Molloy Francie Molloy Sinn Féin

The Member has an extra minute.

Photo of Gordon Dunne Gordon Dunne DUP

Throughout the world, the evidence is that a reduction in corporation tax leads to significant improvements. Some like to regard it as a tax reduction that will benefit only the large multinational companies. However, the FSB’s recent survey in May 2011 concluded that the overwhelming majority of owners of small businesses in Northern Ireland believed that the lowering of corporation tax would have a positive impact on the local economy. It concluded that that would help to improve the conditions for a competitive, business-friendly environment.

For too long, our manufacturing has been unable to compete against the rest of the world. We now seek to compete with countries in the Far East, such as China. I am aware of a large manufacturing company in Belfast that is involved in government contracts. It sources material locally, sends it to Vietnam for sub-assembly, and returns that to Belfast for final installation in the completed product.

It is important that we do all we can to expand and advance our already well-established aerospace and pharmaceutical industries and further help to promote our proud reputation for innovation and invention across the spectrum of industries. We need to be able to compete competitively again in the world market and see an increase in foreign investors who will develop our skills, grow our economy with increased productivity, increase employment —

Photo of Francie Molloy Francie Molloy Sinn Féin

Bring your remarks to a close.

Photo of Gordon Dunne Gordon Dunne DUP

— and help to create a more prosperous future for our country. We need to demonstrate to the world that Northern Ireland is open for business. I support the motion.

Photo of Phil Flanagan Phil Flanagan Sinn Féin

Go raibh maith agat. Comhghairdeas, a Phríomh-LeasCheann Comhairle, as do phost nua. Éirím le tacaíocht a thabhairt don rún.

I support the motion and the plans to devolve corporation tax to this Assembly. For many years, we have argued that fiscal powers should be transferred to this Assembly and that decisions on the rates of taxation that should be set need to be taken by locally appointed Ministers.

The potential for devolved corporation tax is only one small part of this. This debate is not about a reduction in corporation tax but the devolution of the powers to set the rate. Whether or not one agrees with a reduction in corporation tax is not the issue at hand. If we manage to get these powers devolved, then we can begin a discussion on what the actual rate will be.

There is a corporation tax rate of 12·5% in the South. That has often been heralded as the main reason why so many foreign investors decided to locate there. It may have been one reason, but it surely was not the only one. Huge multinational companies decided to locate in the South as a result of a wide range of factors, including a high number of skilled people willing to work, a young and educated population, widespread use of the English language, and a decent level of infrastructure investment.

Photo of Alban Maginness Alban Maginness Social Democratic and Labour Party

I listened carefully to what the Member said. He referred to the skills base in the South and a young, well-educated population. Does that description not exactly suit our own situation here in Northern Ireland? However, the one thing that is different is the corporation tax rate. Is that not really an argument in favour of a reduction in corporation tax and the centrality of that in transforming the economy?

Photo of Francie Molloy Francie Molloy Sinn Féin

The Member has an extra minute.

Photo of Phil Flanagan Phil Flanagan Sinn Féin

I am quite baffled by the question. There was quite a bit in there that I missed, but I will go on, and if the Member wishes to intervene again, he can.

A lot of the jobs that were created have now disappeared, and we have seen how quickly that can happen. Those measures that I referred to, and to which the Member referred as well, are the kind of things that we need to put in place to ensure that our economy, in particular our private sector, is enabled to grow sustainably.

We also need to work on the basis of co-operation, as opposed to competition, to grow our all-island economy. For too long, the argument has been put forward that in the North we are over-reliant on our public sector and handouts from the British Government. Yet the British Government tell us all this without the knowledge of how much tax, including corporation tax, is accrued here.

Before the Assembly can take a decision on what any future rate of corporation tax will be, we need full clarity on what the implications may be for the block grant and our public services. At present, those implications are unclear. The future of our economic success is not simply a matter for DFP or DETI. As we all know, growing our economy is the responsibility of many Departments and of the Executive as a whole.

We rely on our education system to ensure that young people receive the right training, advice and support to equip themselves for a fast-moving and challenging economy. We need proper investment in our road network and telecommunications infrastructure to ensure that businesses can compete, transport goods and communicate effectively. We also need to see reform on how procurement takes place so that small and medium-sized enterprises can have access to public contracts, limited though they may be at present.

In the past, much of the focus was on attracting foreign direct investment to create jobs and grow our economy. We, as an Assembly, need to realise that the people who will grow our economy in a sustainable way are those who live here and those who have an entrepreneurial spirit. Those are the people who require our help.

Mr Nesbitt referred to Invest NI, and there has been a lot of focus on its work. It is clear that it is going to have to change its tactics for attracting foreign direct investment, as a result of the abolition of SFA from 2013.

We also need to ensure that any additional revenues that are generated from increased taxation — income tax, VAT and National Insurance contributions — are retained by the Executive. That is particularly important given the threat of a cut to the block grant, although, as I have said before, the British Treasury has no idea what size any cut might be.

This debate has been going on for quite a while, and opinions have been mixed across society. Mr Lynch referred to some of the scepticism in Fermanagh. I look forward to this debate gaining momentum and to a full and frank discussion taking place from this point on.

Whether any potential reduction in corporation tax would benefit our small and medium-sized enterprises, particularly in areas west of the Bann, is questionable. We need to see a wide range of measures being put in place to sustainably grow our economy. Those must include a job creation strategy and continued investment in education, skills and infrastructure. We must focus on supporting our indigenous businesses as well as growing our tourism and agrifood sectors and putting measures in place to ensure that the benefits of any reduction in corporation tax are felt across our society and not just within big business. Go raibh maith agat.

Photo of Alastair Ross Alastair Ross DUP 12:45, 28 June 2011

There has been recognition from virtually everyone that lowering the rate of corporation tax in Northern Ireland will not be the silver bullet to transform our economy. Mr Hamilton, in his opening comments, said it would not be a panacea. Ms Ritchie was unfair on the Finance Minister when she said that he was reluctant to take this step. He is right to inject some realism into this and say that it is not going to be a panacea. In 2007, the Finance Minister spoke about how devolution would not be the panacea for all our ills, even though it would be significantly better for us than direct rule. Lowering corporation tax would be significantly better for us by transforming our economy, rather than us continuing as we are. Although all of the Ministers have been careful to say that it is not a silver bullet, we have agreement that the devolution of corporation tax powers will be a significant lever in our economic toolkit.

I listened to the Chairman of the Finance Committee, and I must disagree with him, because this is not about harmonisation of taxation across Ireland; it is very much about competitiveness. Just as businesses in Northern Ireland are at a disadvantage when it comes to air passenger duty because we share a land border with another EU region, this is another prime example of how business in Northern Ireland is at a disadvantage, due to the adjoining nation having a lower rate of corporation tax.

I look around the world to places where there are lower rates of corporation tax. The Secretary of State is always very keen on pointing to Canada and the results that it saw when it reduced corporation tax. In Europe, we can look at Estonia; we can look at Singapore. All of those areas have had lower rates of corporation tax and have been successful in attracting more investment. Indeed, the national Government at Westminster have modestly reduced the rate of corporation tax for the United Kingdom, which is recognition from Treasury that it can have a positive impact in stimulating the economy.

Of course, lowering corporation tax must sit alongside other fiscal and economic levers that this Executive can operate. It will attract further foreign direct investment in coming years, but there are other things that businesses will look at. Yesterday, I spoke about university funding and making sure that we continue to have a highly skilled graduate workforce. After companies look at the rate of corporation tax, they will look at the quality of the education system and the type of graduates that are coming out of our universities. Indeed, they will look at the quality of our universities, as well as at telecommunications, infrastructure and all those sorts of issues.

One of the key points is that having a lower rate of corporation tax gives Northern Ireland a unique selling point. When Invest NI or businesses look for investment, the lower rate of corporation tax will be a very attractive proposition for companies before they look at some of the other things that Northern Ireland has to offer. It is very much about our getting a foot in the door.

It is telling that lower corporation tax is supported not only by Members, but, as Mr McIlveen said, by members of the business community, including small businesses. Although small businesses might not directly benefit from a lower rate of corporation tax, they recognise that further job creation in Northern Ireland will have a knock-on effect down the supply line, and everyone can benefit from that.

There is a need to grow the private sector in Northern Ireland so that we become less reliant on the public sector. Lowering the rate of corporation tax could well be the tool that we need to help rebalance our economy and ensure that, in future years, the gap in the standard of living between people in Northern Ireland and those in the remainder of the United Kingdom is closed. I fear that if we do not do something quite dramatic, that gap will continue to be as wide as it is today.

We said that corporation tax can increase FDI. An independent economic advisory group suggested that there could be up to 58,000 new jobs created by 2030. That would be around 3,500 to 4,500 new jobs a year. We need to make sure that we are ready for this. As I said, it is not just the high-end graduate jobs but jobs further down the supply chain and local indigenous businesses that can benefit.

As Members have said, it will also help us to become more of an exporting economy, which is something that Northern Ireland needs to move to in future years. Indeed, even the more modest projections and assumptions point to the reduction of corporation tax as having a positive impact on the Northern Ireland economy.

It is important to say that, although it will stimulate the local economy, it is important that we get a fair deal from Treasury in getting the powers to lower corporation tax. Of course there will be a cost to the Executive, and that has to be taken into account, but I believe that that can be managed. It should not be viewed as a barrier but as an investment in our economy and in this country to grow our private sector and create more jobs in the future.

I believe that, if we can get the power to do that —

Photo of Francie Molloy Francie Molloy Sinn Féin

Bring your remarks to a close.

Photo of Alastair Ross Alastair Ross DUP

It is important that the Executive plan it carefully and that we can see the realisation of a more vibrant private sector in Northern Ireland.

Photo of Ross Hussey Ross Hussey UUP

I begin by commenting on the many languages that have been used here today. We have had Irish, Latin and English, and it was good to hear one of the Members on the other Benches comment that one of the strong selling points of the Irish Republic is the ability of people there to use the English language. It is good to see that the ability to speak English is something that we should be taking forward.

In the past, the Minister suggested that my speech was written by Owen Paterson. I can assure him today that the only Owen in my speech is Tír Eoghain, and County Tyrone at that. I hope you can understand my Tyrone accent today, Minister; I will speak slowly for your benefit.

I welcome the opportunity to speak in the debate. As a member of the Finance and Personnel Committee, I thank all those who spoke before me, and I thank the Committees for bringing the issue to the House. The rebalancing and growth of the Northern Ireland economy is the number one priority for the Assembly throughout this mandate, and we must work to make sure that we deliver for the people of Northern Ireland on that front. Let me state from the outset, as my colleagues have done, that the Ulster Unionist Party is in favour of devolving the setting of the rate of corporation tax to Northern Ireland. We recognise the unique situation that Northern Ireland finds itself in, with a vast over-reliance on the public sector and a land border with the Republic of Ireland, which has a very low rate of corporation tax at 12·5%.

Devolving corporation tax powers has been at the forefront of discussions around addressing the economic problems before us. It has been a much-debated topic, and it has received support from the majority of the House. However, today I want to deal with two main issues that are imperative to the success of the devolution of corporation tax powers: the effect that a decrease would have on the Northern Ireland block grant, and how a decrease would be administered.

First, the devolution of corporation tax powers will have obvious consequences for the Northern Ireland block grant, given the Azores ruling. At present, the cost to the block grant that is being mooted is far too high. However, there seems to be some disagreement as to what the figure actually is. The estimates provided by her Majesty’s Treasury differ significantly from those provided by the Department of Finance and Personnel. Last year, DFP calculated that the cost to the block grant would be in the region of £400 million by year 5, whereas the two estimates by the Treasury put that figure at between £225 million and £270 million by year 5. Although I appreciate that those figures are estimates that have been done at a fairly early stage in the process, further work must be carried out to find out precisely how much our block grant would be reduced by should a decrease in corporation tax be taken forward.

Secondly, I want to deal with how the devolution of corporation tax powers would be administered. That is an area that we need to think about now, as it impacts heavily on the cost of devolving corporation tax powers. The two obvious options would be that the corporation tax is charged so that it is administered by the Department of Finance and Personnel through Land and Property Services, or it could remain as it is now, and continue to be administered by Her Majesty’s Revenue and Customs.

The advantages and disadvantages of both options need to be given serious thought. However, the main issue with the administration of the tax is that Northern Ireland should have the ability to decrease the rate of corporation tax without taking the final decision on by how much it should be reduced. That would give the Northern Ireland Executive the time and latitude to consider what is best for the Northern Ireland economy and to react to an ever-changing economic environment.

Finally, I want to reiterate what a number of Members have said already in the debate, which is that the devolution of corporation tax is neither a silver bullet nor a panacea for the Northern Ireland economy. It needs to work in conjunction with a number of other initiatives. Nevertheless, the benefits that it can bring will be tangible for the people of Northern Ireland, in the form of more jobs and greater economic growth. I, too, was an insurance official, but, unlike Mr Lunn, I would have thought a little bit harder about Norbrook, and I might have taken the risk and gone with it. However, that decision has passed us by. I look forward to greater economic growth in the Province, and, for that reason, I support the motion.

Photo of Lord Maurice Morrow Lord Maurice Morrow DUP

I have listened intently to what Members have said in the debate. I do not want to be the Job among everyone, but I suspect that I may be, because I do not share the total enthusiasm that has been demonstrated today. The old adage of the need to be careful of Greeks bearing gifts is very appropriate in this case. We have some very good examples, at which we should take a long, close, hard look.

I am pleased in two respects. First, that the motion contains the phrase, “in principle”. I am glad that that is there. Secondly, I am glad that the leader of the SDLP brought it to our attention that the Finance Minister is cautious. I congratulate him on that. That is a sign of maturity, not of weakness, and it demonstrates to me that, in fact, he is not going to jump in with both feet and say that everything is well and wonderful because we have got corporation tax down to 12·5%. Let it be clearly said that there is no such thing as a free lunch. We will learn that very shortly, if and when the powers are devolved.

I would like the Minister, when he sums up today, to tell us exactly what this is going to cost to get corporation tax down to 12·5%. I have no doubt that he will, because he is more than capable of doing it. I hear and read about all sorts of figures. I have heard £400 million, £300 million and £200 million mentioned. I do not which of those is true, or, indeed, if any is true, but I suspect that the figure of £300 million may not be far away.

Very recently, the computer company Dell withdrew its entire operation from its base in Limerick and relocated to Poland. We all know that the corporation tax rate in the Republic of Ireland is 12·5%. We also know that the rate in Poland in 19%, but that did not stop Dell from uprooting and taking its whole operation there. The rate of corporation tax in Poland is 50% higher than that in the Republic of Ireland. The lower corporation tax rate did not keep Dell in Limerick. It may have kept it there for a while, but Dell saw other opportunities in Poland and moved there.

Not every Member said that the devolution of corporation tax is a panacea for all our economic troubles. It is anything but. If we were to speak to 10 different economists about corporation tax — I will not name them or embarrass them — and ask them the specific question of where on a scale of one to 10 they would put the importance of lowering the rate of corporation tax, they would put it at six or seven.

In other words, at least six other issues are more important than corporation tax. I wonder what they could be. I believe that the cost of labour is certainly one of them and that educational attainment is another, as is a stable society. Those are three things that will help to move our economy in the right direction.

It also has to be said that a major international computer company recently selected Northern Ireland as its European research base. Its managing director confirmed that tax was not an issue. So, I say to the House and to the Minister — I do not think that the Minister needs it said, but I will say it anyway — that we need to be cautious.

Photo of Francie Molloy Francie Molloy Sinn Féin 1:00, 28 June 2011

The Member should bring his remarks to a close.

Photo of Lord Maurice Morrow Lord Maurice Morrow DUP

I am happy that the Minister is in that mode, and I have no doubt that he will bring a common-sense approach to all this.

Photo of Alasdair McDonnell Alasdair McDonnell Shadow SDLP Chief Whip, Shadow SDLP Spokesperson (Culture, Media and Sport), Shadow SDLP Spokesperson (Business, Innoviation and Skills), Shadow SDLP Spokesperson (Health)

The SDLP’s position on corporation tax is clear and has been consistent not just for a few years but for 15 or 16 years. Indeed, many years ago, when some of us went to Pittsburgh for the second White House conference, it was the famous Tony O’Reilly who convinced me on the matter. If the Executive are serious about governing in an effective and efficient way and about creating effective and efficient economic benefits for businesses here and for the people of Northern Ireland, I would be in favour of devolving not just corporation tax powers — that should be done first — but all tax powers locally, so that we can have much greater influence on what we do and how we do it.

To maximise the impact and create a level playing field across the island of Ireland, the rate should be set at 12·5%. The power to devolve tax cannot be separated from the level of the tax, and to focus on devolving powers without reference to setting a competitive rate would be to render this debate meaningless. There is absolutely no point in taking the power if we do not use it. I believe that that rate would dramatically change our economic landscape in a relatively short time.

All too often here, whenever we discuss our economy, we talk about the block grant and how we might tweak it a bit here or there. However, there is much more to our economy than working with the block grant. Only this morning, I was at a business breakfast seminar in Belfast City Hall. The focus of the event was on enhancing Belfast’s competitiveness, and, time and again throughout the discussion, economists, businesspeople and other political representatives brought up the importance and value of a lower rate of corporation tax. It is clearly seen as a tool with which to build a bigger and better private sector.

Far too often in Northern Ireland, we have a habit of knocking ourselves, encasing ourselves in silos or restricting ourselves under a glass ceiling, with a cannot-do as opposed to a can-do attitude. However, we should not lose sight of the fact that Northern Ireland has lots of positives to offer to investors. To ensure that we build a bigger, stronger and better private sector, as well as reducing corporation tax, we must bundle those positives. We have a large pool of skilled, cost-effective labour. Although it may not be as cost-effective as some inward investors would like, compared with the labour markets in London, Dublin and the main European cities, it is relatively cost-effective. Beyond labour costs, we have a relatively low cost base. We are in a prime location for trading and for exports. Our tourist industry has huge potential. We have a very strong IT sector, and we have the devolved Assembly and Executive.

We have the powers to make choices and decisions for the benefit of Northern Ireland. The devolution of corporation tax powers is one decision that we must make. In a relatively short time, it will enable fair competition and dramatically increase the economic attractiveness of Northern Ireland. Corporation tax at a competitive rate will, as the evidence overwhelmingly indicates, speed up economic growth. It will bring in foreign direct investment and increase the number of people in well-paid, sustainable jobs. Some people estimate 90,000 new jobs over 20 years. That may be a slight exaggeration, but most commentators talk about more than 64,000 jobs.

The ability of reduced corporation tax to speed up inward investment and economic growth in Northern Ireland is important against the backdrop of the clear intent of the Treasury to slash the block grant. The fact is that a reduced devolved corporation tax will, in the medium to long term, increase tax revenue for the UK and, in turn, help to offset any reduction. That is why it is important that we debate the details of implementing the tax change —

Photo of Francie Molloy Francie Molloy Sinn Féin

Bring your remarks to a close.

Photo of Jim Allister Jim Allister Traditional Unionist Voice

Not for the first time, and, I suspect, not the last, I am somewhat out of step with the consensus in the House. However, I feel a little less lonely since Lord Morrow’s contribution. In the Budget debates, the Minister liked to refer to me as Elijah. Well, Elijah and Job probably had quite a lot in common. If the Job of the DUP Benches would like to volunteer as a Teller, I could give him some useful employment in a few minutes. I hope that he proves more stoical in his resistance to corporation tax powers than he did having started down the same road in respect of policing and justice.

People in the House like to talk about game-changers. The game-changer in regard to corporation tax was the Azores judgement. At a stroke, it revolutionised the debate and made it abundantly and irrefutably clear that, if you go for corporation tax, you must, because of the fiscal autonomy requirements, adjust your block grant. We in Northern Ireland, whether we like it or not, have a huge fiscal deficit, and the block grant is the one thing, as the Minister well knows, that gives certainty to our budgeting. Going down a road where you play fast and loose with the block grant and take risks with it in a state of total blindness because you have no idea of what the actual working figures will be seems to be the absolute height of folly.

Remember, there is no reverse gear when it comes to corporation tax devolution. Therefore, there is supreme danger in sleepwalking into a situation in which we devastate the block grant for the sake of some sort of aspiration. All that I have heard in this debate is aspirations; I have not heard any reality talked at all. The volatility of the receipts from corporation tax makes anyone who thinks seriously about it back away pretty fast, just as the Welsh have. It is on the point of the volatility.

Much nonsense has been talked about the impact that it would have on foreign direct investment. I remind the House that the Irish Republic had low corporation tax from 1958. That did not do it any good in the 1950s, the 1960s, the 1970s and most of the 1980s. It is not the panacea; it is not anywhere close to the panacea. Those who think that it is are sleepwalking —

Photo of Lord Maurice Morrow Lord Maurice Morrow DUP

Thank you. It is now Job speaking. I hear what the Member says. I made it clear that some Members said that it was not the panacea or silver bullet. Does the Member accept that it is imperative that the Northern Ireland economy is always competitive and that our nearest rival is the Republic of Ireland?

Photo of Jim Allister Jim Allister Traditional Unionist Voice

Of course. I want to see the economy totally rebalanced in Northern Ireland. I am not opposed to that at all — far from it. What I am opposed to is taking steps that we then regret and taking steps that distance us from the centrality of our equal citizenship as part of the United Kingdom. There is an ideological issue, which is that common taxation lies in close relationship to common responsibilities and benefits. That is why the party that sits over here — Sinn Féin — is suddenly so ideologically wedded to the reduction in corporation tax. It is not because that party believes in low corporation tax.

I sat in the European Parliament for five years and listened to Bairbre de Brún and her Marxist clique constantly demand soaking the corporations and higher corporation tax. That is their ideology. In the Irish Republic, they fought elections saying that they would introduce higher corporation tax, but, suddenly, because it happens to fit with an overriding political ideology — harmonising taxation on the island of Ireland — they are now the prophets of low corporation tax. They are no such thing. They are the economic illiterates of the House.

Photo of Simon Hamilton Simon Hamilton DUP

I have heard the Member say what he is against. We are well used to hearing what he is against. If he genuinely believes in the rebalancing of the Northern Ireland economy, will he tell us what he is for? In all this bluster, we have not heard him suggest anything that would make the step change in the economy that the rest of us are in favour of.

Photo of Jim Allister Jim Allister Traditional Unionist Voice

I suggest that the Member studies the economy of Germany. It has relatively high corporation tax, but it has one of the best success rates in foreign direct investment. Why? Because —

Photo of Francie Molloy Francie Molloy Sinn Féin

Bring your remarks to a close.

Photo of Jim Allister Jim Allister Traditional Unionist Voice

— it has multiple aspects to its attraction package that make it an attractive place to invest.

Photo of Steven Agnew Steven Agnew Green

I support the motion. Like Trevor Lunn, I support in principle the devolution of corporation tax powers and other fiscal powers. We should look at the powers that we have on the whole. However, the real question for me is what we should do with those powers. For that reason, I want to voice the many concerns that I have about some Members’ apparent willingness to rush head first into reducing corporation tax to 12·5% or less.

Yesterday, the Assembly passed a Budget that was decimated by cuts passed down from Westminster. Indeed, the Finance Minister seemed to suggest that we should praise him for being able to present any kind of Budget. He even went further and suggested that those who criticised it were nothing but whingers. I do not subscribe to that view, as I opposed the Budget, but I agree that, given the cuts that we have had to face, it was a very difficult Budget to produce. For that reason, I am astonished that we are seeking to voluntarily reduce our block grant further in order to cut corporation tax, which PricewaterhouseCoopers ranks as seventeenth in the list of factors that influence companies that are looking to invest.

A question that the Finance Minister often asks of those of us who dare to propose amendments to his Budget is “Where will the money come from?”. Well, where will the money come from if we reduce corporation tax and have our block grant reduced? We have not had that question answered, and I have yet to hear what cuts to services and job losses will result from that potential cut to the block grant.

There are other potential costs that have yet to be outlined. How much will the administration burden be? I put that question to the Minister, and, as yet, there has been no estimate. Therefore, Members are supporting the reduction in corporation tax without the full facts. My understanding is that the administration costs will be quite significant.

Varney estimated that brass plating could cost us in the region of £80 million in further reductions to the block grant. Another concern that has been raised is that, if the power to reduce corporation tax were devolved and receipts were to drop, would we then seek the introduction of borrowing powers that might be necessary to mitigate that possibility, given that we do not have those powers?

We know that there will be costs. The costs are guaranteed, but the benefits are purely speculative. Many Members have talked as though the various projected figures on new jobs are guaranteed. They have said that they do not know how many jobs will be created but it will be tens of thousands. We do not know that. At this point, it is speculation.

I welcome Simon Hamilton’s contribution that we must consider the matter seriously and look at all aspects of it. In doing so, we should look at the alternatives. I am a member of the Committee for Enterprise, Trade and Investment, and I asked departmental officials what alternatives the proposals were being marked against. The only alternative that they have been marked against is doing nothing. I agree with Members that we should not do nothing; we have to address the state of our economy. I propose that we should at least mark the proposals against investment in the green new deal. The costs are similar, so why not see which has the better outcomes? The green new deal will help not only to boost our economy but to move us towards a lower-carbon economy and to reduce our reliance on ever-diminishing fossil fuels, the prices of which are rising. Let us look at the two proposals and compare them. The benefits of the green new deal are not speculative. There are guaranteed benefits, and, if we invest in it, we will create jobs.

Although I am willing to support the motion —

Photo of Steven Agnew Steven Agnew Green

I implore the Finance Minister and the Enterprise Minister to explore the alternatives before we rush head first into a potentially very damaging tax cut.

Photo of Francie Molloy Francie Molloy Sinn Féin

The Minister of Finance and Personnel, Mr Sammy Wilson, will have up to 20 minutes to respond.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

It will be 20 minutes. I thank everyone for contributing to the debate on a very important issue. In fact, it is probably one of the most important policy issues that we will debate, contemplate and, finally, have to make a decision about in this mandate. The issue will have very long-term consequences, potentially positive and negative. Therefore, it is important that the debate be considered and that we have as much input into it as possible.

From my party’s point of view, the parameters of the debate and the objectives of the policy are all about what we will do to make the Northern Ireland economy more competitive; it is not about making our economy more like that of the Irish Republic and converging with that economy. Mr Allister sees it as some kind of plot by Sinn Féin to drag us into a fiscal united Ireland. Indeed, he pointed out that Sinn Féin spokespeople in the European Parliament used to be ranting, left-wing communists. Lots of biblical characters have been mentioned. We have had Job here and Elijah here, and we have Saul of Tarsus over here. They have had a Damascus road experience. They have been converted. I would have thought that Mr Allister would welcome that and not condemn them for it. I would have thought that, in Mr Allister’s book, a consideration of more mainstream economic thought would be a benefit rather than something to be criticised for.

Let me make it clear that, as far as we are concerned, this is about what we should do to change the face of the Northern Ireland economy. Member after Member said that. We cannot go on with a situation where we, on average, have 80% of the average GDP in the United Kingdom. We cannot go on with a low-productivity economy. We cannot go on with an economy that is dominated by the public sector. Even the activities that go on in the private sector are very heavily dependent on public sector spending and on low-wage-type activities. We cannot go on that way, and, therefore, we need to look at change.

The economic theory behind it is that one way in which we might do that is to look at how we give fiscal incentives to the private sector to expand. I accept a lot of the points that were made by those who were more sceptical during the debate. It would be foolish of me, as Finance Minister, as an economist or as an observer of real life, to do otherwise. Indeed, many of those who support the change have made it clear that they understand that there is no silver bullet and no panacea. People can pull evidence out from different sources, and some people will point at reports and economic theories that suggest that, if you reduce the tax burden and reward people for the activities that they undertake, they will have an incentive to undertake more of those activities and, if you let them keep their profits, they will have more money to invest and, therefore, to expand their firms. Therefore, there is an incentive effect.

Mr Allister pointed out that the PWC report indicates that that is not necessarily the case, and it is not. You could look at some low-tax economies and find that there has not been that stimulus. As Mr Nesbitt pointed out, when economists look at all those things, if they want to isolate the impact of one variable on the economy, they have to make an assumption that rarely applies in real life. Ceteris paribus — I have got the Latin in as well — or all other things remaining equal is not always the case. Hence, what Mr Allister said about the situation in the Republic is quite true: for a long time, it had a 10% tax rate, and that had no impact. Then it had a 12% tax rate, and that did have an impact because other things changed as well. Therefore, anyone who says with certainty that this will suddenly make the economy grow magically does not understand or has ignored many of the economic complexities.

One thing that we do know is that there are lots of modern examples of how a reduction in corporation tax and in taxes on profits has had a dramatic impact on the rate of growth, not least in the country that is next door to us. For that reason at least, we have to consider it. We cannot simply write it off, as some did during the debate, and say that there are other ways and, therefore, we do not have to consider it. It would be remiss of us to do that. Indeed, if we want to rebalance the economy, we have to look at that.

The second point that I want to make is that, no matter how you look at this, there will be costs involved. Let us not pretend to ourselves that there will not be. I know that some Members said that, in the long run, it will give us more revenue than it will cost us. That depends on what you wish to include in that revenue. We know from all the reports, whether from the Treasury or the EAG, that, in 10 years’ time, even with the best of circumstances, we will only break even. The worst report shows that, in 20 years’ time, we could still have a negative fiscal impact on this economy, so we have to bear that in mind. Even if it creates 4,500 higher-paid jobs in each of the next 20 years, resulting in a thriving economy that enables young people to stay here, get the rewards that they want while living in a healthier, happier, more prosperous economy that employs more people with a better lifestyle, not much of it, apart from the tax take, will register on our fiscal balance. However, it will change the face of Northern Ireland, which is what the Assembly is here for. It will give the people whom we represent better prospects and enable us to hold on to the best of our talent. For that reason, when we look at the costs and benefits of lowering corporation tax, we cannot look at the fiscal benefits and costs alone and decide that, because of them, we will not go down that route.

That does not mean that we recklessly imperil in the short and medium term our ability to provide public services. The job creation models’ predictions vary from 1,500 additional jobs a year to 4,500 a year. Anybody naïve enough to believe that a model can project economic activity and the impact of a policy 20 years in advance does not know a great deal about economic modelling. Many models are lucky to survive two years in our changing circumstances. Those who say that there is an element of faith or gambling involved in economic models are absolutely right. That is why it is imperative that we scrutinise the corporation tax policy to the nth degree in making our decision. That is why a debate such as this — I hope that there are many more like it — is so important.

We have to consider the immediate fiscal burden. People have said that I differ from other Ministers on this, but I do not believe that at all. Ministers have differing responsibilities: some are interested in job creation, and others look at the wider benefits to society. As Finance Minister, my responsibility is to look also at the impact on public finances, because I must produce a Budget every year and we must ensure that Departments do what we want them to. That is why it is important that we consider the costs.

Ms Ritchie said that I was not fit to lead the negotiations because I brought some of those issues to the debate. Indeed, she tried to make me choose between two women: Lady Hermon and Arlene Foster. However, I tell you one thing: had she put herself in that bunch, I would have told her which of them I would not choose. [Laughter.] The puppyish devotion that she —

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

I am going to be told on, and I have to fly to London with her later. I will probably get it in the ear.

Adopting a puppyish, wide-eyed devotion to this without bringing to bear any critical faculties is certainly not how to go into corporation tax negotiations with the Treasury.

When we go to the Treasury, it is important that we are aware of all the pros and cons and that we go in cautiously and go in hard, because there is much to be gained. I cannot remember, but I think that it was Mr Allister who asked what the upper limit of the cost would be. In any report that I have seen so far, the upper limit is about £355 million a year. If we had to take that as a deficit for the next 20 years, it would, of course, be absolute folly to say that we should go down that route, given all the uncertainty surrounding job creation, etc. Despite what Ms Ritchie said about the Chancellor stating that there would be no negotiation, there will be considerable negotiation. She was correct to say that there would be no negotiation on the amount of income tax. As several Members pointed out, once the amount of income tax has been established, the Azores ruling is that we have to pay whatever the bill happens to be. However, there is considerable variation.

Photo of Jim Allister Jim Allister Traditional Unionist Voice 1:30, 28 June 2011

On that very important point, once that figure is negotiated, is it set in stone? David Gauke, the Exchequer Secretary, told the Northern Ireland Affairs Committee that, if corporation tax receipts were less than expected, the Northern Ireland Executive would have to deal with that. Clearly, that indicates that you are on your own. Once you set the figures, is that the long-term consequence?

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

I am glad that you raised that point, because I wanted to come to it. I noted the issue of volatility raised by Mr Allister and Mr Agnew. One danger would be that, if receipts went up and down, the block grant would become more volatile. As far as I am concerned, one area of negotiation that would be open to us is where those variations occur, and there will be variations. Over the past five years, the percentage of corporation tax collected in Northern Ireland has varied between 1·6% and 1·1% of the United Kingdom total. Therefore, there is considerable variation over the economic cycle. Although we would have to pay the bill, there would be an acceptance that those variations could be evened out through adjustments to the block grant. Therefore, in the good years, we would probably pay back, and, in the bad years, we would take in. Although it is not impossible to deal with that, it is an issue, and the Member was right to raise it.

Of course, other issues are open to negotiation. The Treasury assumed a profit movement of, I think, £70 million. The Azores ruling does not require that to be attached to the bill. Although the Treasury assumed that profit movement, it might never materialise. Indeed, in discussions that DETI officials had with Europe, it was made clear that any profit movement would, of course, come under the Azores ruling, but that it could be decided after the event, rather than being anticipated and added to the bill. We want to negotiate that with the Treasury.

If the investment were to succeed, the other thing that could help to offset the cost would be counting in the additional receipts from National Insurance contributions, additional VAT receipts and PAYE, because more people would be employed. That could have a considerable offsetting effect — up to 20% of the total bill — which would reduce the impact of the reduction in the block grant.

The administration figure has not been decided, although we have received some indicative figures. However, given that I know that a tax should not cost a disproportionate amount of money to collect, either in administration or compliance, the figures struck me as very high. That is another area that we would want to negotiate with the Treasury. When trying to reduce the size of the public sector here, it would be ironic to set up in Northern Ireland a parallel tax-collecting system, which would not have the benefit of economies of scale, etc. Anyway, firms would not want to deal with two different tax offices. So, I would rather see it kept with HRMC and the cost set at a realistic level.

Other suggestions have been made as to how the cost might be reduced. I am glad to see that the Ulster Unionist Party has demurred from its past position on how to reduce the costs. In its manifesto, it had a rather enigmatic phrase; it said that we could offset the cost by looking innovatively at business rates. I do not know what that means. I see Mr Cree in the Chamber, so he might want to tell us what it means. The only way that I can see how you would look innovatively at business rates is if you said, “For the reduction in corporation tax, we are going to put up business rates.” If we were to do it, and we had the maximum figure, you are talking about a 60% increase in business rates, which would apply even to those small businesses that do not benefit from corporation tax changes. I suspect that that is one of those policies that the Ulster Unionist Party thought was clever at the time but which it has decided it does not want to pursue any longer. It is surprising that three of its Members who spoke in the debate never mentioned it. Maybe that is another one that it has dropped from its manifesto.

It has also been suggested that a new rate could be introduced incrementally. I am not so sure that I agree with that, because all the evidence so far shows that corporation tax is not an end in itself; it is simply a means of getting the door opened when we go to talk to foreign firms to try to get them to invest in Northern Ireland. It is the appetiser. Then, when the real tax accountants in the firm get to it, they look for such things as tax credits, the cost of labour, etc. If it is the door-opener and simply the means of getting listened to, why would we reduce it incrementally? A reduction to 18% will cost us but will not get the door open; a reduction to 16% will cost us but will not get the door open; and a reduction to 14% will cost us but will not get the door open.

Photo of Francie Molloy Francie Molloy Sinn Féin

Will the Minister draw his remarks to a close?

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

I will.

You would be paying the cost, but you would not be getting the benefit.

I have not got to deal with all the points that were raised in the debate. It has been a useful debate. I am sure that there will be many more debates about the issue. It is one that the Executive, the Assembly and Committees are going to have to address.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

Therefore, it is important that there is a debate not only among the wider public, but in the Assembly, so that we come to a considered decision on what will have long-term consequences, good or bad, for the economy of Northern Ireland long after many of the Members who are sitting in the Chamber are gone.

Photo of Alban Maginness Alban Maginness Social Democratic and Labour Party

Thank you, Mr Principal Deputy Speaker. I welcome the debate and thank the Chair of the Finance and Personnel Committee, in particular, for proposing the motion. I apologise to him for being late into the Chamber. I did not hear all of his remarks, because I was held up at a Justice Committee meeting.

I echo what the Minister has just said. This has been a very useful debate. It has also been a very mature debate, and the consensus in the Chamber was quite properly challenged by those who reserve a more sceptical position on the devolution of corporation tax powers and the reduction of corporation tax. Those interventions were useful in challenging a consensus in the Chamber, because it is important that we examine and address all the issues that arise. There are many difficult issues involved in, first, the transfer of the tax and, secondly, the lowering of the tax, which is the ultimate objective.

I welcome this opportunity to speak as Chair of the Enterprise, Trade and Investment Committee on this very important and pressing issue. It has been just over a year since the two Committees co-sponsored the first debate on corporation tax in the Chamber. There has been much discussion on the matter since, and much has been written on the issue. As Mitchel McLaughlin said, it has taken time to gather momentum, but we have reached the stage at which there is an air of expectation both within and without the Chamber that the powers will be devolved to the Assembly.

In opening the debate as Chair of the Finance Committee, Mr Murphy highlighted the obstacles that we will have to overcome and the practical concerns on which we require clarification and agreement before corporation tax is devolved. We need to know where we stand on the impact on the block grant; on compliance with the Azores ruling; on the level of corporation tax collected here; and on the measures to be put in place to counter so-called tax tourism, which is an important issue. Very importantly, we need clarity on the mechanism to be developed to ensure that we retain the benefits of any increase in revenue from other taxes.

There will be costs in the short term to pay for this opportunity. It is an opportunity, and that is how we should view it. As Mitchel McLaughlin said, it is not risk-free, but if we are to move forward, we have to take some risks. We should recognise the opportunities that exist.

It is appropriate that I concentrate on the longer-term future and on the opportunities and benefits that a reduced rate of corporation tax can bring. It is sometimes said that corporation tax is not the only factor, or, in many cases, the most important factor in determining where a foreign company will invest. That point was made by Simon Hamilton and others. Factors such as transport, logistics, infrastructure, labour costs, productivity, telecommunications infrastructure, education and skills are considered equally or even more important. However, as the Prime Minister, David Cameron, said in the Chamber earlier this month about us:

“You have excellent transport connections to the rest of the UK, to Ireland and to the rest of Europe. You have the English language; great educational results; two brilliant universities; highly competitive operating costs; 100% broadband access; Project Kelvin, linking north America, Northern Ireland and western Europe; a strongly pro-business climate”.

Those are important factors to remember, and it was timely that the Prime Minister reminded us of them.

Although having a competitive rate of corporation tax is not the only important factor, it is one of the few for which we currently do not possess responsibility. That is the point that I was attempting to make to Mr Flanagan in my intervention. That is why it is so important that those powers be devolved as soon as possible. We need to rebalance our economy through growing the private sector. We must develop an economy that is driven by the private sector and that creates more wealth, more economic opportunities and more jobs through new inward investment. We need an economy that provides opportunities for our indigenous businesses, large and small, to grow and prosper.

Dominic Bradley said that the current tools are simply not working. That was echoed by David McIlveen and other Members. Albert Einstein was quoted earlier in the debate in respect of E=mc², but I will quote him again:

“We cannot solve our problems with the same thinking we used when we created them.”

Let us think on that. Control over corporation tax is an example of the new type of thinking that we need to embrace if we are to solve the economic problems that we face today. Perhaps this is the “something better” that Simon Hamilton referred to in his speech. He emphasised the point that we cannot have more of the same but must move on. I listened carefully to Mr Allister, but the point must be made that we are moving to a situation post-2013 when we will not have state aid for many business enterprises coming here. What do we do in such circumstances? We must have some alternative strategy.

Attracting business and more investment, and providing opportunities for businesses to grow, will, inevitably, bring jobs. Treasury estimates for domestic investments are up to £65 million in the first year alone. That is considerable. Treasury estimates for foreign direct investment are for an increase of up to £200 million in the first year. Again, that is very substantial. The Northern Ireland Economic Reform Group estimates up to 90,000 new jobs over 20 years. In a statement, Almac, one of our leading and most respected indigenous businesses, said that it would double its workforce of 2,000 if corporation tax were reduced. That is not only encouraging but, if mirrored by other companies, suggests that the figures are not simply aspirational or optimistic but achievable. It begs the question: what would Sir Allen McClay have achieved with a 12·5% corporation tax in Northern Ireland?

As was mentioned by Mike Nesbitt, another key reason for decreasing the rate of corporation tax is the need to narrow the productivity gap with Britain. That is a key aspect of the previous Programme for Government and DETI’s regional innovation strategy. We have got to narrow that gap. This is one way of doing that.

Although some short-term sacrifice may be associated with decreasing the rate of corporation tax, as we attract investment, grow the economy and create more employment, there will be increased tax benefits through additional revenue from increased income tax, National Insurance, VAT and excise duty. Those benefits will be realised in the long term, but it is important that we, who are charged with planning for the long term, look beyond the horizon and plan for a brighter, more prosperous time for future generations. A lower rate of corporation tax can make an enormous contribution to that.

I recognise the scepticism expressed by Mr Allister and Mr Agnew. Mr Agnew referred to the green new deal. The green new deal is not incompatible with lower corporation tax. The green new deal and the devolution of corporation tax are not mutually exclusive.

Photo of Alban Maginness Alban Maginness Social Democratic and Labour Party

I commend the motion to the House.

Question put and agreed to.


That this Assembly supports, in principle, the case for the devolution of corporation tax powers to the Northern Ireland Assembly; and looks forward to the outcome of the HM Treasury consultation on ‘Rebalancing the Northern Ireland Economy’, the provision of further information on the associated costs and benefits, and the development of more detailed proposals for implementing and exercising the powers.

Photo of Francie Molloy Francie Molloy Sinn Féin

Due to Question Time starting at 2.00 pm, the Assembly will suspend until that time.

Sitting suspended at 1.48 pm.

On resuming (Mr Deputy Speaker [Mr Beggs] in the Chair) —