Northern Ireland: Corporation Tax

Monday 15th October 2012 Lords Chamber

Question

14:36

Asked by

[Lord Lexden]

To ask Her Majesty’s Government whether, following their recent review, they propose to devolve responsibility for corporation tax in Northern Ireland to the Northern Ireland Executive.

[Lord Newby]

My Lords, a joint ministerial working group on rebalancing the Northern Ireland economy is currently examining the issues associated with the potential devolution of corporation tax. This group has made good progress but there remain some crucial areas where differences of opinion between the Northern Ireland Executive and Her Majesty’s Government still exist. The group is due to meet again later this week to continue the discussions.

[Lord Lexden]

I thank my noble friend for his Answer. As this prolonged review finally draws to a close, will he confirm that the Government remain wholly committed to rebalancing the Northern Ireland economy in order to enlarge private sector wealth creation? Will he tell us the last issues that still remain to be resolved by the ministerial group? If the Government decide not to transfer corporation tax to the Northern Ireland Executive, what contingency plans do they have to stimulate the private sector in other ways?

[Lord Newby]

My Lords, I can confirm that the Government are committed to rebalancing the Northern Ireland economy. The remaining issues, not surprisingly, are financial, and essentially there are two. The first relates to the initial reduction of the block grant, which follows from any devolution of corporation tax to Northern Ireland. There is something called the Azores criteria, which means that if a devolved Administration take full fiscal responsibility for a tax change, they must face a reduction in their block grant equivalent to the current corporation tax take from firms based in Northern Ireland. The second point is about how you deal with the ongoing adjustment over time to take account of inflation. At this point, it is far too early to say what will happen if the working group does not reach a positive conclusion.

[Lord Empey]

My Lords, first, will the Minister confirm that in the event of the devolution of corporation tax-setting powers to Northern Ireland, the Assembly could set different rates of tax for larger and smaller businesses? Secondly, will the Minister agree that the case for the devolution of these powers is stronger than equivalent demands from the Scottish Government and that Her Majesty’s Government will not be influenced by the campaign for Scottish independence when reaching their decision?

[Lord Newby]

My Lords, I can confirm that, as the current UK corporation tax system has different rates for smaller and larger businesses, it would be possible in principle if corporation tax were devolved to the Northern Ireland Assembly for two rates to obtain in Northern Ireland. I agree that the argument in favour of the devolution of corporation tax to Northern Ireland is of a different nature to the devolution of corporation tax to Scotland because of the proximity of the Republic of Ireland, which of course has a significantly lower corporation tax rate.

[Lord Roberts of Conwy]

Will my noble friend take on board the fact that Wales, too, would like to have the power to give variable rates of corporation tax?

[Lord Newby]

My Lords, of course, considerations of consequentials to Wales are always uppermost in the Government’s mind.

[Lord Kinnock]

In view of the Government’s ambition to withdraw from certain obligations of membership of the European Union, are they contemplating the possibility that the devolved Administration in Northern Ireland could cut corporation tax to the much lower level that is customary in the Republic of Ireland?

[Lord Newby]

My Lords, that is exactly what this whole process is about. The complication, as I said earlier, is that if you devolve Northern Ireland corporation tax rate-setting to the Northern Ireland Assembly, you face a significant financial cost to the Northern Ireland budget, which, when last estimated by the Treasury, was thought to be in the region of £300 million.

[Lord Alderdice]

My Lords, as I listen to the somewhat siren voices on all Benches, I seek reassurance from my noble friend that the interests of the people and of the economy of Northern Ireland will not be set aside because of excessive rigidities in Her Majesty’s Treasury on the one hand, and inappropriate comparisons with other parts of the United Kingdom that do not have, and I trust will continue not to have, an international frontier, on the other.

[Lord Newby]

Absolutely, my Lords. The key question, as I was just explaining, is financial and is about the consequences for the Northern Ireland Executive’s budget if the tax is devolved. I think that is recognised within Northern Ireland. A recent poll by the Belfast Telegraph showed that, although 30% of those questioned were in favour of this move, a higher number—some 34%—were against it, and an even higher number did not have a view. That just demonstrates that this is a very complicated issue. On the second half of my noble friend’s question, Northern Ireland is clearly in a different position from that of the other nations and regions of the UK, simply because it does not have a land frontier with them but has a land frontier with the Republic of Ireland.

[Lord Reid of Cardowan]

My Lords, of course this is an extremely complex question, not least because of the implications, as the Minister pointed out, of the Azores judgment and the potential burden on the Exchequer of Northern Ireland. In all these deliberations, will the Government bear in mind that Northern Ireland truly is a unique case, not only because of its border with another sovereign state—it is the only nation in the United Kingdom to have one—but because of the decades of very difficult and dangerous circumstances through which its people have come and because of the economy’s and employment’s ultra-high dependency on public expenditure in Northern Ireland? Will the Government at least look for some additional spark to move the dynamism of the private sector in Northern Ireland for the benefit of all the people there?

[Lord Newby]

The Government absolutely acknowledge that Northern Ireland is a unique case. That is why, while the whole issue of regional aid in the EU is being looked at at the moment, the Government are working very closely with Northern Ireland officials to consider how best to make the case for Northern Ireland receiving assisted-area coverage over and above that which would normally be provided for the rest of the UK.

[Lord Trimble]

My Lords, will the Minister tell me whether the Government have obtained assurances from the European Commission that it will not regard this as unlawful state aid? If they take that view, there is absolutely no point in taking it. In view of this issue, can he also say whether it would not be better to accelerate the Government’s programme for reducing corporation tax generally?

[Lord Newby]

My Lords, the Government are reducing corporation tax and in a relatively short period it will be down to 22%, which makes the differential between Northern Ireland and the Republic that much less than it was in the past. I can assure the noble Lord that, as long as the Azores principles are followed, this will not constitute a call on state aid.