Northern Ireland: Corporation Tax

Lord Lexden Excerpts

Monday 15th October 2012 Lords Chamber

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.

Queen’s Speech

Lord Lexden Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Lexden]

My Lords, perhaps I may turn your Lordships’ attention briefly to Northern Ireland and to Ireland more generally. Ninety-one years ago, famous words of great poignancy were spoken by King George V. He exhorted the divided peoples of Ireland,

“to stretch the hand of forbearance and conciliation, to forgive and forget, and to join in making for the land which they love a new era of peace, contentment, and good will”.

Exactly 90 years later, Her Majesty, acting on behalf of us all, stretched out the hand of reconciliation to the Republic of Ireland. She, too, used poignant words. She said that we can all think of things that might have been done differently or not at all, and she urged us to remember that, although we must respect history, we are not bound by it. Who can doubt that her historic visit to the Irish Republic in May 2011 ranks as one of the most conspicuous of all the multifarious services that she has rendered us over 60 years? It is surely appropriate that we should acknowledge its immense significance and thank her for it in the course of our debate on the humble Address in this Diamond Jubilee year.

After long years of direct rule from Westminster, Northern Ireland, once again, has its own system of devolved government, as it did at the time of Her Majesty's accession. However, it is a very different system. Power-sharing has replaced majority rule. As a result, more people in the Province today identify themselves with the institutions under which they are governed than was possible under the old Stormont system. That will lend added significance to Her Majesty's forthcoming visit to Northern Ireland as part of her Jubilee tour.

As regards the economy, the best known fact about Northern Ireland is that it is unduly dependent on the state. Public spending in the Province is equivalent to more than two-thirds of GDP; some put it closer to three-quarters. Grave disquiet has long been expressed about this state of affairs. With the recreation of political stability, it became imperative to set a new course in economic policy. Only substantial private sector growth can provide a basis for the enduring prosperity that our fellow countrymen and women in the Province have a right to expect. In this, as in so much else, my noble friend Lord Trimble and his courageous Ulster Unionist colleagues pointed the way.

Today, no one seriously dissents from the proposition that the Northern Ireland economy must be rebalanced in order to stimulate private sector business and jobs. The coalition Government at Westminster committed themselves firmly to the task in their agreed programme two years ago. My right honourable friend the Secretary of State for Northern Ireland has recently underlined its importance. Rebalancing the economy, he said in Dublin last month,

“is probably the biggest single contribution that the UK Government could make to sustaining peace”.

He also said:

“Just think of the impact that greater prosperity and jobs could have in parts of Northern Ireland where worklessness and generational unemployment are endemic”.

To remove what has become endemic will take time. My right honourable friend frequently refers to the need for sustained action over 25 years. In this he is at one with the coalition Executive at Stormont. It has recently produced an extremely ambitious strategy document, packed with detailed proposals and plans, all designed, in its words, to create,

“a prosperous local economy over the short, medium and longer term to 2030”.

If success is achieved, Northern Ireland will recover its long-lost prosperity. The document states:

“Our economic vision for 2030 is … an economy characterised by a sustainable and growing private sector, where a greater number of firms compete in global markets and there is growing employment and prosperity for all”.

There is a widespread but by no means universal view in Northern Ireland that a bold, unconventional initiative should now be taken to give the process of change powerful momentum. It would involve the transfer of responsibility for corporation tax to the Stormont coalition Executive, with a consequent reduction in the block grant that currently finances their work. This would enable them to cut corporation tax in Northern Ireland decisively. The case for such a dramatic change was discussed at length in the consultation document, Rebalancing the Northern Ireland Economy, published by the Treasury in March last year. It noted that,

“Northern Ireland has its own unique set of circumstances, not least a land border with the Republic of Ireland with one of the world’s lowest corporation tax regimes … Reducing the corporation tax rate in Northern Ireland would have a positive impact on both domestic investment and FDI”—

foreign direct investment—

“which could lead to increased economic growth and a stronger private sector”.

A corporation tax rate of 12.5%, matching that of the Irish Republic, would be in prospect if this unprecedented initiative were to be undertaken. A ministerial working group set up last October to examine the complex and technical issues that may arise is expected to report this summer. My noble friend the Minister may be able to comment on the progress that is being made.

Unsurprisingly, the issue has dominated all recent discussion of economic affairs in Northern Ireland. There is a danger that it could come to be regarded as a panacea for all the Province’s principal economic ills. The Northern Ireland Executive’s new economic strategy document helps most usefully to counter that danger by expounding the wide range of other measures that are needed, such as increased investment in research and development, and expansion of higher-level skills among young people.

Northern Ireland could also gain greatly from a profoundly important Thatcherite idea: the economic enterprise zone, whose time seems to have come again. It occupies no prominent place in the Executive’s economic strategy, but that is where it should be.

The gracious Speech states that the Government,

“will continue to work constructively and co-operatively with the devolved institutions”.

Nowhere is this more important than in Northern Ireland.

Economy: Government Policies

Lord Lexden Excerpts

Thursday 24th March 2011 Lords Chamber

[Lord Lexden]

My Lords, the great national tasks of stimulating enterprise and growth and of rebalancing our economy, to which this important Motion refers, create profound challenges for us all. Nowhere are these challenges more formidable than in Northern Ireland, in whose affairs I have taken a deep interest since the 1970s when I worked as political adviser to Airey Neave while he was Conservative Shadow Secretary of State for Northern Ireland. Sadly, the Belfast agreement of 1998 has not yet had the effect of setting the Province on the road to sustained economic progress. Nearly 13 years on, it remains the poorest region in our country. A higher percentage of its working age population is economically inactive than that of any other region. Its economy today is strikingly unbalanced. The private sector is small and the public sector is dominant, as it is in the north-east of England, to which my noble friend Lord Bates referred so tellingly earlier. Public spending in Northern Ireland has risen to the remarkable point where it is equivalent to more than two-thirds of GDP. This state of affairs is sustained by taxpayers in Great Britain, who provide the resources for roughly half of all government spending in Northern Ireland.

The Province’s grossly unbalanced economy is in part the result of the ravages of terrorism, with which I, like so many others, am personally familiar. I say this on the day that a memorial plaque is to be unveiled in another place to Ian Gow. I went around many Northern Ireland businesses with him. How Ian cheered and heartened them with the marvellous neo-Churchillian language that he loved to employ. The spirit of enterprise and the desire for private sector growth have not vanished from the Province, whose great private sector industries—shipbuilding, linen, rope-making and engineering—integrated its economy with Britain’s in the 19th century.

As my right honourable friend the Secretary of State for Northern Ireland stressed in a speech in Washington last week, the Province remains an excellent place in which to do business. It has first-class transport links to the rest of our country and to Europe; its education results are significantly better than those of other regions; and it is the first part of Europe to have 100 per cent broadband access. It is against this encouraging background that the Northern Ireland Executive, uniting representatives of both communities, is fostering a strongly pro-business climate. In this new pro-business climate a number of forward-looking economists, accountants and businessmen based in Northern Ireland recently came together to form the Northern Ireland Economic Reform Group.

In a report last May, the group examined the Province’s current unbalanced economy in great depth. It concluded that the key to rebalancing lay in a sharp reduction of corporation tax, enabling Northern Ireland to benefit in the way that the Republic of Ireland had done from its 12.5 per cent rate. On the basis of detailed calculations, the report predicted that Northern Ireland,

“would benefit from a much larger private sector, including 80-90,000 extra jobs over 20 years”.

The report also stated:

“A reduction in CT tax to a level close to that in the Republic of Ireland would quite quickly raise overall tax revenues”,

in Northern Ireland as new investment took place. Old fashioned Tories like me, imbued with the scepticism of Edmund Burke, treat the bullish forecasts of professional economists with some caution. Nevertheless, a case has surely been made for a low rate of corporation tax in Northern Ireland that deserves full consideration, not least because of the competitive disadvantage created for the Province by the Republic of Ireland’s current low rate. For some years that has been the firm view of my right honourable friend the Secretary of State for Northern Ireland.

The joint manifesto published by my party and the Ulster Unionists—then led by the noble Lord, Lord Empey—for last year’s election contained a commitment to,

“produce a government paper examining … mechanisms for changing the corporation tax rate in Northern Ireland, in order to attract significant new investment”.

The commitment was incorporated in the coalition agreement and, following an announcement by the Chancellor in yesterday’s Budget, a consultation paper entitled Rebalancing the Northern Ireland Economy was published this morning by the Treasury. It sets the scene for the full discussion of the,

“extent to which a phased reduction in the rate of corporation tax in Northern Ireland could support a rebalancing of the economy”.

It is my profound hope that the discussion that the consultation paper will produce will have a positive outcome so that the flame of enterprise, which has survived the Province’s long, dark years, can burn more brightly. Then Ulster’s new-found peace and stability would be matched by a new-found prosperity.