Corporation Tax (Northern Ireland) Bill

David Simpson Excerpts

Tuesday 27th January 2015 Commons Chamber

[Mr Owen Paterson (North Shropshire) (Con)]

I was never quite sure that we would see this day. I heartily congratulate my successor as Secretary of State and the Financial Secretary on following this proposal through from the dark days when it was knocked on the head.

For the benefit of the shadow Secretary of State, I will go over the history of the proposal, because he does not realise the enormous benefit that it could bring to Northern Ireland. I see it as the coalition Government’s opportunity to deliver a long-term benefit to Northern Ireland as big as that brought by the Belfast agreement.

When I was appointed shadow Secretary of State for Northern Ireland, most of the major negotiations had gone through, although we had not quite got policing and justice through. I made it my business to go to Northern Ireland every week. I found an economy that was dependent on public spending for 77.6% of its GDP. We all know the horrible historical reasons for that, but it was clearly unsustainable.

On my weekly visits, I found world-class businesses and very skilled people. There were businesses that had come in, often tempted by the generous grant regimes, that were very pleased with the quality of the work force and the education of the staff. However, time and again, we found cases of large investment opportunities being missed because of corporation tax. The hon. Member for East Londonderry (Mr Campbell) is not here, but I remember a very clear case where a big investment could have gone to East Londonderry, but it went to Letterkenny. With the deepest respect for Letterkenny, it is quite a small provincial town.

[David Simpson (Upper Bann) (DUP)]

I pay tribute to the right hon. Gentleman for all the work he did in Northern Ireland as Secretary of State and before that. He had several meetings in my constituency with companies. I want to put it on the record that he was a great enthusiast for this proposal, which has eventually arrived.

[Mr Paterson]

I thank the hon. Gentleman for his kind comments.

I would like to stress that this has ultimately been a team effort. I will list the people who have been involved. This proposal came from a black moment. I have cited the examples that I saw on the ground in Northern Ireland. At the time, a parallel process was going on. The last Government had asked Sir David Varney to conduct a report on the benefits of introducing a lower rate of corporation tax for Northern Ireland. In parallel, significant major figures in the business community were involved. The sadly late Sir George Quigley, to whom we should all pay tribute, had made significant representations. The Northern Ireland Affairs Committee had been involved, as had the Institute of Chartered Accountants in Ireland, led by Eamonn Donaghy.

Varney came up with a lukewarm response. He said, quite rightly, that corporation tax was not the only answer and that a skilled work force was also needed, as had been successful in the Republic. However, he missed the big picture that, time and again, major investment projects went to the Republic because of a lower rate of tax. The late Brian Lenihan, who was the Irish Finance Minister when I was shadow Secretary of State, said that the corporation tax rate was the “cornerstone” of the Republic of Ireland’s “industrial policy”. It therefore seemed bizarre that Varney looked not at the real advantages, but at the disadvantages.

I remember the crushing disappointment when the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), knocked the proposal on the head. There was a conference at Stormont and then a bigger conference at Hillsborough. I remember Sir Tony O’Reilly waving his arms around and making a great burlesque speech about the advantages of lower corporation tax. Sir George Quigley was also there. Then the Chancellor knocked it on the head and came up with a number of palliative measures that were typical of him. I remember writing letters in subsequent weeks to try to get to the detail. He had stood up in public and said, “These measures will bring the same advantages as lower corporation tax,” but frankly, there were a lot of fiddly little deals that did not deliver. That was a black moment.

I remember sitting next to the late Sir George Quigley, by complete chance, and going over the matter. He was bitterly disappointed because the whole business community had been looking to the proposal. One reason why it had been knocked on the head was that the British state could not afford the forgone tax. At about the same time, we had the Azores judgment by the European Commission, which we could pray in aid. It said clearly—Varney took this conclusion—that corporation tax could be devolved. Lisbon had tried to reduce a tax arbitrarily in the Azores region and was told firmly that there were three conditions.

First, there had to be a democratically elected assembly with a clear jurisdiction over a defined geographical area. Northern Ireland qualified. Secondly, that assembly had to have complete decision-making powers, which could not be interfered with by central Government. Thirdly—it is a pity that the Scottish nationalists are not here to listen—there could be no compensation from central Government for the forgone tax, which had to be borne by the local assembly. For the record, Scotland pays about £2.5 billion in corporation tax, so if it dropped to the rates we are talking about it would have to find £1 billion. Perhaps the Scottish nationalists might consider that when they come back into the Chamber. Sadly, the figure is much lower for Northern Ireland because there are no FTSE 100 companies. Corporation tax is currently about £500 million.

We therefore came up with the idea, in accordance with the Azores judgment, of knocking the forgone tax off the block grant. Government spending in Northern Ireland is £23 billion—£13 billion raised locally and £10 billion from the block grant. If tax went down to Republic of Ireland levels, there would be a reduction of £200 million in the block grant. That is a very small investment to bring to Northern Ireland the sort of businesses that would come in.

That idea began to take shape. Following the dark days after it had been knocked on the head at the conference that I mentioned, two things happened. First, we set up a report by the TaxPayers Alliance, the investigation group, on corporation tax. Secondly, and I think more importantly, Sir George Quigley got together with others and pulled together a key group of people, to whom I pay tribute. There was Sir George, who at the time was chairman of Bombardier; Victor Hewitt, the head of the Economic Research Institute of Northern Ireland; Eamonn Donaghy, the head of tax at KPMG, who has been tireless throughout; Graham Gudgin and Neil Gibson, economists at Oxford Economics; Professor Mike Smyth, professor of economics at the university of Ulster; and finally Mike Hall, a tax partner at Ernst and Young. They formed the key Northern Ireland Economic Reform Group, and their report, which came out in February 2010, said categorically that if corporation tax in Northern Ireland changed from 28% to 12.5%, it would result in the creation of 80,000 new jobs over a 20-year period.

The previous year, there had been the terrible murder of Police Constable Stephen Carroll in Craigavon, which was an appalling event. We all know how divided the communities in Craigavon, Portadown and Lurgan have been. I remember clearly during one of my visits going to the great pharmaceutical company Almac, which employs about 2,000 people. The chief executive said, “If you can get this through and get corporation tax rates down to the level of the Republic, we’ll double the business and we’ll double the work force.” My direct response to the shadow Secretary of State and doubters in the Labour party—I am delighted that they have come on board today and said that they will support the Bill—is that they should think of the benefits to Northern Ireland, not just economically and socially but politically, of a further 2,000 people being on pharmaceutical-level wages and injecting money into their communities. The Labour party should get its head around that long-term benefit.

On that basis, and with strong support from the Prime Minister, I committed in March 2010, on behalf of the Conservative party, to devolve corporation tax. That became a manifesto pledge in our Conservative and Unionist manifesto. Although we did not quite win the election, that pledge was continued as part of the coalition programme. At the same time, there was real enthusiasm for the idea across the business community. In October of that year, Grow NI was formed, involving pretty well every business organisation—the CBI, the Institute of Directors, the Federation of Small Businesses, the chambers of commerce, the Northern Ireland Independent Retail Trade Association, Manufacturing Northern Ireland and about a dozen others. They lobbied people not just in Westminster but in Stormont, and importantly they got support from all five political parties in Northern Ireland. I pay tribute today to all those parties—I had endless discussions with them at that time, and they all came together. I think it was a unique event—I am not sure whether we had ever got all parties allied on a single policy before.

Key to that process was the Financial Secretary to the Treasury, who was then the Exchequer Secretary—I am pleased that he is in his place. He completely got on board with the long-term benefits not just for the Northern Ireland economy but for the UK economy. To pick up on the comments of my hon. Friend the Member for Amber Valley (Nigel Mills), if we can make Northern Ireland more economically viable, it will be of real benefit to our constituents in Shropshire and the east midlands. It will reduce the need for the block grant if the economy prospers and grows well. There is a massive UK-wide reason for supporting the devolution of corporation tax, and the then Exchequer Secretary really got that point.

My hon. Friend the then Exchequer Secretary and I went to Kelvatek, a splendid example of a Northern Ireland business, led by John Cunningham. All five political parties came along and we launched the consultation. It is important that the shadow Secretary of State understands that there was a lengthy consultation throughout 2011, and there were further launches for Grow NI, including the big launch at the Lyric theatre. There were about 750 responses to the consultation, and they were overwhelmingly in favour of the idea of devolving corporation tax.

That autumn, with the help of the then Exchequer Secretary, we began joint meetings involving the Northern Ireland Office, the Treasury and the Northern Ireland Executive. The first was in December 2011, and the last one in which I was involved was in June 2012. After that, I was delighted that my successor took up the baton. She has manoeuvred around Whitehall with great skill, because there was considerable hostility to the idea and real nervousness about it among significant elements of the establishment here. It is a tribute to her skills that we have the Bill today.

The Bill is quite something. This is a day that we will remember—as I said, in the long term, the benefits will be equivalent to what the last Government did in the Belfast agreement. It could help to create long-term prosperity and bring to disadvantaged communities the wealth that the shadow Secretary of State mentioned. The key thing is to get the message across. I would like members of the local parties to go back to Northern Ireland tonight with a clear message. The start date in the Bill is April 2017, and it is incredibly important that not only local businesses but UK and foreign businesses have a clear signal of what will happen on that date.

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[David Simpson (Upper Bann) (DUP)]

I thank the Government for keeping their part of the bargain in trying to push the Bill through the House before Dissolution.

I again pay tribute to the right hon. Member for North Shropshire (Mr Paterson), as I did in an intervention. He was very modest in what he said about his role. I understand that it was a team effort within the Government, but I must say that he was outstanding in the number of meetings he held with business organisations in my constituency, such as the manufacturing focus group and the chamber of commerce. He put across the case for devolving corporation tax very well, and all credit to him for his enthusiasm. He was also very enthusiastic about enterprise zones, as has been mentioned, and other parts of the different regions of the United Kingdom are starting to raise that whole issue.

The Chairman of the Northern Ireland Affairs Committee pointed out that we debated this matter and produced a report some time ago, and I remember what one of the economists said. People say that if someone brings 20 economists into one room and tries to get them to agree, they will find it very hard. My hon. Friend the Member for East Antrim (Sammy Wilson), who is an economist, is not in the Chamber, or I would certainly get a very smart response from him.

I asked one economist at what point between one and 10—given a clean sheet—he would put corporation tax, and he was quick to say that he would put it somewhere in the middle. We all agree that the measure is a great move for the future of Northern Ireland, but it is not a panacea or silver bullet, and we need to bring together a lot of things to make it work. The economist reckoned that other factors need to be looked at, including fast-track planning, which has been discussed, the whole planning structure, research and development, and education, which was also raised earlier. It has just been announced that we will get two new regional colleges—one in the town of Banbridge, and one in the Craigavon area—which will benefit my whole constituency. The colleges recently made a presentation about the number of courses and higher level apprenticeships that will be provided. As the hon. Member for Belfast East (Naomi Long) said, skills are vital for any organisation that comes to Northern Ireland, so there needs to be a skills base. A lot of elements therefore need to be brought together for the whole package to work.

Everyone in this debate has broadly welcomed the Bill, but it has been sensible of many of those who have spoken to put in caveats and not to make promises that we might not be able to keep in five or 10 years. The point was made that when companies decide to invest in other regions or sit down to write business plans, they do not plan for just six or 12 months, but for three, four or five years. We do not want to make rash promises, only for companies that plan to come into Northern Ireland to find, all of a sudden, that it does not work. Today we have the coalition Government, but things could change on 7 May. We might have another Government. Will they have the same principles and ideologies as this Government? It is therefore important that we do not make rash promises.

My constituency of Upper Bann is the second largest manufacturing base in the Province outside Belfast, with companies such as Moy Park, Almac and Thompson Aero Seating. It has a lot of good companies, such as bakeries and agri-food businesses. Many of those companies would benefit from the lowering of corporation tax. I declare an interest in the agri-food sector and refer to the Register of Members’ Financial Interests, because my family business would also benefit. The benefit will be felt across the constituency. At the worst economic times, unemployment in Upper Bann rose to 8.5% or 8.6%. As of last week, it was down to 5.2%. Even at the best of times, it never fell below 4% or 4.5%, so we are heading back to where we were in the good old days.

We need to encourage our young people to stay in the United Kingdom. The hon. Member for Foyle (Mark Durkan) made the point that every year we lose a campus to other countries. I still help young people on a regular basis to fill in forms and visas to go to Australia, New Zealand or China. We need to encourage young people to stay and protection needs to be put in place. We have heard about issues such as brass-plating. That needs to be definitive and there are a lot of issues that need to be teased out. That can be done as we go through the Bill over the next few weeks.

I broadly welcome the Bill. It will bring great benefits to Northern Ireland. It is important that every part of the United Kingdom and every country looks to its advantages over other countries. We have to look for the competitive edge. If this brings the competitive edge for Northern Ireland, that is good news, because we have sat alongside the Republic of Ireland, with its 12.5% rate, for many years. As was said earlier, throughout all the difficult economic times, with the Celtic tiger losing its buzz and all the rest of it, it still held on to the corporation tax rate. Even when the European Union threatened to take it away, the Republic of Ireland stood its ground and won the day. We need to continue with this proposal. I think there are good days ahead for Northern Ireland.

[Ian Paisley]

We were promised an economic bonanza after 1998. Whatever people’s interpretation of the Belfast agreement, there was no economic follow-through. It was like the ghost of Banquo—it was there, but it did not turn up. The ghost of economic benefit did not end up being delivered. This is the opportunity to deliver the economic benefit for Northern Ireland that has been absent for the past 15 years.

[David Simpson]

My hon. Friend is correct. This is an opportunity for Northern Ireland to deliver that economic benefit. We need to encourage not only businesses throughout the Province, but the next generation. I do not know about other MPs, but when I go to universities and schools in my area, people say, “What’s the point of staying in Northern Ireland? There’s nothing here for us. There’s no jobs; there’s no nothing.” We have to give them a reason to stay.

It is the role of Governments to create the environment and circumstances in which business can thrive and move forward. My hon. Friend is right that there is an opportunity to do that, and we need to grasp it, but we must do so in a balanced and measured way. We must not make false promises that may come back to bite us in the coming years.