Corporation Tax (Northern Ireland) Bill

Ian Paisley Excerpts

Tuesday 27th January 2015 Commons Chamber

[Mrs Villiers]

Careful consideration has been given to the devolution settlements across the United Kingdom. The Government have made it clear that the fact that Northern Ireland shares a land border with a low corporation-tax jurisdiction means that the case for reform is strong for Northern Ireland, but it is not made out in relation to the rest of the United Kingdom. Northern Ireland is different from the rest of the country, because the history of the troubles has left its economy with a high dependence on the public sector. That is another reason why Northern Ireland is different, and corporation tax devolution could provide a boost to growing the private sector in Northern Ireland. While there is a clear case for doing this in Northern Ireland it would not be the right move for other parts of the United Kingdom.

[Ian Paisley (North Antrim) (DUP)]

Has any assessment been carried out about the level at which Northern Ireland should set its new rate of corporation tax, given what the Minister has just alluded to—our competitiveness with the Republic of Ireland, which has a rate of 12.5%? Has any research been carried out by the Treasury on that?

[Mrs Villiers]

The principle of the Bill is that that becomes a matter for the Northern Ireland Assembly and the Executive. It is for them to make the choice and decide whether to go ahead with implementation of a reduced rate. Obviously, there is a great deal of support for bringing down the rate of corporation tax in Northern Ireland to the same level as in the Republic of Ireland. I know that the hon. Gentleman’s party colleague, Minister Foster, would like to see it reduced still further. Those matters are not provided for in the Bill because the Bill vests that choice with the Northern Ireland Executive once commencement has taken place.

As I was saying in response to the intervention, Northern Ireland has a unique position within our United Kingdom. The land border that it shares with a very low corporation tax environment in the Republic of Ireland puts it at a significant competitive disadvantage when competing for inward investment into the island of Ireland. Northern Ireland is also more dependent on the public sector than most other parts of the UK. Estimates vary as to the extent of this dependence, but it is generally accepted that around 30% work in the public sector, compared with about 20% in the rest of the UK. Some surveys put the dependence on the public sector at even higher levels.

Economic prosperity as measured by gross value added per capita is still some 20% below the UK average and has been so for a number of decades. Of course, Northern Ireland faces a range of difficult issues flowing from the legacy of the troubles. All these challenges need to be overcome if Northern Ireland is to compete successfully on the national and global stage for jobs and for investment. None of this is to say that Northern Ireland does not have some amazing entrepreneurs and some hugely successful businesses that are truly world-beating. Under this Government unemployment in Northern Ireland has fallen in every month for the past two years and the record of foreign direct investment is strong, not least because of the efforts of the Northern Ireland Executive.

But for all the great businesses we have in Northern Ireland, the blunt truth is that there are just not enough of them, so the Government are convinced that to boost the private sector and enable Northern Ireland to perform even more strongly in attracting inward investment, we need to go further. We need to provide stronger incentives for Northern Ireland firms to invest in growth. The Bill before the House today will give the Assembly a powerful tool to help them do this, enabling Northern Ireland to take a decisive step forward towards rebalancing its economy.

The Bill provides a further demonstration of this Government’s general commitment to devolution, which we have shown in many ways, including with the Scotland Act 2012. We are making progress on implementing the Smith commission proposals for further powers for Scotland over tax and welfare to be transferred to the Scottish Parliament. Draft legislative clauses were published on 22 January.

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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.

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[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to wind up this debate on behalf of the Opposition. We have had an interesting and, I think, high-quality debate. It is an important issue which has been the subject of many discussions over a number of years. I am particularly pleased that so many Members from across Northern Ireland contributed, and I am pleased, too, that, unlike in more recent outings when the Minister and I have been opposite each other on Treasury matters, this has been a slightly longer and meatier debate, not over so quickly. It is a reminder of the good old days when this Parliament was a little busier. That was welcome.

We heard from the former Secretary of State, the right hon. Member for North Shropshire (Mr Paterson), who I thought was right to point out the potentially significant benefits of the Bill, which we also acknowledge. As my hon. Friend the Member for Bury South (Mr Lewis), the shadow Secretary of State, said in his speech, perhaps the former Secretary of State did not quite hear that part of my hon. Friend’s remarks. We say simply that the devolution of corporation tax will require some difficult choices to be made to fulfil the conditionality envisaged in the Stormont House agreement and the Azores judgment. There is a trade-off. We acknowledge that the economic benefits of the change cannot be fully realised without additional changes, particularly investment in skills and infrastructure, to which I shall return a little later. We certainly acknowledge the potentially significant benefits for the people of Northern Ireland through corporation tax devolution.

The hon. Member for East Antrim (Sammy Wilson) was absolutely right to highlight the risk of brass-plating. We need to ensure that these measures have a substantive effect—and I am sure we will return to those issues in the Public Bill Committee.

The hon. Member for Tewkesbury (Mr Robertson), the Chair of the Select Committee on Northern Ireland Affairs, spoke, and his Select Committee has done a huge amount of work on this agenda. I pay tribute to it for that.

The hon. Member for Foyle (Mark Durkan) was right to say that the devolution of corporation tax was not a magic bullet, and to point out that the successes achieved by the Republic of Ireland—particularly from the mid-1990s onwards—had as much to do with higher education funding and investment as with a lower corporation tax rate.

I was pleased that the hon. Member for Redcar (Ian Swales) asked about transfer pricing and profit shifting, and I echo his questions to the Minister. I am sure that we will return to them in detail in Committee, but it would be helpful if the Minister set out some of the Government’s early thoughts about ways of ensuring that the Bill does not provide more opportunities for the exploitation of transfer-pricing and profit-shifting rules.

There was much talk of the dependence of the Northern Ireland economy on the public sector, but, as the hon. Member for Belfast East (Naomi Long) rightly observed, the private sector in Northern Ireland is also heavily dependent on public sector contracts. That is one of the systemic issues with which we shall need to get to grips if we are to achieve a true rebalancing of Northern Ireland’s economy.

The hon. Member for Amber Valley (Nigel Mills) highlighted some technical details to which I hope the Minister will return, probably in Committee rather than today. He spoke of the interplay between the behavioural change among businesses responding to what will potentially be a much lower corporation tax rate and other changes that the Government envisage, particularly in relation to the diverted profits tax.

The hon. Members for Upper Bann (David Simpson) and for South Down (Ms Ritchie) made powerful points about the importance of encouraging more young people in Northern Ireland to stay there, because they are the future of Northern Ireland. The hon. Member for Strangford (Jim Shannon) rounded off the debate very well by pointing out that, while businesses are very much in favour of the measure, we must ensure that the reform delivers for the whole of Northern Ireland and that the benefits are shared throughout the population.

As the shadow Secretary of State said, peace and stability in Northern Ireland are inextricably linked with the increased economic and social progress that Northern Ireland needs. There is an interdependence between the economy and the peace process. I think that there is consensus in the House that if the peace process is to thrive, Northern Ireland will need more private sector growth and investment as part of a long-term rebalancing of its economy. It has long been argued by some that devolution of corporation tax to Northern Ireland so that it can ultimately set a lower rate in order to compete with the Republic—given the sharing of a land border—would enable Northern Ireland’s economy to be rebalanced more quickly, and would lead to sustained economic growth.

Labour Members are committed to supporting measures that increase inward investment in Northern Ireland and support the rebalancing of its economy, and we acknowledge that the devolution of corporation tax could play an important role in the achievement of those objectives. However, as I said earlier, it will require a trade-off between corporation tax reductions and spending cuts. It is important for us to give proper consideration to the long-term as well as the short-term implications for Northern Ireland and for the United Kingdom as a whole. We agree that the 2017 timetable set out in the Stormont House agreement allows time for that consideration, and we will not oppose the Bill. We will co-operate with the Government to ensure that it can be scrutinised appropriately and dealt with speedily during the current Parliament.

The Bill will devolve the rate-setting power for corporation tax in Northern Ireland to the Northern Ireland Assembly for trading profits only, and subject to a commencement order. It will devolve the power to set a corporation tax rate, but will not devolve control of the base. The Northern Ireland rate would apply to all the trading profits of a company if that company was a micro, small or medium-sized enterprise, and if the company’s employee time and costs fell largely in Northern Ireland. In that context, “largely” is defined as at least 75%. In the case of large companies, the rate would apply only to profits that are attributable to a Northern Ireland trading presence. The Northern Ireland Assembly will not be able to set the rate for non-trading profits, such as income from property.

[Ian Paisley]

Earlier in the debate, I asked the Secretary of State if she had taken any advice or guidance about what level of corporation tax Northern Ireland should consider. Does the Opposition spokesman have any view on that? Indeed, is the current inquiry set up by the Labour party in Northern Ireland even considering that?

[Shabana Mahmood]

I am afraid that on this occasion I must give the hon. Gentleman a similar answer to that from the Secretary of State. This Bill is looking at the devolution of this power. It is not for me to say to the Northern Ireland Executive, or Northern Ireland politicians of any description, what that rate should be. Once this Bill passes and we hit the 2017 timetable, that will be a matter for the representatives in Northern Ireland and nobody else.

There are a number of issues, and they have been touched on by Members. We all need to consider them deeply as this progresses both through the House and in the further discussions that will take place as a result of the Stormont House agreement.

First, as has been said, the impact of the Azores decision is important. The devolution of corporation tax needs to be done in a way that ensures it is not caught by EU rules on state aid. In order to meet the third of the three conditions set out in that judgment regarding fiscal autonomy, the Northern Ireland Executive would need to bear the full fiscal consequences of changes in tax revenues resulting from a new corporation tax rate so the block grant would be adjusted to reflect the fiscal costs of a reduction in the corporation tax rate. That is an important issue, and we heard from the hon. Member for South Down about amendments she and her colleagues might want to introduce to address the impact and the modelling behind how some aspects of that would work in practice. There will be a trade-off with public spending cuts and some difficult choices will therefore have to be made, and it is important that those impacts are fully considered and thought through, particularly because, as I said earlier, even the private sector in Northern Ireland is highly dependent at this stage on Government contracts.

The £300 million adjustment that might be required is a burden that may well increase if Northern Ireland were to have a much lower corporation tax rate that then increased the cost and the offsetting from the block grant. The hon. Member for East Antrim asked some questions about the formula that will be imposed in order to calculate the forgone tax by the rest of the UK. It would be helpful to have some clarification from the Financial Secretary on how that formula will operate in practice. I am sure we will address the detail in Committee, but we would like an outline of his thinking now.

Conditionality is attached to the Stormont House agreement. The financial annex adds conditionality to the progress of this Bill, in order to ensure that any changes are fiscally sustainable, stating that there must be

“a clear commitment to put the Executive’s finances on a permanently sustainable footing for the future.”

The Secretary of State did not in her opening speech labour too much the issue of putting the Executive’s finances on a stable footing for the future. There is some detail in the financial annex to the agreement, but that is an important condition that has not necessarily been well ventilated in the debate we have had thus far. Again, however, I am sure we will return to that issue in Committee.

Many Members highlighted the fact that the headline rate of corporation tax is not a panacea. It does not in and of itself result automatically in economic growth, and it was only one of a number of reasons, as many commentators and academics have said, why the Republic of Ireland experienced its economic miracle from the mid-’90s onwards. None of us in this House should see it as a panacea. Investment in skills in particular is just as important, as is investment in infrastructure and, as Members have said, looking at planning rules. All these issues will be crucial. It would be a mistake to think that Northern Ireland’s economy will automatically rebalance just because it has a lower rate of corporation tax—a rate more on a par with that in the Republic of Ireland. That alone will not achieve what we all want, which is a thriving and growing Northern Ireland economy. Other changes will be needed, and it would be helpful to hear from the Financial Secretary the Government’s thinking on some of them.

We have talked a lot about corporation tax not being the only way to achieve economic rebalancing, but as the hon. Member for South Down pointed out, the Institute for Fiscal Studies said in its 2013 green budget that it is a tax which, over time, can vary substantially in revenue terms, and much more so than total receipts from national income. We will need to hear more about how the volatility of corporation tax might impact on the Northern Ireland economy, and particularly about any modelling the Treasury has done on its impact on Northern Ireland’s finances.

As I have said, we recognise that there are potential gains for the people of Northern Ireland from this measure. However, we want responsibly to consider and ventilate the risks it also poses, which we will carefully scrutinise as we progress. We will also carefully consider anti-avoidance measures, to ensure that the Bill does not simply become an opportunity for businesses to brass-plate and base themselves in Northern Ireland, with no other economic benefits for the people of Northern Ireland. I look forward to the debate in Committee.