Corporation Tax (Northern Ireland) Bill
Debate between Ian Paisley and Shabana Mahmood(9 years, 9 months ago)
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Shabana Mahmood (Birmingham, Ladywood) (Lab)
I would like to associate myself with the Minister’s comments about the quality of our debate thus far on the Bill. We have had a thorough discussion. It has been shorter than originally anticipated, but that is because the Bill has wide-ranging support across the House, and it is a pleasure to rise, once again, to support the measures in it.
We are committed, as are Members across the House, to supporting measures to increase inward investment into Northern Ireland and support the much-needed rebalancing of its economy. We have all recognised that Northern Ireland has lagged behind the rest of the UK on productivity and prosperity. Over the years, measures have been implemented to boost the Northern Ireland economy, including through increased levels of investment and job creation programmes, but few have met with long-term success. It is important to consider a measure that would put a rocket-booster under the approaches taken so far to rebalancing and strengthening Northern Ireland’s economy. In that spirit, we have supported the Bill.
As I noted in Committee, the Bill is both straightforward and complicated. It is short in respect of the number of clauses, but those clauses include a huge amount of detail, some of which has still to be worked out. The Minister alluded to that in his comments. It is important to recognise that we are at the start-point rather than the end stage of the process.
Let me draw out a couple of issues that will be the subject of live discussions between the UK Government and the Northern Ireland Executive. Before I do so, however, let me reinforce a point made in the intervention by the hon. Member for North Down (Lady Hermon)—that it would be a mistake to think that corporation tax devolution will, in and of itself, do what is needed to rebalance Northern Ireland’s economy. It has to be part of a much wider picture that includes other policy drivers to help make this measure a success. That is certainly the experience of the Republic of Ireland, whose extremely low corporation tax does not sit alone; it is supported by other policy measures, particularly on skills and infrastructure. If this Bill is to be a success in Northern Ireland, it will be important for all parties to work together to ensure that the rest of the policy framework is in place to allow the rebalancing that we all want to happen.
Ian Paisley
I welcome the shadow Minister’s comments, but does she accept that much of this is about perception and the business-friendly nature of our economy, which will allow it to grow? It is about offering investors incentives to come in by providing good profit returns for their hard-earned labour. If we continue to build up and push that perception, does she agree that opportunities will flow from it and that this Bill now offers the best way forward in the current economic climate?
Shabana Mahmood
The hon. Gentleman is right to say that the perception of business is really important, but he will recognise, I think, a point that businesses often make to Members of all parties—that headline rates of corporation tax are extremely important for decisions about where to locate businesses, but that they are not the only factor that businesses take into account. I recognise the importance of this Bill for Northern Ireland, given the unique situation in which Northern Ireland finds itself. As I say, it is putting a rocket-booster under the approach taken so far to try to rebalance the Northern Ireland economy, but it will not succeed on its own—it has to be part of a wider policy framework. Despite recognition of the importance of a wider policy framework, we have not yet heard a huge amount of detail about what it will look like on the ground in Northern Ireland. These are matters largely for the Northern Ireland Executive, but they need to know and to hear that the Opposition support them in having a wider framework of policy measures around skills and infrastructure that will help to make all this a success, which we all want to see.
Corporation Tax (Northern Ireland) Bill
Debate between Ian Paisley and Shabana Mahmood(9 years, 10 months ago)
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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.