Corporation Tax (Northern Ireland) Bill

Ivan Lewis Excerpts

Tuesday 27th January 2015 Commons Chamber

[Mrs Villiers]

I agree that if the benefits of a reduced corporation tax rate for Northern Ireland are to be realised, that needs to be accompanied by a determined effort to sell the benefits of Northern Ireland to the world. I am absolutely 100% certain that if my right hon. Friend the Member for Witney (Mr Cameron) is Prime Minister in the next Parliament, that is exactly what the UK Government will be doing, because he is completely committed to Northern Ireland and believes that it is a wonderful place. That is why he takes every opportunity to tell the rest of the world what a fabulous place it is, and why he brought the G8 summit to County Fermanagh.

Turning to the mechanics of passing the Bill, any delay would be a great mistake. I therefore very much welcome the support that the Bill has received from hon. Members from Northern Ireland, who have rightly highlighted the importance of corporation tax devolution to their constituents and the potential benefits it could deliver. I welcome, too, the recent U-turn by the Leader of the Opposition, who last week confirmed that Labour will facilitate the passage of the Bill. I am most grateful for that. That recognises the firm and consistent support for the change from the five parties in the Northern Ireland Executive, as well as the fact that this new piece of devolution has a key part to play in the Stormont House agreement.

[Mr Ivan Lewis (Bury South) (Lab)]

Will the Secretary of State explain at what point the Opposition ever said they would oppose the devolution of corporation tax to Northern Ireland in this Parliament? Can she give a date and a time when the Opposition said that?

--- Later in debate ---

[Mr Ivan Lewis (Bury South) (Lab)]

On his visit to Belfast last week, my right hon. Friend the Leader of the Opposition spoke of the inextricable link between peace and stability and economic and social progress in Northern Ireland. He was right to do so: without stability, the business confidence necessary for investment and growth will inevitably be undermined; without economic and social progress, stability will be fragile as people see little or no evidence of a peace dividend. The interdependency between the economy and the peace process should be at the forefront of all our minds as we debate the Bill.

For Northern Ireland to move forward there is an urgent need for private sector jobs and growth as part of a long-term rebalancing of the economy. Both further increases in global inward investment and support for new local start-up businesses and small businesses with the potential to scale up will be crucial to progress in Northern Ireland in the coming years.

We should use every opportunity to celebrate the remarkable progress that Northern Ireland has made since the end of the troubles. There are no greater reminders of that than recent achievements such as Derry/Londonderry’s success as the city of culture, and Belfast’s holding the world police and fire games and turning pink for the Giro d’Italia last year. Those amazing events boosted the economy and brought communities together.

In the past few months, there have been major job investments supported by Invest Northern Ireland, including in more than 800 posts at PricewaterhouseCoopers in Belfast, and in almost 500 posts at First Derivatives in Newry. The services sector has recouped almost all the jobs lost during the recession. In recent years, there has been a significant increase in direct foreign investment to Northern Ireland. UK Trade & Investment figures for 2013-14 showed an increase of 32% in inward investment projects compared with the previous year. Northern Ireland outperformed all other nations in that regard: England, including London, achieved 11% growth; Scotland achieved 10% growth; and Wales achieved 18% growth. In 2014 alone, 50 new foreign direct investment projects were secured in Northern Ireland. That significant progress and international interest have been possible because of the leadership of the First Minister and Deputy First Minister, supported by the Northern Ireland Executive.

It must be said, however, that that investment is from a low base, and has inevitably been constrained by the consequences of the global banking crisis. We must acknowledge that the Northern Ireland economy still in fact faces real difficulties in relation to its economy overall, which is not working for the many or reaching kitchen tables in Northern Ireland.

Northern Ireland’s recovery continues to lag behind that in the rest of the UK. Last week’s labour market statistics show that unemployment is still gradually falling—we welcome the fact that it currently stands at 5.8%, a six-year low—but youth unemployment in Northern Ireland is stubbornly high at 19.2%, which is above the UK average of 15.4%, and over half of unemployed people have been out of work for a year or more. Northern Ireland has the highest inactivity rate of all UK regions. The earnings of a typical full-time employee in Northern Ireland fell by 1.4% in 2014, according to the official annual survey of hours and earnings. There has been a very disappointing loss of momentum in the private sector. For example, Ulster Bank’s purchasing managers index for January shows that business recovery in Northern Ireland has slowed, and output has dropped in the main sectors of manufacturing, construction, retail and services.

The Bill recognises many of the unique challenges that Northern Ireland faces. It shares a land border with the Republic of Ireland, where corporation tax is 8.5 percentage points lower than in the UK, and its society is emerging from conflict, with all the challenges that that presents. The public sector employs nearly one in three workers in Northern Ireland compared with fewer than one in five in the UK as a whole. It is therefore right that rebalancing the economy is a priority for the Northern Ireland Executive.

It is clear from the Stormont House agreement and the commencement clause in the Bill that the final transfer of the powers will not take place until April 2017 at the earliest. That ensures that there is adequate time for the proper impact assessment and consultation that the Opposition feel is essential in the interests not only of Northern Ireland, but of the rest of the United Kingdom.

For all those reasons, as well as out of respect for the existing political consensus in Northern Ireland on this issue, we will not seek to divide the House. Moreover, I want to make it very clear that, assuming we have reasonable time for an acceptable level of scrutiny, we will work with the Government to facilitate the passage of the Bill in this Parliament.

As the Secretary of State has set out, the Bill will give the Northern Ireland Assembly the power to set the main rate of corporation tax in respect of certain profits, while control over the corporation tax base, including reliefs and allowances, will remain with the UK Parliament. The devolved rate will apply to all the trading profits of micro and small and medium-sized enterprises if the majority of employee time and costs fall in Northern Ireland. The devolved rate will apply to all the profits of large companies attributable to a Northern Ireland trading presence. Certain trades and activities will be excluded from the scope of the rate, including lending and investment activities. Her Majesty’s Revenue and Customs estimates that the changes will affect 34,000 companies of all sizes in Northern Ireland, including more than 26,000 SMEs, with the exact impact depending on the conditions.

The Opposition accept that the devolution of corporation tax and its subsequent reduction could play an important part in boosting private sector investment in Northern Ireland, alongside a range of other measures.

[Jonathan Edwards]

I am happy that the Labour party is supporting the UK Government’s proposal to devolve corporation taxes to Northern Ireland. The Labour party is also in favour of fully devolving income tax to Scotland, yet it opposes the devolution of any major taxation powers to Wales. Why is Wales being offered an inferior deal?

[Mr Lewis]

We believe that Northern Ireland has special circumstances—a land border with the Republic of Ireland, and a society emerging from conflict—that are incredibly important in this context.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

I welcome this measure for Northern Ireland, and I think that it will inevitably come to Scotland when we have a large Scottish National party group in Westminster. The argument about the land border is a strange one, because there are many places on land borders that have different rates of corporation tax. Logically, that could lead to a situation in which corporation tax was set island-wide in Dublin. I would not like to see such a situation, but that is the logic of the argument about the land border.

[Mr Lewis]

The hon. Gentleman’s party has long advocated the devolution of corporation taxes in Scotland, but the fact is that it did not push very assertively for that during the Smith commission negotiations. Equally, Scotland has enough to do getting on with the very considerable devolution package on which there is tremendous consensus.

The point I want to make to both hon. Gentlemen is that the idea that the devolution of corporation tax is a panacea is a fundamental mistake. I will develop that argument further; astonishingly, it was noticeably absent from the Secretary of State’s speech. The PricewaterhouseCoopers report “Corporation Tax—Game changer or game over?” found that the devolution of corporation tax would be “no magic bullet” for Northern Ireland. It concluded that there was

“no evidence that the Republic of Ireland’s low Corporation Tax, by itself, attracted the high levels of foreign direct investment…that fuelled the Celtic Tiger economy.”

When the Secretary of State did a lap of honour and a hastily arranged photo opportunity in Lisburn earlier this month, she failed to address a number of issues—she has repeated that failure today—that her successor and those on the Treasury Bench will not be able to duck. Any responsible Westminster Government and Northern Ireland Executive will have to address these issues before 2017.

First, the current Government’s commitment to the final transfer of powers is highly conditional. The agreement states:

“The powers will only be commenced from April 2017, subject to the Executive demonstrating that its finances are on a sustainable footing for the long term including successfully implementing measures in this agreement and subsequent reform measures.”

Sometimes, the Secretary of State does not emphasise that high level of conditionality.

Secondly, should Northern Ireland reduce its corporation tax rate to that of the Republic of Ireland, it would lose at least £300 million from its block grant. Budgets would have to be cut. In the awful event of the Tories being re-elected, that £300 million cut would increase substantially as a result of the promised return to 1930s levels of public expenditure.

Thirdly, slashing and burning the state, rather than having a long-term plan to rebalance the economy, is opposed by all Northern Ireland’s parties. Fourthly, severe cuts to school, further education, higher education and adult skills budgets, as well as reduced funding for infrastructure, would moderate the potential benefits of reduced corporation tax. It is investment in skills and infrastructure that will make the biggest difference to private sector jobs and growth, alongside corporation tax devolution.

Fifthly, the Secretary of State has failed to acknowledge the plain truth that significant reductions in corporation tax must be used to stimulate investment, not to inflate excess profits or pay at the top. As my right hon. Friend the Leader of the Opposition said on his visit last week, Northern Ireland faces no greater challenge than inequality. My party is seeking to address that through the independent Heenan-Anderson commission, which is attracting much support and interest in Northern Ireland.

The cost of living crisis has hit Northern Ireland’s families hard. Northern Ireland consistently records the lowest rates of private sector pay in the UK. One in six workers are classed as low paid and a quarter earn less than the living wage. Wages have fallen by £1,683 a year since 2010. One in five children in Northern Ireland live in poverty. Northern Ireland continues to have the highest claimant count of any region in the UK—at 5.7%, it is double the UK rate.

Unless this legislation is carefully managed to ensure that it does not benefit only those at the top, it will not only fail to enhance growth, but perpetuate the horrendous inequality that is leaving too many people in Northern Ireland at the margins of the economy and of their communities. It will also be important, as the hon. Member for South Down (Ms Ritchie) said, to ensure that the whole of Northern Ireland benefits from the legislation—not just Belfast, but Derry/Londonderry, Strabane, Portadown and Newry.

Finally, it would be the ultimate folly if in 2017, as Northern Ireland was preparing to align its levels of corporation tax with the Republic of Ireland, the UK was exiting the European Union. No part of the UK would suffer more than Northern Ireland from the inevitable impact on economic co-operation between the north and the south.

We will enable the passage of the Bill in a spirit of transparency about the potential gains, but with an awareness of the risks. Not only is that the responsible stance for a party that seeks to govern the country in four months’ time; it is right because we have a duty to be honest with the people of Northern Ireland about the difficult choices that lie ahead. The Executive are right to make private sector jobs and growth top priorities as they strive to build a better shared future, but they are also right to reject the slash-and-burn approach to the state that is being pursued with such relish by this unfair and incompetent Tory-led Government.

An incoming Labour Government will not only balance the books in a responsible way, but work with the Northern Ireland Executive to pursue an active industrial strategy that will boost private sector jobs and growth, while tackling the chronic worklessness and poverty of those at the margins of the economy and society in Northern Ireland. We will transform the economic pact between Westminster and the Executive by setting goals to expand the creative industries and other sectors that build on Northern Ireland’s strengths. A shared aim should be to encourage young people who go away to study and travel to return home to Northern Ireland when they are ready to settle down. That will be possible only through the creation of well-paid, high-skilled jobs.

The Bill opens up new opportunities for Northern Ireland, but it will require political leaders to make difficult choices and to ensure that the potential gains benefit the many and not the few. As I have said, the devolution of corporation tax is not a panacea, but if handled properly, it could be part of a new economy that works for working people and leaves far fewer people behind. Ultimately, that is how the Bill will be judged.

--- Later in debate ---

[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.

[Mr Ivan Lewis]

I pay tribute to the right hon. Gentleman for the work that he did in Northern Ireland. People have a great deal of respect for the contribution that he made.

May I ask the right hon. Gentleman a specific question? If, at the same time as corporation tax is devolved, the skills budget is slashed and there is inadequate investment in Northern Ireland’s infrastructure, what will the consequences be for the foreign direct investment that he keeps going on about?

[Mr Paterson]

I have cited the figure that state spending in Northern Ireland is £23 billion, which is a significant amount from public funds. With his obsession with public expenditure, the hon. Gentleman does not understand the concept of growing the cake. The reduction in corporation tax will lead to an increase in private activity. I have mentioned the figure of a £200 million reduction in the block grant, but the hon. Gentleman assumes that the size of the cake will be static, which it will not.

The local parties must grab this opportunity and make a clear statement that there will be a dramatic reduction in corporation tax from April 2017. I would happily go below 12.5%, but it must be that at most, to answer the question that the hon. Member for North Antrim (Ian Paisley) asked. The bigger the drop, the bigger the message that will be sent out around the world. My message was that I wanted to turn the whole of Northern Ireland into an enterprise zone. If we do that, the cake will grow, so the figure of £200 million is for the birds. There will be significant internal investment from companies such as Kelvatek, significant investment from the rest of the UK, and foreign direct investment. There will be more economic activity, which will rapidly make up for that modest reduction of £200 million. That money will stay in Northern Ireland hands, but it will be in business and private hands rather than state hands.

I therefore hope that the local politicians will go back to Northern Ireland with a clear determination to build on today. Although this is a dramatic day, all that the Bill does is provide the powers. The real trick in the long term is to make a clear statement that, as in the Republic of Ireland, there will be absolute determination to keep corporation tax low. That was what the Republic did through its most difficult time, and we can see the benefits there.

This is a great day for Northern Ireland, and I congratulate everybody involved, including all the political parties. I am delighted that the Labour party has come onside, and I congratulate the people in the Northern Ireland Office and the Treasury who have come up with a fiendishly complicated-looking Bill. I wish it well.