Corporation Tax (Northern Ireland) Bill

Jonathan Edwards Excerpts

Tuesday 27th January 2015 Commons Chamber

[The Secretary of State for Northern Ireland (Mrs Theresa Villiers)]

I beg to move, That the Bill be now read a Second time.

The Bill provides for the devolution of a rate-setting tax power to the Northern Ireland Assembly and would allow Northern Ireland to set its own rates of corporation tax. Just under five years ago, the Conservative party went into the general election with a commitment in our Northern Ireland manifesto to produce a Government paper examining the mechanism for changing the corporation tax rate in Northern Ireland. The pledge subsequently formed part of the coalition’s programme for government. It was part of our strategy for rebalancing the Northern Ireland economy from over-dependence on the public sector by revitalising private enterprise and attracting new investment.

The commitments in the Conservative manifesto and the programme for government were fulfilled a little under four years ago, when the Government launched a consultation on rebalancing the Northern Ireland economy and on the potential for devolving corporation tax powers to the Executive and the Assembly. The response to that consultation was near-unanimous support from Northern Ireland’s political leaders and the business community for the devolution of corporation tax. We have worked tirelessly since then on the technical details needed to make devolution possible.

My predecessor, my right hon. Friend the Member for North Shropshire (Mr Paterson), whom I welcome to the Chamber today, established a joint ministerial working group with the Treasury and Executive Ministers in late 2011 to work through the main questions of contention. In the economic pact that we signed with the Northern Ireland Executive in June 2013 on the eve of the G8 summit, we committed to further progress and a final decision in principle on devolution no later than the autumn statement of 2014. In that autumn statement my right hon. Friend the Chancellor said that

“we recognise the strongly held arguments for devolving corporation tax-setting powers to Northern Ireland. The Treasury believes it can be implemented provided that the Northern Ireland Executive can show that they are able to manage the financial implications. The current talks will see whether that is the case. If it is, the Government will introduce legislation in this Parliament.”—[Official Report, 3 December 2014; Vol. 589, c. 314.]

As I informed the House on 7 January, following extensive negotiations, those cross-party talks reached a successful conclusion on 23 December with the Stormont House agreement. That agreement, which also covered crucial legacy issues such as flags, parading and the past, sets a path for the Executive to put their finances on a sustainable footing for the future. That has paved the way for us to go beyond the commitments we made in our manifesto in 2010 and to introduce the Bill to devolve corporation tax rate- setting powers to Northern Ireland. Unlike the Opposition, the Government believe in lower taxes for business because we understand that businesses thrive when they are free to get on with what they do best, unencumbered by burdensome regulations and excessive taxes.

That is why since 2010, the Government have cut the main rate of corporation tax from the 28% we inherited from Labour to 21% today. It will fall still further to 20% in April, giving the UK the joint lowest rate of corporation tax in the G20—a competitive edge that Labour wants to deny British business, as the Shadow Chancellor is committed to reversing that reduction. The small profits rate has also been cut to 20%. Those tax cuts are a central part of the Government’s successful long-term economic plan to make the UK as a whole more competitive, supporting business investment and job creation— something that would be jeopardised by a return to the high-tax, high-spending, high- borrowing policies of the previous Government.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The Secretary of State will be aware that the UK Government-sponsored Silk commission, which was set up in Wales a number of years ago, reported that if corporation tax were devolved to Northern Ireland, consideration should be given to devolving it to Wales and the other devolved Parliaments. Can she enlighten the House on the Treasury’s thinking, now that a decision has been made for Northern Ireland, on the other devolved Parliaments?

[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.

--- 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.