Corporation Tax (Northern Ireland) Bill

Lord Empey Excerpts

Tuesday 17th March 2015 Lords Chamber

[Lord Empey (UUP)]

My Lords, I, too, congratulate the noble Lord, Lord Hay of Ballyore, on his maiden speech. As a speaker, he was followed by his predecessor as Speaker, the noble Lord, Lord Alderdice. Both of them exude an air of bonhomie and so on in this Chamber, but do not be fooled: I have seen them in action in the big chair and have often been at the receiving end of a tongue-lashing.

The earliest request that I can recall for corporation tax-varying powers to be transferred to Stormont was, I believe, made in 1983, when the late Ulster Unionist Assembly Member for South Belfast, Edgar Graham, believed that it would be a tool to help the Northern Ireland economy. Sadly, Edgar was assassinated later that year in the grounds of Queen’s University Belfast by the IRA. In those days, the rate of corporation tax levied was 38%, having fallen from a peak of 52%.

Since the early 1980s, there have been repeated calls for the rate to become a devolved matter, and the request has appeared in a number of election manifestos in recent years, including some of those presented to the electorate in 2010. Following the 2013 economic pact between the Northern Ireland Executive and Her Majesty’s Government, a timeline was established for reaching a decision. The Chancellor’s Autumn Statement in 2014 signalled the Government’s intention to proceed with devolution subject to Stormont agreeing a budget for 2015-16 and settling the welfare reform issue—and hasn’t that gone well?

There is widespread, but not universal, support for this measure. In addition to the five executive parties in Northern Ireland, Her Majesty’s Government and the Opposition, the consultation conducted in 2011 produced 700 responses, which were overwhelmingly in favour. At 87 pages, the Bill is a very complicated and technical measure, as the noble Baroness, Lady Blood, pointed out. It has to be to avoid the trap of brass-plating and other avoidance measures which all Members in this House wish to guard against, quite rightly.

The devolution of the rate-setting powers is controversial in the wider UK context, however, as has already been referred to. Both the Calman commission and the Holtham commission, looking at Scotland and Wales respectively, came up with slightly different approaches. Calman said it would not be appropriate for Scotland, while in the Welsh case, by recommending discussions with Westminster, the commission felt that its devolution in Wales could introduce budget volatility—I think we understand that.

The case in Northern Ireland has always been different, as the noble Lord, Lord Shipley, has just pointed out. The existence of the land border with the Irish Republic, which has the lowest corporation tax rate in Europe, differentiates the Province from the rest of the United Kingdom. That said, things are changing. First, the national rate has changed, as mentioned, from 28% at the beginning of this Parliament to 20% next year. This alone makes this measure less significant than it once might have been, but of course, what rate this Government might set could be raised by subsequent Governments over time.

Superimposed over all this is the wider question of where power actually resides in the United Kingdom as a whole. This measure is inevitably going to be seen in this context. In mitigation, it is a proposal that has been on the table for many years and was not dreamed up overnight like some of the other constitutional changes that have been brought before your Lordships’ House in recent weeks. I think this is either the fourth or the fifth legislative proposal to come before us in the last 12 months that devolves more power to the home nations. We really do need a joined-up approach to these matters, but that is an argument I suspect we will return to in the new Parliament.

The whole objective of seeking this power is to try and make Northern Ireland a more attractive place to do business and make it more attractive for foreign direct, as well as indigenous, investment. We all know, however, that tax rates, as the noble Lord, Lord Trimble, has said, are but one of a number of conditions that investors examine when making their decisions. Labour supply and skill levels in particular rate even more highly than tax rates, and other factors such as language, lifestyle, transport, broadband and proximity to markets are frequently seen as more significant.

That said, my view is that everything that can be done to help should be done, and even if this is merely a marginal consideration, it is worth trying. We know there will be a consequential reduction in available funds from London, but the tax can be varied in different ways and not necessarily all at once, thus easing the burden in the reduction of public spending. It also has to be said that, with uncertainty surrounding the situation in Scotland—who knows what might happen there in the future—we could be faced with lower corporation tax rates to our east as well as to our south.

The noble Baroness the Minister has confirmed the Statement made by the Government after the Stormont House agreement that devolution of the tax would happen only in the event of agreement being reached on a balanced budget and the Welfare Reform Bill, and that is very welcome. I sincerely hope that that is the Government’s position, because if it is not and it is going to move and vary, we are in for a very rough ride.

These are important considerations, but while I support this Bill and am a strong supporter of devolution, I regret to say that I do not believe that the current leadership in the Northern Ireland Executive is capable of dealing effectively with these powers at present. For the first time since 1921, the Stormont Assembly has failed to balance its budget and was only saved from default by the offer of a Wonga-style loan of £100 million from the DEL reserve to be repaid in the following year. How could this be?

Sinn Fein and others say that the problems have been caused by Tory cuts. There is an argument about public expenditure levels, but a devolved Administration have to live within their own means, and policies pursued by Stormont have to be adjusted according to the amount they raise and spend themselves, augmented very substantially by the Barnett formula and consequential in-year adjustments. The NI Executive were informed of their budget allocations for the four years to 2014-15 in October 2010. When Barnett consequentials are taken into account, Northern Ireland did better than anywhere else in the UK. Reductions of 2.1%, 0.7%, 0.7% and 2% respectively were imposed over the four-year period. This did not include the additional £200 million which was provided to assist the PSNI.

Given the huge national deficit and the fact that the UK continues to borrow nearly £2 billion per week, the reductions to Stormont’s budget have to be seen in the context of the reductions imposed on Whitehall departments. The Department for Communities and Local Government has suffered a reduction of 25%, for example, and this has had a huge effect on local government services. Stormont has, fortunately, not been exposed to such cuts. I know that the Labour Party has indicated a commitment to reduce the deficit, albeit at a different rate, and I hope that the noble Lord, Lord McAvoy, on behalf of the Opposition, will state that it is their policy to continue to follow that path but that there will not be a buy-out policy to help Stormont every time it runs into difficulties. I hope that that will be the Opposition’s position.

Stormont was informed of its budget allocation for 2015-16 in June 2013. In other words, the Executive have had full knowledge of their available budget for almost five years. What happened? Did the Executive cut their coat according to their cloth? No, they did not. No meaningful action was taken until a crisis budget was mooted last year. All of a sudden, departments were asked to make in-year cuts, which are the least effective, most difficult and wasteful. Then a political crisis was manufactured over the welfare issue, even though it had been known about for four years.

Instead of planning gradual reductions in personnel in the Civil Service and other public bodies, things were left to the last minute and a crash-landing proposal to reduce the public sector by thousands was produced as a result of the Stormont House process. Many civil servants will leave in the next financial year, not on a planned and carefully prepared basis, but in a panic with expensive pay-offs, the funds for which will have to be borrowed and repaid over subsequent years. At the beginning of the financial year, Stormont’s borrowing was £200 million, but if the Stormont House process is fully implemented that will rise to £1.8 billion. Not only that, but a much overdue reduction in departments is being planned in parallel with this process. Can you imagine the utter chaos that these measures will create? Having amalgamated public bodies myself, I am sure it will take three years until departments settle down and rebalance the skill levels.

The finances of the Northern Ireland Executive have been disastrously mismanaged. The Executive have been seen to be incapable of operating within their means, and they have failed to plan ahead despite knowing their financial envelope for years in advance. It is a mystery to me that any Minister of Finance and Personnel who has presided over such chaos and mayhem can still remain in office. The antics leading up to the Stormont House process resulted in the humiliation of the people of Northern Ireland in front of not only the rest of the UK but the wider world as well. The begging-bowl strategy has sent a terrible message to investors at home and abroad alike.

As things stand today, devolution under the existing leadership is not working properly. Financial mismanagement, the squandering of millions of pounds on failed initiatives, such as the Education and Skills Authority, and enormous delays in implementing reforms are a sad testimony to the way things have gone. From being a major success story for Northern Ireland, we are now disinvesting in higher education. Only this week, it was announced that the primary modern language programme, introduced in 2007 to support primary schools to teach another language, was being scrapped. Two weeks ago, the same Minister announced £l million for an Irish-medium school for 14 pupils when all advice, even from that sector, advised against it. The continuing domination of our politics by arguments over flags, parades and the Irish language is deeply depressing.

The vision I and many noble Lords had for Stormont when we sought to restore devolution has not been realised. My noble friend Lord Trimble famously said that because one had a past did not mean that one could not have a future. That was in the context of being prepared to share power with republicans and others. We foresaw Stormont moving to a place where the political landscape would be dominated by how we would use our new powers to develop and grow our economy after years of terrorism, where we would tailor policies to the specific needs of our local community and not rely on hand-me-downs from Whitehall, which were largely London-centric under direct rule, where we could develop the accountable partnership-led Administration envisaged in the Belfast agreement and ratified in the referendum of 1998, where working with our partners in the rest of the United Kingdom and the Republic of Ireland would give us the opportunity to concentrate on making things better for the post-Troubles generations and remove the deprivation in those areas which had suffered most from the trauma of 30 years of conflict, and where we could try to bring some solace and support to the many victims of terror.

That vision has not been realised, but that does not mean that we should not persevere until it is. This Bill could make a marginal but, I believe, positive contribution to the Northern Ireland economy in the long term, and on that basis I support it, but I must say to the Government that if they continue to buy off Sinn Fein threats, either with money or by turning a blind eye to their related activities, no amount of tinkering will do any good. I urge Ministers to back those who are genuinely prepared to work for the good of all our citizens, who want real partnership working in Belfast, and stop rewarding those whose long-term intentions are inconsistent with a strong, peaceful and prosperous future for the people of Northern Ireland within the United Kingdom.

[Lord Forsyth of Drumlean]

My Lords, I hesitate to intervene in a debate on a Bill which is exclusively concerned with Northern Ireland. I do so because I am opposed to the Bill because I do not believe that it is a unionist measure. Indeed, in the Second Reading debate in the other place on 27 January, the Secretary of State, Theresa Villiers, in describing the proposed regime, which is different for small businesses and large businesses, said:

“Larger businesses will need to divide their profits between Northern Ireland and Great Britain, as they do now between the UK and other countries”.—[Official Report, Commons, 27/1/15; col. 744.]

The very fact that she should use phraseology like that goes to the heart of this Bill and to why it is thoroughly undesirable.

I realise that it is perhaps a little rude to be critical of a legislative provision for Northern Ireland on St Patrick’s Day, but on St Andrew’s Day we had the policy of further, not-thought-through devolution to Scotland, on Burns Night, we got the draft clauses which were subsequently amended and which do not work and on St David’s Day, we got votes for 16 year-olds as part of this continuing package of piecemeal dismantling of our constitution and our United Kingdom. All I can say is: thank goodness St George’s Day will be during the election campaign and there will be no opportunity to come along with further measures that relate to England.

Obviously there is great support from people who have a distinguished record of representing Northern Irish interests but I am genuinely puzzled as to what the point of this Bill is. Apart from it being called the Corporation Tax (Northern Ireland) Bill and the Speaker of the House of Commons having certified it as a money Bill, I can think of no reason why it should be a money Bill other than it enables the Government to rush it through Parliament as part of the deal they made for a balanced budget in Northern Ireland and for agreement to welfare reforms which are now being reneged on. Indeed, my noble friend said from the Dispatch Box in introducing this Bill that the Government have no intention of implementing it unless the deal they agreed, which is the reason this Bill is being rushed through the House, is actually met. This is a very shoddy way in which to go about major constitutional reform.

A number of things are being said, such as the Republic of Ireland benefiting because of its lower corporation tax regime. It is true that the corporation tax regime for some revenues is 12.5% but it is 25% for revenue that is not allowed. The reason this Bill takes 87 pages to allow Stormont to set the rate of corporation tax and prevent it from setting or changing any of the allowances is because it adds huge complexity to the tax system. Back in 2005 the then shadow Chancellor asked me to do a tax commission report. We laboured for a year and were charged with having a simpler, flatter, fairer, lower tax system. This is the antithesis of that. There are pages and pages explaining how dredging, films or a whole range of other activities will be affected and how large companies have to decide which of their profits have been earned as a direct result of Northern Ireland. I declare an interest as a director of a bank and an insurance company. Financial services are not allowed to take advantage of this although I think that if you can certify that 70% of the back-office activity is in Northern Ireland it is allowed, but only as a one-off option. What about call centres and things of that kind? The Bill creates huge complexity, which may very well tempt people to go to Scotland where they do not have to have two sets of accounts rather than Northern Ireland. All of this is being done in order to give Stormont the opportunity to set a different corporation tax rate. We assume, if it is about tax competition, that that rate would be set closer to the level of the Republic of Ireland for trading activities at 12.5%. According to the Government the cost of that will be £325 million. My noble friend Lord Shipley talked about distortions in air passenger duty. I think I am right in saying that Stormont already has the power to set air passenger duty but does not because it would cost £50 million to do so. Yet here we have something that could cost—

[Lord Empey]

The air passenger duty issue was designed to enable the link between Belfast International Airport and New York to survive. It has been applied only to that route because it is the only direct route from Northern Ireland to the United States. No attempt has been made to alter domestic air passenger duty.

[Lord Forsyth of Drumlean]

I understand that. I was making the point, perhaps wrongly, that one reason why it has not been done is that it would result in a reduction in the block grant—the point made so eloquently by the noble Baroness, Lady Blood. I think that my noble friend Lord Alderdice earlier referred to the position in Scotland, where the Scottish Parliament allowed its income tax raising powers to desist. They were never used. The reason they were never used was that using them would have resulted in a corresponding reduction in the block grant. It is not terribly electorally smart to tell people that you are going to put their income tax rate up by 3p and, in return, you are going to have the block grant—which is already very generous because of the Barnett formula—reduced by exactly the same amount, so you ask people to pay more tax in order to stay where they are. Exactly the same applies here, unless you believe that a reduction in corporation tax will result in more revenue. I do believe that that is the case, but I would prefer to see this Government, who have made fantastic progress in reducing the rate of corporation tax for the United Kingdom as a whole down to 20p for the next financial year, continue in that way. If we think that there is such a huge problem in tax competition from the Republic of Ireland, the answer to that is to reduce our corporation tax rates nearer those of the Republic of Ireland. But we do not do that because the cost would mean that we would have to make cuts in other public services, such as health and education. Exactly the same applies to Stormont.

--- Later in debate ---

[Lord Empey]

My Lords, I am sorry to have to interrupt this job interview for the best anti-capitalist speaker in the House, but will the noble Lord, Lord Davies, clarify one thing? I am assuming that the Opposition support the Stormont House agreement. That agreement has subsequently been ratted on by one of the parties to the it. It appears to some of us that the reason they are doing that is the hope that, after the election, were there to be a change of Government, the noble Lord’s party would be more readily prepared to put more money into the Stormont House process. Therefore, they are holding out in the hope that that might happen. Will the noble Lord clarify that that is not the Opposition’s position and that the Labour Party stands over the Stormont House agreement as it was dealt with at the end of December?

[Lord Davies of Oldham]

Is the noble Lord seriously asking me to clarify conjecture about why people have acted as they have done in Northern Ireland thus far? The Government have said that this will need to be resolved because the reason for delaying implementation of this measure is to give us time for that to be done. We will obviously take considerable advantage of such time when we come to power.