Corporation Tax (Northern Ireland) Bill

Lord McAvoy Excerpts

Tuesday 17th March 2015 Lords Chamber

[Lord McAvoy (Lab)]

My Lords, the Labour Opposition welcome and support the Bill and will do everything we can to facilitate its passage. However, that does not mean that we are not looking for further answers to questions that were asked in the House of Commons.

The Minister mentioned action to prevent “brass-plating”, as it has become known. We would like a bit more detail on how that would be stopped. She mentioned rebalancing the Northern Ireland economy. Concerns were expressed in the other place by the honourable Margaret Ritchie about regional imbalance within Northern Ireland, so that issue needs to be addressed.

Before I go any further, I should indicate again that we fully support the Government in looking to the parties in the Northern Ireland Assembly to implement the Stormont agreement. That is part of the deal, and we support the Government in insisting that the Stormont House agreement be implemented.

Some concerns remain that we would like to probe a little further. When government Ministers were asked about the effect of the devolution of corporation tax on the block grant, there was no real response to that. I merely repeat the question that was asked in another place: why were no models done? For example, if corporation tax was set at level X, what would be the effect on the block grant? I do not think that is too demanding a question to ask. Models should have been drawn up so that folk could have a better grasp of what will transpire in this area.

I share the sober assessment that this measure will not solve Northern Ireland’s economic problems or provide the necessary rebalancing of its economy. However, it should be implemented to try to rebalance the economy, as the Minister mentioned.

I want to spend a few minutes on the trade-off between a reduction in corporation tax and spending cuts. The impact of this legislation will need careful managing to ensure that it does not benefit only already wealthy people at the top and does not further perpetuate existing income inequality in Northern Ireland. This should not become a rich man’s Bill.

The importance of funding education in Northern Ireland cannot be overstated. Without adequate investment in education and apprenticeships, jobs and productivity will never increase. If Northern Ireland reduces its corporation tax rate to that of the Republic of Ireland, it will lose at least £300 million from its block grant. That figure was given by the government Minister in the other place. I believe in devolution and giving the Stormont Assembly responsibility for running its affairs, but that agreement should contain safeguards to make sure that there is no dramatic effect on the services that have been mentioned. The devolution of corporation tax—

[Lord Forsyth of Drumlean]

How can the noble Lord say that he supports the Bill and at the same time say that there should be no dramatic effect, when the effect of the Bill will be to reduce the amount of tax paid by profitable businesses if corporation tax was equalised, as he said, by between £300 million and £350 million, which would be money not available for spending on public services? So the necessity is that there will be less money for public services and more money in the pockets of profitable businesses.

[Lord McAvoy]

There is a bit of role reversal going on here. It is me who is supposed to attack the capitalists, not the noble Lord or the Minister. I am starting to feel a bit dizzy.

That is the balance that it is hoped to be reached. The noble Lord shakes his head. I would say to him, “O ye of little faith”. There will be a vested interest for Stormont Ministers to make sure that they balance extra corporation tax against a reduction in the block grant. I fully agree that one has to be very careful here so that this does not result in less money for services but we have been assured that there will be no dramatic impact, and I am always willing to listen to government Ministers. The noble Lord, Lord Newby, is looking a bit puzzled. I hope that he will comment on that point.

Has there been any study or consideration—perhaps the noble Lord, Lord Forsyth of Drumlean, is right—of how the volatility of corporation tax might impact on Northern Ireland’s economy? That is a valid concern. While devolution is devolution, we are devolving the power and are therefore looking for some kind of guarantee in this matter. We hope that its devolution goes ahead in 2017, but a potential stumbling block is that Northern Ireland’s finances must be on a stable footing. It concerns us that we do not know the precise fiscal conditionality required before the Government devolve this power. Can they make any estimate of the resulting decrease in the block grant? There are various calculations, but I would like the Treasury people to have looked at that.

I repeat, in case of doubt, that we support the Bill. In the other place, highly contentious remarks were made to the effect that Labour had done a U-turn because it had previously attacked the devolution of corporation tax. That is quite untrue. We have expressed legitimate concerns, but if anyone wishes to pursue that point, perhaps they could turn to the minutes of the Public Bill Committee, where Nic Dakin asked the Secretary of State for Northern Ireland whether she had seen comment by the Institute for Fiscal Studies that,

“Corporation tax is not a good candidate for devolution”?

The Secretary of State replied that there were risks. The Labour Opposition are not using scare tactics but asking legitimate questions. This process is not the be-all and end-all but could and should be a helpful tool for Northern Ireland.

Briefly on the background to all this, Laurence Robertson, chair of the Northern Ireland Select Committee in the other place, indicated that when the committee was in the United States of America recently it watched violent scenes on the streets of Belfast and Northern Ireland, involving fires and smoke-bombs. That is the biggest turn-off when trying to attract industry into Northern Ireland. There is a two-way street here: devolution is coming from this place, after consideration, but there also has to be a payback, if you like, by people trying to work together—hard as that may be because the past is always there. The damage being done by those scenes is quite substantial.

We hope that this is a contribution to further periods of peace and stability in Northern Ireland. Going back in history, I think that great credit is due to Sir John Major for initiating this process and to Tony Blair and his team for pursuing it. It is to be hoped that the devolution of corporation tax will be a further measure along the road to peace and stability in Northern Ireland.

--- Later in debate ---

[Lord Forsyth of Drumlean]

I think that the argument about the land border is overemphasised. I happen to know that people fly from Scotland to Dublin to go on international flights because the flights from Dublin are priced by the airlines at a very much lower rate. That has nothing whatever to do with air passenger duty or taxation and everything to do with the view of the commercial airlines of what the market will bear for their fares. It is a very simple thing to hop on an aeroplane—there are about six or seven a day out of Edinburgh and as many out of Glasgow—to go to Dublin and then to fly to wherever you want to go, to Hong Kong or the United States or wherever. So I do not think that that argument holds water; but perhaps that is a mixed metaphor, because my noble friend is arguing that it is about a land border.

I am totally opposed to giving air passenger duty powers to the Scottish Parliament because it will have a catastrophic effect on Newcastle and the rest of the north of England. Already the amount that we pay in taxes is very considerable. I am arguing that as a United Kingdom we should have a unitary tax system and that this tinkering is absolutely inimical to maintaining a United Kingdom. If as a United Kingdom we believe that reducing corporation tax will result in more revenue and business development, that should be the policy for the United Kingdom.

The noble Lord, Lord McAvoy, chided me for attacking capitalism when it was his job. I was merely pointing out to him the inconsistency of his position. If he supports this Bill and argues that he is in favour of these reductions in corporation tax to help business expand and grow, he cannot at the same time satisfy the noble Baroness, Lady Blood, in her concern about the impact—even if you believe, as I believe, that cutting the top rate of tax from 50% to 45% has resulted in revenues going up by £8.5 billion. I believe that tax cuts can have a dynamic effect. Similarly, when the Liberal Democrats insisted on putting up capital gains tax from 18% to 29%, what happened? The revenue went down by several billion pounds. My noble friend nods; I apologise for not being very positive. However, even if you believe that that is not the case, there is a time lag, and in between times you do not have the money and you have to take that money away from public services. The noble Baroness made that point. I do not think that will be particularly popular and it seems a very strange approach to a situation where people cannot agree on balancing the budget and on meeting their obligations as it is. So I think this Bill is a deal and a piece of constitutional tinkering which is misguided in its approach.

As a Scot, I am worried because I have not heard a single argument here today, other than there is a land border, which will enable me to fend off the devo-max brigade in Scotland and the nationalists who are now running rampant in the polls. The latest poll has them on 55%. That has all been caused by raising expectations and confusing two things—that is, confusing more powers with more money. Everyone in this Chamber knows that having more powers will actually mean less money, but it is being sold to the voters—I suspect that it may well have been sold in this way in Northern Ireland—that if their parliament has more powers, they will have better education and health services and better everything else. However, that is a fantasy. When people wake up to the fact that this is a misguided fantasy, they will blame London and our United Kingdom will be fractured. Therefore, I am very disappointed by this Bill.

However, I agree with my noble friends Lord Alderdice and Lord Trimble on the importance of stimulating the private sector. Scotland also has too large a public sector and we need to encourage business, but corporation tax is paid only by profitable businesses and businesses which are generating capital for investment. However, lots of businesses are struggling. If you want to encourage businesses and cut taxes—that is a priority—why not deal with business rates and levels of national insurance, as I hope my right honourable friend the Chancellor will tomorrow? Corporation tax is a very odd choice indeed.

For all that is said about the success of the tiger economy in the Republic of Ireland, corporation tax receipts went up so dramatically in the Republic when the rates were low because lots of businesses operating in the United Kingdom repatriated their profits to the Republic. According to leaks that have emerged before the Budget, the Chancellor says that he will take action against the Amazons and others who organise their affairs so that they pay tax in low corporation tax countries. The Government seem to be trying to have it both ways.

By the way, no one has mentioned the impact of all this on the Barnett formula. The Labour leader in Scotland is saying that if people vote nationalist, they will lose Barnett. If you continue to devolve more and more tax-raising powers to the constituent parts of the United Kingdom, by definition you will erode and lose Barnett. As was pointed out in the earlier part of the debate, we also have to think about why there is such a disparity in grant to the constituent parts of the United Kingdom. Therefore, as we go down this road, we must move towards a more needs-based system of funding which again will put pressure on Northern Ireland and the public services. So I am with the noble Lord, Lord McAvoy, in arguing that we need a constitutional convention and we need to look at these things as a whole and not on a bit-by-bit basis. Does the noble Lord wish to intervene?

[Lord McAvoy]

Very briefly. The noble Lord has made an excellent case. If he cares to cross the Floor, we will always find room for him.

[Lord Forsyth of Drumlean]

I suggest to the noble Lord that the Labour Party in Scotland is in enough trouble without me adding to its difficulties.