Corporation Tax (Northern Ireland) Bill

Theresa Villiers 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.

[Ian Paisley (North Antrim) (DUP)]

Has any assessment been carried out about the level at which Northern Ireland should set its new rate of corporation tax, given what the Minister has just alluded to—our competitiveness with the Republic of Ireland, which has a rate of 12.5%? Has any research been carried out by the Treasury on that?

[Mrs Villiers]

The principle of the Bill is that that becomes a matter for the Northern Ireland Assembly and the Executive. It is for them to make the choice and decide whether to go ahead with implementation of a reduced rate. Obviously, there is a great deal of support for bringing down the rate of corporation tax in Northern Ireland to the same level as in the Republic of Ireland. I know that the hon. Gentleman’s party colleague, Minister Foster, would like to see it reduced still further. Those matters are not provided for in the Bill because the Bill vests that choice with the Northern Ireland Executive once commencement has taken place.

As I was saying in response to the intervention, Northern Ireland has a unique position within our United Kingdom. The land border that it shares with a very low corporation tax environment in the Republic of Ireland puts it at a significant competitive disadvantage when competing for inward investment into the island of Ireland. Northern Ireland is also more dependent on the public sector than most other parts of the UK. Estimates vary as to the extent of this dependence, but it is generally accepted that around 30% work in the public sector, compared with about 20% in the rest of the UK. Some surveys put the dependence on the public sector at even higher levels.

Economic prosperity as measured by gross value added per capita is still some 20% below the UK average and has been so for a number of decades. Of course, Northern Ireland faces a range of difficult issues flowing from the legacy of the troubles. All these challenges need to be overcome if Northern Ireland is to compete successfully on the national and global stage for jobs and for investment. None of this is to say that Northern Ireland does not have some amazing entrepreneurs and some hugely successful businesses that are truly world-beating. Under this Government unemployment in Northern Ireland has fallen in every month for the past two years and the record of foreign direct investment is strong, not least because of the efforts of the Northern Ireland Executive.

But for all the great businesses we have in Northern Ireland, the blunt truth is that there are just not enough of them, so the Government are convinced that to boost the private sector and enable Northern Ireland to perform even more strongly in attracting inward investment, we need to go further. We need to provide stronger incentives for Northern Ireland firms to invest in growth. The Bill before the House today will give the Assembly a powerful tool to help them do this, enabling Northern Ireland to take a decisive step forward towards rebalancing its economy.

The Bill provides a further demonstration of this Government’s general commitment to devolution, which we have shown in many ways, including with the Scotland Act 2012. We are making progress on implementing the Smith commission proposals for further powers for Scotland over tax and welfare to be transferred to the Scottish Parliament. Draft legislative clauses were published on 22 January.

[Nigel Mills (Amber Valley) (Con)]

Is my right hon. Friend aware of the data which suggest that almost twice as much will be raised from companies moving from Great Britain to Northern Ireland than from those moving into Northern Ireland from overseas? If that is the case, does she think it fair that Members from Northern Ireland may vote on the UK-wide corporation tax rate as well as their own, when they are effectively competing with our constituents?

[Mrs Villiers]

I emphasise that the new system is designed to deal with artificial avoidance. A number of measures are in place to prevent abuse of the new system; I will come to those in a moment. In relation to voting on taxation matters, my hon. Friend will be aware that ensuring that the devolution settlement is fair to the English as well as to the rest of the United Kingdom is an important matter under consideration by the House and by the political parties. I am sure it will be extremely important that we get the right outcome to ensure that the devolution settlement is fair across the board, but it is also crucial that we have a coherent and unified tax system.

[Naomi Long (Belfast East) (Alliance)]

I take on board the issue raised by the hon. Member for Amber Valley (Nigel Mills). Does the right hon. Lady agree with me, though, that Northern Ireland would want to avoid corporation tax devolution and any subsequent reduction by the Assembly leading merely to brass-plating of companies in Northern Ireland? For us to benefit from the economic out-turn of investment, we need people who are involved in creating employment and raising skills levels as well.

[Mrs Villiers]

As the hon. Lady will hear when I get further into my remarks, the approach in the Bill is to focus on genuine economic activity which generates jobs. We want to minimise the risks of matters such as brass-plating and artificial avoidance schemes, so the Bill maintains the coherence of the corporation tax system as a whole and also provides an incentive to bring genuine economic activity to Northern Ireland and assists in that rebalancing process.

The Wales Act 2014 came into effect on 6 January, providing the legislative framework to support the implementation of recommendations made in the first report of the Silk commission. As my right hon. Friend the Secretary of State for Wales has told the House, he continues to take forward discussions on the next steps for devolution in Wales. The debate continues on the most effective way to ensure that devolution operates in a fair way with regard to England, as one of the component nations of the United Kingdom.

Turning back to Northern Ireland matters, the devolved system for corporation tax rates set out in the Bill reflects the following overarching Government goals: we want to attract genuine economic activity to Northern Ireland, minimise additional administrative costs for business, keep the costs of a reduced rate for the Executive at a proportionate level, and ensure as much consistency as possible between the new NI provisions and the main UK corporation tax regime—and of course we need to comply with legal requirements.

The legislation does not cut off Northern Ireland from the rest of the UK tax system or establish a separate and distinct corporation tax regime for Northern Ireland. Control over what is taxed remains a matter for the UK Government and this House. The Bill devolves only the power to vary the rate, so Northern Ireland’s trading regime remains firmly and clearly within the overall UK corporation tax system. The Bill will insert new part 8B into the Corporation Tax Act 2010 and amend the Capital Allowances Act 2001. These changes would give the Assembly the power to set a rate of corporation tax for certain trading profits, based on a proposal from the Northern Ireland Executive. That would be a decision for Northern Ireland, independent of the UK Government or this House. It will give the Assembly and the Executive a powerful economic lever to drive potential growth and enable it to be exercised on the basis of the wishes of Northern Ireland voters, taxpayers and businesses.

Efforts are made to minimise the scope for artificial tax avoidance, as I said in response to interventions. Existing anti-avoidance measures will continue to apply, including the UK targeted anti-avoidance rules and the general anti-abuse rule, and further protections may be introduced before implementation. The overall structure of the devolved regime has been designed to limit the opportunities for avoidance, as I told the House in response to interventions.

A new Northern Ireland rate would cover trading profits, such as those associated with manufacturing and providing services. Other profits—non-trading profits, such as those associated with property income—that do not generate jobs or economic growth in the same way will continue to be subject to the UK-wide rate. Similarly, activities such as lending, leasing, and reinsurance offer significant scope for profit shifting without the benefits of bringing substantial new jobs, so these, too, will be excluded from the Northern Ireland provisions.

To promote continued success in Northern Ireland in attracting back-office functions, companies with excluded trades and activities may make a one-off election for the back-office functions of those excluded trades or activities to qualify for the Northern Ireland Office regime. This is an example of the UK Government’s responding specifically to areas of activity where Northern Ireland has demonstrated its great strength in attracting inward investment. It will not apply to the oil and gas or long-term insurance sectors, which have their own separate regimes and will not be included in the new devolved arrangements. Allowances and credits remain reserved to Westminster to help to maintain a common tax base across the United Kingdom and to prevent unnecessary new complexity from being added to the tax system.

However, a number of rules will be amended to reflect the new circumstances. For example, if there is a lower rate of tax in Northern Ireland, research and development tax credits, capital allowances and creative reliefs for the film, TV and computer game industries will be adjusted to ensure that they continue to be broadly equivalent in value to those in Great Britain. That means that Northern Ireland can continue to be just as attractive a location for successful projects such as “Game of Thrones” and other film and television productions.

The devolved tax regime will also operate differently for larger and small businesses. Larger businesses will need to divide their profits between Northern Ireland and Great Britain, as they do now between the UK and other countries. This effectively means that they will treat their Northern Ireland trading activity as a separate business from their activity in the rest of the UK and allocate the appropriate amount of profit to Northern Ireland. We recognise, however, that this would be burdensome for smaller businesses. Indeed, the issue of potential administrative burdens on small business was one of the key concerns brought out by the 2011 consultation, and the matter was raised by Northern Ireland Executive Ministers on a number of occasions at the ministerial working group. Therefore, if at least 75% of such a business’s staff time and staff costs relate to work in Northern Ireland, then all their trading profits will be chargeable at the Northern Ireland rate. If not, they will be chargeable at the UK corporation tax main rate. This simple in/out test will mean that the majority of small and medium-sized enterprises are spared the burden and cost of apportioning profits.

As I made clear in my previous statement to the House, the Bill’s progress through Parliament is dependent on the Executive parties delivering on their commitments in the Stormont House agreement. Those include agreeing and delivering a 2015-16 budget that works, legislating for changes to the welfare system, and taking the steps required to put the Executive’s finances on a stable footing for the long term. I warmly welcome the progress that is under way on those three crucially important matters, with, for example, the recent agreement on a budget for 2015-16. Given the practicalities of implementation, the earliest point at which reduced rates could come into effect is April 2017. The Bill contains a commencement clause meaning that these devolved powers will be switched on for the planned start date in 2017 only if the Executive can demonstrate that they have succeeded in the third goal of achieving sustainable public finances. This is in line with the approach used for other tax devolution measures in other parts of the UK.

The Government have been very clear that devolving corporation tax rates is not an end in itself. Certainly, on its own, it is clearly not the answer to all the economic challenges facing Northern Ireland. If the full potential benefit of corporation tax devolution is to be realised, a number of areas of economic reform need to be addressed, such as planning, skills and infrastructure. However, given the land border that Northern Ireland shares with a lower-tax jurisdiction, it is difficult to think of any one policy which, on its own, may potentially have such a transformational impact on the Northern Ireland economy—

[Ms Margaret Ritchie (South Down) (SDLP)]

rose—

[Mrs Villiers]

And, I believe, on the hon. Lady’s constituency.

[Ms Ritchie]

Does the Secretary of State agree that, as regards potential visits and potential locations for foreign direct investment, there is a need to address the historical legacy of under-investment and regional imbalance if the issue of corporation tax is to have any meaningful benefit in pump-priming the local economy?

[Mrs Villiers]

I know that the Northern Ireland Executive are committed to doing all they can to ensure that the effects of boosting the private sector and enhancing prosperity are felt throughout Northern Ireland. All Administrations grapple with the difficult problem of how to ensure that economic prosperity is appropriately spread. I believe that corporation tax devolution—coupled with a focus on other areas of economic reform such as skills, planning reform and investment in infrastructure—is a crucial way to enhance the private sector and boost prosperity throughout Northern Ireland. I am sure that the hon. Lady will be aware of some of the many difficulties that have been experienced in border areas over the years. People living in border areas stand to benefit as much as everyone else in Northern Ireland from a potentially significant and welcome impact in achieving the rebalancing of the Northern Ireland economy that we all want to see.

Members of the business community have told me on very many occasions that they are convinced that this is the right measure for Northern Ireland. They believe that it will boost the indigenous private sector, both large and small, as well as attract foreign direct investment, and will provide an effective means of rebalancing an economy which for decades has been over-dependent on the public sector. They have therefore strongly welcomed the Government’s introduction of this Bill. I am very grateful for the support for this measure shown within the Northern Ireland business community.

The Government will use our very best endeavours to get the Bill on to the statute book before the Dissolution of Parliament. This legislation has strong support in Northern Ireland. Moreover, the whole of the UK will benefit if corporation tax devolution can help to drive economic growth and rebalancing, and help to deliver a prosperous and stable Northern Ireland.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The Secretary of State alludes to the need to get the legislation on to the statute book, and I hope that progress is now being made towards that. Does she agree that beyond that stage, the next Government, and the next Prime Minister and Secretary of State, will have a central role in helping the Northern Ireland Executive in terms of overseas trips and inward investment to ensure that maximum advantage is taken of the opportunity to get the most benefit out of corporation tax reduction?

[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 ---

[Mrs Villiers]

I seem to remember that when I reported to the House on the Stormont House agreement just a few weeks ago, the shadow Secretary of State was distinctly lukewarm in his approach to corporation tax change, and called for more consultation despite the fact that we had a very extensive consultation back in 2011. If he is now an enthusiast for corporation tax devolution, I welcome that and thank him for coming on board for a project which, of course, the Conservatives have been championing for many years. It is great that Labour has seen the light at last.

In closing, I want to pay the fullest possible tribute to my right hon. Friend the Member for North Shropshire, who picked this issue up off the floor where it had been left by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), championed it, and put it firmly back on the political agenda here in Westminster and in Northern Ireland. It is in no small part due to his determined and dogged support that this ground-breaking Bill for Northern Ireland is before the House today.

Taking the Bill through Parliament shows that the UK Government are delivering on the commitments the Conservative party made to Northern Ireland at the last general election, and it demonstrates real progress on implementing our side of the Stormont House agreement. The agreement addresses issues that threatened the credibility, the stability and even the continued existence of devolution, and if it is fully and faithfully implemented, it will help us to build a Northern Ireland where politics works, the economy grows and society is stronger and more united. The agreement enables Northern Ireland to take a further step along the road towards a more stable, prosperous and confident future, and I warmly commend the Bill to the House.

--- Later in debate ---

[Sammy Wilson]

If the hon. Lady is not feeling sore from some of my remarks, she is more brazen than I thought she was—[Laughter.] As she has not yet heard the rest of my speech, she does not know what I am going to say or the balanced arguments that I am going to make about corporation tax.

Everyone who has spoken so far has suggested that there is widespread support for the Bill in Northern Ireland. That is, of course, not true. The Green party opposes it, but then that party opposes economic growth apparently, according to its latest manifesto. I can understand, therefore, why it would not want to see any measures that would encourage economic growth in Northern Ireland. I do not know how the Green party expects us to tackle our unemployment or standard of living problems with no economic growth, but in any event it opposes the Bill.

The other opponents of the Bill are the trade unions, which are organising a one-day strike against it and other measures some time in March. At the same time as they complain about youth unemployment and the low-wage economy, they oppose a measure that has the potential to address all of those issues and want to strike against it. I do not understand their logic.

The only other party that opposes the measure is the traditional Unionist voice, but I think that is because we support it. That seems to be the rationale for anything it does.

All parties in this House are agreed that tax incentives can be beneficial in stimulating business growth. Some may disagree about the actual form the tax incentive should take or the degree to which it should be used, but there is an undeniable correlation between such incentives—be they small business rates relief, corporation tax reductions or oil industry taxes—and growth. Shareholders are attracted to putting money into businesses, which in turn have more profits to plough back into investment. Tax incentives can also give businesses a competitive edge over those in other countries. That is the rationale behind the Bill and no one can deny that it will have an effect.

In Northern Ireland there is an additional reason to make the change in that we share a land boundary with a country that has had a lower corporation tax rate. Some people say that this will not have a beneficial effect, but it is significant that, even when the Government of the Irish Republic were having to slash public expenditure and incur the wrath of the population by reducing wages in the public sector, putting up taxes, introducing new charges for water and so on, the one area for which they were fiscally responsible and did not make any changes was corporation tax. They had obviously judged that when it came to fighting for business, corporation tax—albeit along with other measures—was a shock and awe tactic they could use to try to attract businesses to the Irish Republic. That is a significant argument.

I have a degree of scepticism about economic modelling. As I am sure the Financial Secretary would tell us, we can put whatever finely tuned assumptions we want into economic models, but they can be upset fairly quickly. In the next 15 years, it is estimated that output in the Northern Ireland economy will grow by 11%, creating about 37,500 jobs. Any economic model must come with a warning that the assumptions on which it is based can change fairly rapidly. However, the estimate has been made using the economic data we have at present: assumptions, past trends, information from other economies and so on. In Northern Ireland, we cannot afford to ignore that estimate, even if it is not totally correct, especially if it will grow the private sector and bring in well-paid, above-average jobs.

We had concerns about a number of issues. We did not want a Bill for people who simply moved their profits to Northern Ireland and did not create jobs. There is no benefit to us in having companies with just a brass plate outside the door, but no substance. I believe the Bill addresses that issue, as much as it can, by indicating that it will benefit trading profits only. In addition, there will be strict investigation by the Treasury of companies who try to move profits. As I understand it, there will be a charge for ensuring that compliance measures are put in place to avoid such scenarios.

If we do that, what about small businesses? Many small businesses, especially in the construction industry, have a substantial amount of work in Great Britain because of the decline in the construction industry. We did not want small businesses to have huge administrative costs imposed on them for differentiating where they made their profits. I welcome the proposal in the Bill that businesses based in Northern Ireland with 75% of their activity and employment there, will be exempt on all their profits. That should cover 99% of small businesses in Northern Ireland so there should not be administrative costs for small businesses.

Oil and gas is excluded from the legislation. I hope that very shortly, despite the endeavours of the Social and Democratic and Labour party Environment Minister, we will have a substantial oil and gas industry that can exploit the shale gas resources that we believe are buried under the ground in Northern Ireland. There may be some who play the populist line and say, “Let’s just keep those resources there. After all, they’re nasty CO₂-producing fossil fuels.” I want them to be exploited for the benefit of the people of Northern Ireland and the United Kingdom. The profits from those companies would not currently be subject to the corporation tax arrangement, but I hope that if and when we develop such an industry, Northern Ireland will benefit from the kinds of promises that have been made to the north-east of England, including a sovereign wealth fund to take in part of the profits from those businesses and plough them back into public expenditure projects. I understand, however, why that has not been included at present.

On financial sector profits, there were two issues. I was not all that supportive of the argument about why those nasty banks, who nearly destroyed our economy, should benefit from reductions in corporation tax, paid for by reductions in the block grant. I understand the emotional rhetoric in that argument, but I am more concerned that the profits of banks and other financial institutions are much more volatile and more easily moved without detection than the profits of manufacturing or other companies. One has only to look at the difference between 2007-08 and 2008-09, when banks’ profits changed from £255 million to £45 million. That kind of volatility in tax revenue was a compelling reason why we should not include the profits of financial institutions in the Bill. I am glad that the Government have responded to that.

[Mrs Villiers]

I very much welcome the hon. Gentleman’s remarks. It is important to bear in mind that certain activities relating to banks and financial services can fall within the scope of a new Northern Ireland rate, in no small part because of the election provisions in relation to back-office functions. For example, the kind of work that is currently done in Northern Ireland by Citigroup could fall within a new reduced Northern Ireland rate.

[Sammy Wilson]

That was exactly the point I was going to make. Having said that there are exceptions to this, the exemptions are important because one of the fastest-growing sectors in the higher wage end of the Northern Ireland economy has been those back-office financial services jobs. We would not want to lose the ability to attract them. There is provision in the Bill to allow for that. Whether they are brought as separate or spur companies to the main company, they will nevertheless be subject to the new regime.

There are some dangers. One danger we have heard about time and again—it was alluded to by the shadow Secretary of State—is the potential loss of public sector expenditure. Under the Azores ruling, we will have to pay for whatever the forgone revenue happens to be. That will depend on the rate we eventually set. At maximum, it could be about 3% of the current revenue budget available to Northern Ireland. In the current circumstances, to try to find that immediately would be very difficult, which is one reason why the decision to introduce this will not be implemented until at least 2016-17. That will give the Executive time to plan.

We must remember, however, that the reduction in the block grant and money available for public expenditure in Northern Ireland will be offset by the expansion in other parts of the economy. Yes, that is a gamble, but can we politicians in Northern Ireland sit on our hands and do nothing, knowing that public expenditure is going to tighten, regardless of whether there is a Labour or Conservative Administration, given how heavily reliant we are on public expenditure? That would be wrong. The shadow spokesman wants to know the reason for my alleged conversion. This is one of the issues to weigh in the balance. Can we just drift along, knowing that regardless of which party is in government at Westminster the public sector is going to contract, and make no provision for expanding the private sector?

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[Mark Durkan (Foyle) (SDLP)]

I join fellow Northern Ireland Members in acknowledging not just the enthusiastic contribution from the right hon. Member for North Shropshire (Mr Paterson), but his long-standing role on this issue. I know that when he was Opposition spokesperson on Northern Ireland, he took a deep interest in the issues facing the community in different parts of the country, and he was particularly interested in helping those who were trying to develop the economy. I recognise that he had a particular sympathy with the case that was being made, but giving Northern Ireland the capacity to differentiate itself in respect of corporation tax was not getting much of a hearing from the then Government.

I recall chairing the Enterprise, Trade and Investment Committee in the Assembly during some of those years, and in that capacity I had meetings with David Varney, who had been asked to produce a report by the British Government. It was quite clear from my conversations with David Varney and when we collectively as an all-party Committee met him that he was picking up different sentiments from across the political parties, and certainly from the permanent Government. A particularly sceptical attitude was notable on the part of certain quarters in the civil service, who may or may not have been speaking for their Ministers. The strong suggestion was made that the case noisily being put collectively by the Northern Ireland parties via the business groups—I recall the late Sir George Quigley doing great work on this—was not being matched by what was being said in private. That is what the Government were saying.

That might have reflected some trepidation about the possible impacts of the change or the price that would have to be paid for making it, but it was always the case that a price would have to be paid when it came to corporation tax. I remember when the Business Alliance had its first meeting about corporation tax. I recently heard that that ball was thrown in by Peter Robinson when he was Finance Minister. This was back in late 2002, after the Assembly had been suspended, and it went into 2003. Some of us said then that the issue would come down to whether we were prepared not just to seek the devolution of corporation tax, but to pay the price for such devolution, and that we needed to prepare for that conversation. At that stage, some of the parties said no, as they did not think that was needed, so the issue was ducked.

To be honest, I do not think we shaped up enough to make the case as well as we might have done. That was not the first time that the issue of capacity in relation to corporation tax was raised because it came up in the negotiations leading to the Good Friday agreement. Some of us said that we wanted to build in capacity for fiscal discretion, particularly in relation to corporation tax and some other taxes that had an economic impact. That was certainly the SDLP’s position.

The right hon. Member for Torfaen (Paul Murphy) was chairing the detailed negotiations on strand 1, and that is often forgotten, when everybody else claims all sorts of credit for the peace process. He honestly reflected that he was under strictures from the Treasury not to encourage too much discussion on the issue, but he nevertheless facilitated and allowed it. It just so happened that there were not too many takers among the Northern Ireland parties for it at that time. Perhaps people did not believe that we would get an agreement at that stage. There were certainly not many takers. With the exception of the SDLP, which put forward arguments about corporation tax and other matters, and the Alliance party, which favoured the Scottish-style proposal of 3% on income tax, there were no other takers for according fiscal discretion to the Assembly. The argument and the case were made, but for whatever political reasons, people did not embrace them.

So the argument was put back on the table by the Business Alliance between late 2002 and early 2003, but it particularly came back into play with the restoration of devolution in 2007. To be honest, the question arises as to why more of a case for it was not made when the terms for restoring devolution were discussed. Some of us raised the issue again during all those negotiations in 2005, 2006 and 2007, but there were no takers or backers for it. Perhaps people needed the confidence of seeing a more settled phase of devolution before they could fully turn their minds to the issue.

Perhaps if we had achieved the devolution of corporation tax much earlier, we would have been much further down the road when it came to all the benefits it can offer. We are told that all this opportunity and prosperity can come on the back of this corporation tax differential, so would it not have been much better if we had done this years ago—at a time when we had a much healthier budget management situation for the devolved Executive?

[Mrs Villiers]

Given that the hon. Gentleman’s party holds the environment portfolio in the Executive, does he agree that one way to get the full benefit of corporation tax devolution is by making Northern Ireland more competitive by reforming the planning system? It would be good to see back on the agenda in the Assembly the amendments that were debated on the reform of judicial review and planning, because it seems that the system is getting in the way of some important and worthwhile infrastructure projects in Northern Ireland.

[Mark Durkan]

I think that is a very unfair criticism of previous Ministers of the Environment who presided over that very system for many years and who are here. Yes, we hold that portfolio at the moment and, yes, we have made significant moves and improvements. What we did not agree with was the attempt to abandon planning criteria on the basis of the say-so of the First Minister and the deputy First Minister by designating a particular area. We thought that would lead to controversy, and the resistance to it came not only from the SDLP Minister but from many stakeholders, including many economic representatives, who were very sceptical about this strange approach. There are straighter and better ways of improving the planning system in Northern Ireland and of making it more efficient and more effective.

Many people have raised the issue of Northern Ireland’s competitive position compared with the south of Ireland. We need to remember that the sort of factors at play in the south of Ireland’s very successful drive for inward investment and its successful growing of its indigenous companies to become increasingly global players—to be acquired and, indeed, to conduct acquisitions themselves—go beyond just the corporation tax regime. They include the very significant long-term investment in further and higher education—not just at university level, but at the level of the institutes of technology. Many people are going to graduate from the technical universities as well, and this has happened alongside heavy investment in infrastructure and a very responsive and better managed planning system to deal with the needs of companies. The planning system in the south might have been long and delayed for some infrastructure projects, but when it comes to industrial projects, it has moved with a fleet of foot, and Northern Ireland does not compare well with that.

Like others, I believe that corporation tax on its own is not a silver bullet, a magic bullet or any other type of bullet. We in Northern Ireland are not meant to like bullets nowadays, but we sometimes find ourselves talking about them in contexts such as this. The fact is that we need to consider other policy measures as well. The Executive will be put under some strain by the budget scenario that they will face over the next few years when it comes to the other drivers that will be needed to maximise the benefits of corporation tax in a way that would compare favourably with the success of the south.

Mine is a border constituency. The Foyle constituency contains the city of Derry, or Londonderry as some Members would be quicker to call it, and many people in the constituency work in businesses across the border. The right hon. Member for North Shropshire referred to investments in Letterkenny. Many of my constituents work there, and there is strong cross-border co-operation. Something that is good in Letterkenny is good for Derry, and something good in Derry is good for Letterkenny.

There are firms that are paying 12.5% in corporation tax, but that does not mean that we have full employment in Derry. Some Derry firms are in nearby Donegal, and firms there that are Derry-based and originated in Derry employ many Derry people. A peripheral border region will face other infrastructure challenges, and the corporation rate on its own will not deliver high employment.

We must ensure that the Bill does not create unnecessary complications or confusions for the firms that would benefit from it, or create reputational problems for the region and its governance. The Chairman of the Select Committee, the hon. Member for Tewkesbury (Mr Robertson), wanted to know whether some clauses would be taken on the Floor of the House during the Committee stage or whether the entire Bill would be dealt with upstairs, but, in any event, we shall need to go through all the detail. I agree with the hon. Member for Bury South (Mr Lewis) that the Bill requires the fullest and best possible scrutiny, so that we do not find ourselves surprised or confused by what may emerge later, whether it is the behaviour of businesses or the response from the Treasury or Her Majesty’s Revenue and Customs. We may be confronted by patterns and practices that we did not anticipate, or that we assumed would be dealt with by measures in the Bill.

The Bill introduces not just the capacity to devolve corporation tax in the sense of allowing the Assembly to set a different headline rate, but a whole calculus in relation to the effects on the block grant. There is what could almost be called a new ecosystem of company definitions: for instance, the Bill defines Northern Ireland regional establishments, Northern Ireland small and medium-sized enterprises, and Northern Ireland rate activity. All that will clearly provide a field day for the accountants and others who will have to work their way through it and take companies through it, but we, as legislators, will have to be careful when dealing with those terms. We shall need to understand how they will operate in practice, and how they will be interpreted. We shall need to know how the relevant profits will be measured, not least the relevant intellectual property profits.

The Bill states that the Government—the Westminster Government—will retain full control of allowances and credits, and I can see the case for avoiding an arrangement whereby the regional Government would be responsible for both the headline rate and for allowances. The devolved Government might well be susceptible to particular pressures from particular sectors for specialised allowances. That could create more difficulties and confusion, and it could also create a risk of some regional disrepute. There is, rightly, an increasingly worldwide movement in favour of more transparency in respect of tax matters and the conduct of taxation. We in Northern Ireland are not in the business of trying to create twilight zones in relation to tax adherence, and we recognise the need for a proper balance.

Today a Tax Dodging Bill campaign is being launched by a very active alliance that includes Action Aid, Christian Aid and Oxfam. The aim is to broaden efforts to create greater transparency in respect of corporate taxation, to establish new standards, and to bring about the introduction of a Bill in the next Parliament. I support the campaign, and was involved in many of the preliminaries. I must make it clear that there is no tension or contradiction between supporting the principles of that campaign and supporting Northern Ireland’s capacity to set its own differential rate of corporation tax.

Other Members have talked of the need to balance the economy, Growing our indigenous private sector while also attracting more inward investment and investment from industries that can partner our local companies is hugely important, and the corporation tax measures can open some windows for us in that regard. However, it is not just a question of rebalancing the economy; we must rebalance the region. The west of Northern Ireland—not least my own constituency—is clearly lagging behind in terms of both infrastructure and employment. We must ensure that, we well as the corporation tax rate, we have other instruments that have been properly developed. We need infrastructure investment to underpin shared growth across the region, and we also need significant advances into tertiary education.

People refer to corporation tax as a game-changer, but most people and businesses in my constituency are clear about the fact that the single biggest game-changer for us would be an expansion in higher education. That is not just needed to enhance the university status of the city of Derry; it is needed in Northern Ireland, which is, in effect, exporting a university campus every year. Given what is happening in the south of Ireland, the north will lose out very badly if it decides that corporation tax is the only thing on which it wishes to compete with the south. We are not competing with the south, or indeed this country, on further and higher education.

However, we also need to recognise this is not just about competing with the south. There has been almost an obsession with Northern Ireland’s competition with the south in relation to corporation tax. We need to recognise that the game is changing when it comes to competition in cities and city regions. Important things are happening on this island. For instance, enterprise zones have developed and taken on a different life. As we have heard from the Opposition, it is not a question of “Life on Mars”, or a return to the 1980s. Enterprise zones have had different effects in different areas, and some have been more vibrant than others. More and more Opposition Members want them in their constituencies, along with city deals and growth deals.

Cities and other locations in Northern Ireland are not just competing in economic terms with parts of the south, but with places on this island as well. Alongside the latitude on corporation tax, I should like the Executive to pursue the idea of creating their own version of city deals, and recruiting support from the Treasury and any other support that is needed from Whitehall. That is what happened in Scotland in connection with the city deal for Glasgow. Therefore we could, and should, be developing more tools, rather than leaving everything to corporation tax alone.

The hon. Member for East Antrim (Sammy Wilson) and others raised issues to do with the financial sector, and I think it is right that there are limitations and qualifications there. People would have been very sceptical if a corporation tax measure for Northern Ireland had meant that the banks were freely able to move their brass plates or some of their offices purely to avail themselves of lower corporation tax. I do not think people in Northern Ireland would want that, and certainly people elsewhere would not want it. Would it happen? Well, we suddenly saw at one point during the Scottish referendum campaign that banks were saying they might move, depending on the result. That would have been the first bank run in history in which the banks were going to move yet the money was going to stay, but that was what was being talked about, so there is reason to believe that might happen.

We will have to tease out in Committee or at another time some of the questions around the financial sector and other sectors in terms of the interpretations and implications of what does or does not count as a back office. Similarly, questions have been raised around what we have been told about the calibration that will be done in relation to allowances and credits, so that, for instance, the film industry and other creative industries may be told that there will be a clawback of some of their other allowances and credits if they are in Northern Ireland, to take account of the benefit they are getting in terms of corporation tax. We need to tease out whether people actually have to have those benefits and receive them before the clawback will take place, or whether they will be told that on paper they could benefit from that as they are in a different corporation tax environment and that therefore they are in a different environment as far as the allowances and credits are concerned. So the question of when some of these things are triggered or kick in is important.

There are similar issues in relation to the impact on the block grant. If we are going to start with assumptions being made as to the opportunity cost in revenue terms of the lower rate of corporation tax for Northern Ireland, this issue arises: once we know what it actually is, will adjustments be made year on year to the block grant, so that if less is forgone in one year than was anticipated, that will be made up in next year’s block grant? Similarly, will more come out of the block grant if there is deemed to have been more uptake in relation to the corporation tax differential? We need to tease out more detail.

The credit union movement is very dear to many people in my constituency. The credit unions are strong in my constituency. They pay corporation tax and they would like to think that they will not be counted as benefiting from the lower rate, because they are rooted in the community and exist totally for, and are dedicated to, the community, so they will not be salting away profits in an egregious way. They will not be abusing the system, and they want assurances that they can be protected and that they will not be treated in the same way as the banks in terms of the protection against any possible undue benefits going to the financial sector.

On procedure, the hon. Member for Tewkesbury (Mr Robertson) has made the point that he would like this Bill to be taken on the Floor of the House. I believe it could be, and certainly significant clauses could be taken on the Floor of the House, so that if and when issues arise in a few years’ time, none of us has the excuse of saying that we did not know and we were not in on that. I am not afraid of the questions that arise from the Scottish position, the Welsh position or anything else, so I do not agree with those who say we should just take this away in secret Upstairs, and that we cannot afford to answer any questions that might arise. I think we can address those questions.

It is my belief that, as this plays out, Northern Ireland will end up with lower rates of corporation tax but probably not for long, because I think a deal will be done in future that sees corporation tax devolved in some form or other to Scotland, and I think that on the back of that there will be strong pressure to say that the corporation tax rate in England must come down further. The Government who have produced this Bill are a Government who have reduced corporation tax throughout this Parliament, as the Secretary of State said in her opening remarks, and I cannot believe that they will not be committed to trying to reduce corporation tax if they are in government in any future Parliament—and of course they would use the lower rate of corporation tax in Northern Ireland and Scotland to drive that measure and catch the Opposition in the same way as they think they caught the Opposition today.