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Corporation Tax

Volume 515: debated on Wednesday 15 September 2010

4. What progress he has made in discussions with the Northern Ireland Executive and the Chancellor of the Exchequer on changes to corporation tax in Northern Ireland. (14505)

My hon. Friend the Minister of State, the Exchequer Secretary and I met Executive Ministers last month to discuss corporation tax and how the Northern Ireland economy could be rebalanced. We are working closely with them in the preparation of a Treasury paper and shall consult on this later in the year.

I thank my right hon. Friend the Secretary of State for that answer. Does he agree that the problem with the Northern Irish economy is that the private sector is too small, and that reducing corporation tax rates will help boost the private sector and rebalance the economy?

I entirely agree with my hon. Friend. Let me give one figure: 77.6% of Northern Ireland’s GDP is dependent on public spending. That is clearly wholly unsustainable, and our proposal is to rebalance the Northern Ireland economy—which I estimate will take at least 25 years—by a number of measures that could include the devolution of corporation tax rates, thereby allowing the local Executive to reduce them.

In the Secretary of State’s consideration and representations on these matters, will he take particular account of the circumstances of border areas? Is he prepared to receive proposals on cross-border economic zones and their tax treatment, not least in the north-west, so that we can win investment and employment on the back of the cross-border Project Kelvin?

I am open to any ideas that will help to revive the private sector in Northern Ireland, which we all agree is too small. If the hon. Gentleman would like to make suggestions, my door will always be open. However, he should remember that a lot of this is devolved, with the decisions in the hands of his colleagues in the Assembly, and that this is a team game.

I thank the right hon. Gentleman and the Minister for their kind words. It has been a huge privilege for my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) and I to serve the people of Northern Ireland. Whatever my future, which is in the hands of my hon. Friends, the right hon. Gentleman can be sure that we will continue our bipartisan support for his policy.

During the general election, the right hon. Member for Witney (Mr Cameron) talked about targeting Northern Ireland and the north-east of England for special cuts in Government spending. The Secretary of State tried to blunt that with the prospect of cutting corporation tax, but he will know from the Azores ruling that it is legal only if Northern Ireland bears fiscal consequences. What is his estimate of the annual additional cut the Treasury would have to take from the annual block grant to fund a cut in corporation tax to 12.5%?

I am grateful for the right hon. Gentleman’s comments, but I would just like to correct an inadvertent comment on my colleague the Prime Minister, who did not target Northern Ireland; he just said, correctly, that it is one of those parts of the United Kingdom that is over-dependent on the public sector. On the question of the corporation tax sums, I say, bluntly, that nobody knows. That is why I am working closely with my Treasury colleagues—in particular, the Exchequer Secretary—to work out exactly the cost. Some international accountancy firms have estimated that, according to the Azores ruling, about £100 million to £150 million would have to be taken off the block grant.

The right hon. Gentleman will know that Northern Ireland is over-dependent for a very good reason: because of the troubles. The answer to the question is contained in the report produced by Sir David Varney for the Treasury, and it is that £300 million would be taken out of the block grant. I simply say to the right hon. Gentleman that the net cost to the Exchequer for 10 years would be estimated at £2.2 billion. He is a very good sort of fellow, so why does he not level with the people of Northern Ireland? Just as his party’s electoral pact with the Ulster Unionists left them with nothing, just as his party’s talks on the Presbyterian Mutual Society look like leaving small investors with nothing, the promises on corporation tax will result in at best nothing and at worst an invitation to his right hon. Friend the Chancellor to wield the axe.

I am sorry that the tone has descended. All my colleagues in Front-Bench positions inherited the odd prawn behind the radiator. We inherited Northern Ireland and a whole bag full of old langoustines stuck under a radiator going at top speed. We face a long-term problem with the economy. The Varney report is, sadly, now out of date. It cited a figure of more than £300 million, whereas the independent Northern Ireland Economic Reform Group, which carried out a detailed study of the benefits that a reduction of corporation tax would bring, gave a lower figure. The fact is that we do not know yet, and we will be studying this in detail and introducing our proposals later in the autumn.