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Northern Ireland: Corporation Tax

Volume 744: debated on Monday 18 March 2013


Asked By

To ask Her Majesty’s Government, further to the answer by Lord Newby on 15 October 2012 (HL Deb, col. 1251) and the Written Answer by Lord Sassoon on 6 December 2012 (WA 187), when they plan to announce whether or not corporation tax is to be devolved to the Northern Ireland Assembly.

My Lords, the joint ministerial working group on rebalancing the Northern Ireland economy has concluded its discussions on the potential devolution of corporation tax and reported its findings to the Prime Minister. The Prime Minister is committed to meeting the First Minister and Deputy First Minister on 26 March to discuss these findings.

My Lords, my noble friend will be aware of the deep concern that exists in Northern Ireland over this issue, which is taking so long to bring to a conclusion. I welcome very much the news that he gave us about the forthcoming meeting. Since the Republic of Ireland has a corporation tax rate of 12.5%, it is widely felt that Northern Ireland needs its own low rate to help it to compete for new inward investment. Will my noble friend confirm that there is widespread support among businessmen and employers in the Province for the devolution of corporation tax to the Assembly, and that all the main parties are in favour of it? Have their views been fully taken into account? Finally, I pay tribute to my noble friend and his colleagues for their commitment to rebalancing the Northern Ireland economy by stimulating the growth of the private sector, which the Province needs so badly.

My Lords, I think that account has been taken of views expressed from many quarters. However, the complication, as the noble Lord will be aware, is that if the Northern Ireland Assembly were to cut the rate of corporation tax significantly, its own budget would have to be cut by an equivalent amount.

My Lords, will the noble Lord confirm that the Government have taken on board the recommendations of the Silk commission, which, in the context of corporation tax, recommended for Wales that, if Northern Ireland were to have corporation tax powers, so should the National Assembly for Wales? Given that the Government have welcomed the Silk commission’s first report, will he confirm that that will now happen?

I am not absolutely sure what the noble Lord is asking me to confirm because no decision has yet been taken on corporation tax and Northern Ireland. The Government are sympathetic to much of what has been said on the Silk report and are now in discussion, as he is aware, with the Government in Wales.

My Lords, bearing in mind that it is the rebalancing of the Northern Ireland economy that is the reason for people being concerned about the rate of corporation tax, and that is why the joint ministerial group gathered, were there any other ideas that came from that group that would assist the rebalancing of the Northern Ireland economy?

My Lords, a number of measures were announced in the Autumn Statement aimed at rebalancing, or rather promoting, the Northern Ireland economy, including another £132 million of capital expenditure, science and technology funding for the research partnership at Queen’s University and the slightly earlier decision to give the Northern Ireland Assembly decision-making powers over air passenger duty on long-haul flights.

My Lords, as I understand it, the noble Lord, Lord Wigley, was asking the noble Lord to confirm that if this happens in Northern Ireland, the Government accept that it would happen in Wales, too. Can he confirm that?

My Lords, that is something that we will confirm once we have a final decision in Northern Ireland.

My Lords, does the Minister agree that any decision in relation to Northern Ireland does not constitute a precedent for any other part of the United Kingdom because Northern Ireland is the only part of the United Kingdom that has a land border with another European Union country?

My Lords, that is the reason why this has become such a big issue in Northern Ireland. The same considerations do not apply elsewhere in the United Kingdom, although I remind the House that the differential between the rate of corporation tax in Northern Ireland and the rate in the Republic of Ireland is now significantly less than it was when this Government came into office.

My Lords, will the Minister confirm that the Government will take steps to ensure that any reduction in corporation tax rates in Northern Ireland does not lead to a proliferation of artificial tax avoidance arrangements such as the manipulation of transfer prices and formation of shell companies, which could lead to a loss of tax revenue both in Northern Ireland and in the rest of the United Kingdom?

My Lords, that is one of the issues which obviously has to be considered as part of this overall discussion. As the House knows, the Government take artificial tax avoidance schemes extremely seriously.

My Lords, I welcome the fact that, after two years of dithering, the Government look as if they are finally coming to a conclusion and a response. However, does the Minister agree that we need action now and not just on the issue mentioned here? Will the Government support our proposals temporarily to cut VAT, give support to small businesses through national insurance breaks and bring forward major infrastructure projects—all of which will give real help to business, construction and manufacturing, get Northern Ireland’s economy moving and put young people back to work?

No, my Lords. Sadly—from the noble Lord’s point of view—we will not be supporting the noble Lord’s proposals, not least because, taking just the VAT proposal on its own, it would cost about £12 billion. I am not sure where he suggests we should get that money from.

My Lords, is not the major but unspoken problem that there would be widespread concern that, if corporation tax was devolved to the Northern Ireland Assembly, the Scottish Government would wish to be treated in a similar fashion? If that were the case, by how much would the budget of Scotland have to be reduced from central moneys if corporation tax in Scotland was reduced to 12.5%? Would the Minister expect the First Minister of Scotland to demand that the Scottish budget not be reduced by that amount?

My Lords, it would not really be at the discretion of the First Minister of Scotland because the Azores criteria mean that if there is a differential cut of tax the region or nation that bears that cut has to take the full fiscal consequences of doing so. I do not have the figure on the cost of such a cut to Scotland. However, bear in mind that the estimate of such a change in Northern Ireland is that there will be a cut in its grant of between £300 million and £400 million. I think that the noble Lord can scale that up for Scotland.