UK Considers Tax Cut For Northern Ireland

by Jason Gorringe, Tax-News.com, London

30 July 2010

A UK parliamentary committee is to hold an inquiry into the business tax regime in Northern Ireland with a view to recommending how Ulster can compete more effectively with its low-tax neighbour to the south.

As part of the UK, companies in Northern Ireland currently pay a headline corporate tax rate of 28%. But firms pay corporate tax of just 12.5% over the border in the Republic of Ireland, and this disparity in rates is seen as major barrier to growth for the North. The Northern Ireland Affairs Committee is set to examine what can be done to boost Northern Ireland's competitiveness and discourage a steady stream of companies moving across the border.

Earlier this year, the Northern Ireland Economic Reform Group concluded in a report that equalizing Northern Ireland's corporate tax rate with the Republic's would be the best way of establishing the North as an enterprise hub. This proposal had been considered by the previous Labour administration in the UK, but was rejected.

The Reform Group report said that Northern Ireland remains the UK’s poorest region, with the lowest average wages and low productivity, and exceptionally high unemployment. Around half of all government expenditure in the region is subsidized to the tune of GBP9bn per year by taxpayers in Great Britain. This is despite the highest levels of government support for business in any UK region.

“The experience of the Irish Republic shows the ability of a highly competitive corporation tax regime to attract Foreign Direct Investment (FDI). A low tax regime would also of course act as a spur to investment by indigenous companies,” the report observed.

The coalition government has proposed reducing the headline UK corporate tax rate to 24% over the next four years, but this is unlikely to be enough to help turn around Northern Ireland's economic fortunes. The news of the parliamentary inquiry was nevertheless welcomed by business associations in Northern Ireland.

“There is no doubt that more FDI for Northern Ireland as a result of a lower corporation tax rate would be a win-win, both creating new jobs and the knock on effect this would have for our indigenous small businesses," commented Glyn Roberts, Chief Executive of the Northern Ireland Independent Retail Trade Association.

“More large companies coming to Northern Ireland and therefore more people spending would be clearly beneficial for local retailers and suppliers," he added.

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