Why Corporation Tax will NOT be reduced in NI

I have entered into some frustrating debates recently on the subject of Corporation Tax in NI. I have not wished to enter into the debate as to whether it should be, but rather whether it will be. It won’t.

It won’t because it isn’t politicially feasible. People involved in politics, in particular, should pay careful attention not just to what should or should not happen, but also to what will or will not happen. A lot of the latter is outside their control, no matter what level they operate at.

There are three prime political reasons that it will not happen.

Firstly, there is no public demand for a corporation tax reduction, not least because the campaign for it was deeply flawed. Campaigns, such as Grow NI and others, have failed to move the debate beyond the business sector. Since the whole issue is how small the business sector is, that by definition leaves the vast bulk of the population disinterested. It is the classic case of how not to run a campaign – it has focused on stating something seen as self-evident only to those who see it as self-evident, and thus leaving the majority of the population at best on the sidelines and at worst outright opposed. The “Yes to AV” was a classic example of this; Grow NI and others are a second classic example. None of those who made the case really understood who they had to make it to (well beyond business), what aspects of it they had to prioritise (jobs, not profit), and so on (failing to adapt to economic changes in the Republic of Ireland, or to political changes in Scotland). Thus the Lucid Talk poll showed the population opposed to reducing public spending in return for corporation tax reduction by almost 2:1.

Secondly, and linked to the above, the NI Executive was always lukewarm on the idea. Although nominally in favour, the public sector voter was always worth more than the private sector one (since the public sector voter outnumbers the private sector voter economically by 3:1, and probably even more among the actual voting population). Ministers had to play a good game (particularly in private) about reducing corporation tax because they did not wish to seem unwilling to grow the economy when it came to bloc grant negotiations, but they were never really serious about it – hence Sammy Wilson’s carefully placed public statements and of course Sinn Fein’s nods to the Left. Throw in the glow disappearing from the Republic of Ireland’s economy (upon whose strength most of the argument was based), and top-level political backing slowly ebbed away.

Thirdly, the UK Government could not deliver it – particularly once it was given the excuse of a population against and an Executive lukewarm. There were legal obstacles, but these could have been overcome. However, the political obstacles were nigh impossible, not least once the SNP came to power in Edinburgh. The nail in the coffin was Alex Salmond’s call for a 20% rate in an “independent Scotland”; confirming his desire to enter the argument. From that moment (in truth, from the moment of the SNP majority), the game was up – at least insofar as devolution of corporation tax powers to NI alone was concerned.

So now we are watching a delicate dance of political disengagement, which consists of the UK Government gradually moving up the price (remember when it was a quarter of a billion; note it’s now half a billion) and the NI Executive gradually moving down the scale of stated willingness to pay it. The UK Government will gently blame Stormont for being lukewarm on the whole idea; Stormont will gently blame the UK Government for setting the price “too high”. Actually, neither could have delivered – the UK Government would have had to devolve the same powers to Scotland and Wales; Stormont could not have got away, politically, with paying the price whatever it was (frankly even half a billion is a small proportion, around 3%, of the NI Executive’s budget, so a few hundred million up or down was never really financially decisive, just politically).

All of which leaves a fairly obvious question: where now for the NI economy?


6 thoughts on “Why Corporation Tax will NOT be reduced in NI

  1. Mr Ulster says:

    I knew this game was up way back in 1996, when I was part of a team that investigated its feasibility. Grateful for your clear expansion of reasons.

  2. Frank says:

    Yes, it has always been obvious that with devolution, which in itself is no bad thing, local politicians would always go for the simple situation when it came to safeguarding votes, and personal popularity. Why fight unnecessary short term battles? It does not matter to them if in the long term NI is a financial disaster zone, after all the neighbours accross the water will help out.

    With the Scottish question as a factor, and possibly a Welsh one as well, the gamble moves centre stage, and despite the current national financial situation the Chancellor will have to show that he has “balls of steel” (industrial pun) and lower corporation tax on a national basis, to a level as near as the Republic of Ireland, as he can. He may even be assisted if the EU financial planners, force it to move its corporation tax upwards?

  3. Robert Ballantine says:

    Since the corporation tax initiative hasthe support of both SF and DUP and no party opposed, it could be imposed against the will of voters.
    This issue vividly illustrates why democratic politics cannot work properly when a majority of the electorate depend on the state for their livelihoods.

    • Well, it has the *nominal* support of the DUP and SF as a means of appearing to be serious about contributing more economically to negotiate ongoing decent settlements with London. When London fails to deliver politically, and then knocks half a billion off the annual subvention anyway during the next Spending Review, they will be able to blame London for all their ills.

      But your point stands. Democracy becomes a farce if the majority of those voting have no interest in real solutions. This explains why we are not really serious about the economy, not really serious about tackling poverty, and not even really serious about community relations.

    • Frank says:

      The basis sadness is that our Executive and Assembly will never function in a truly democratic manner until the population has an educated interest in demanding that it does so. We really have to have cross community agreement that all school children from about age 14, and above, as in Germany, are taught the mechanics of the Assembly, and realise that it is lacking the means to function in a wholly democratic manner, which might lead to sensible solutions. Thus, in about 20 to 50 years time, we might have sensible democratic governance. Until then we may as well whistle in the dark!

  4. Good to see a bit of realism being given on this issue, for so long CT and enterprise zones have been proclaimed as the two magic bullets to rebalance the NI economy, the opponents of both have had enough evidence from the Republic of Ireland’s experiment with CT to make a threadwater case against CT to create enough caution to stall it, while on enterprise zones one only has to look at the 80’s-90’s experiments to see where when used badly these simply haven’t worked … of course many businesses here have benefited from them and are benefiting on a cross border level already with low CT.

    GB and NI businesses will probably have to accept “budgets of fiscal neutrality” for some time to come, no spending stimulus, no spending cuts, no tax rises, no tax cuts (in significant areas to business) and simply accept the fact that they are on their own. Saving that I believe there is plenty of ways leadership and abstract thinking where the private sector could actually lead the public sector out of deadlocks.

    Employment is a great weapon against segregation and sectarianism, when people put behind the notion that they are somehow surrendering territorial advantage by bringing in others from the other side we could actually,make a difference that betters our cultural identity, autonomy and self-determination that can acknowledge multiculturalism’s value to modernity across these islands. I think a greater level of cross community mobility may be one way we bring a genuine level of cohesion not just between religions, cultures and national identities but also socio-economic differences.

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