Northern Ireland corporation tax move slammed

The main corporation tax rate in NI is more than twice that in the Republic

A leading tax expert has said that devolving corporation tax powers to Northern Ireland would cost it £300m from the Westminster block grant.

NI business leaders have united in a call for corporation tax to be devolved to the assembly.

Seven leading business organisations have written to MLAs and to NI Secretary Owen Paterson.

Richard Murphy of Tax Research UK said the tax move would not guarantee a single new job.

"The truth is the Irish Republic's tax system is fundamentally different from the UK, there is absolutely no way on earth that Northern Ireland could reproduce what the Republic offers and as a result this is a gamble that would cost £300m out of the block grant," he said.

"If you are going to spend £300m on attracting businesses into Northern Ireland this has to be the worst way possible.

"The Confederation of British Industry said in evidence to the House of Commons a couple of weeks ago they couldn't guarantee a single new job as a result of this for Northern Ireland and they are right."

Mr Murphy, who is an adviser to the Tax Justice Network and the TUC on taxation and economic issues, said he believed it was "extremely unlikely" corporation tax would be devolved to Northern Ireland due to European Union rules.

He added that if there was a different tax rate in NI it would "put a barrier to trade" between Northern Ireland and Great Britain.

Mr Murphy also said that there was already a large number of companies in Northern Ireland who paid the small companies rate of corporation tax which was "significantly lower than the 28% for large companies".

The seven leading business organisations said in their letter that they believed a reduction in CT was "the fastest way to rebalance and grow the NI economy and create jobs".

"Without reform, the NI economy will continue to be untenable and over dependent on GB taxpayers," they said.

The letter said that NI remained the poorest region of the UK and this would become worse with public sector spending cuts.

"We believe that reduced corporation tax is the fastest and best way to bring lasting well paid jobs to Northern Ireland," the letter added.

Foreign investment

The business organisations which united to sign the letter include:

• CBI Northern Ireland

• Institute of Directors

• Northern Ireland Chamber of Commerce

• The Centre for Competitiveness

• Northern Ireland Independent Retail Trade Association

• Northern Ireland Food and Drink Association

Joanne Stuart of the Institute of Directors said she felt foreign direct investment had been important in creating jobs in the Irish Republic.

""Foreign direct investment in the Irish Republic has created 140,000 jobs that supports a further 100,000 jobs in the indigenous industries and if there are 160bn euros in exports, over 70% of that is being generated through those foreign direct investment companies," she said.

"We are talking about changing the structure of the NI economy, we need that foreign direct investment to come in and enable us to grow those indigenous companies."

Last week, First Minister Peter Robinson said the British government should allow NI to relax corporation tax following its decision to give a loan to the Irish Republic.

Mr Robinson said it would be difficult to justify making the Irish economy more competitive while it retained a more advantageous business tax rate.

The main rate of corporation tax in the UK is 28% for 2010, while corporation tax south of the border is only 12%.

The treasury is due to publish a paper on rebalancing the NI economy next month.

The share of UK government spending that goes to Northern Ireland, Scotland and Wales which is known as the block grant is worked out using what is known as the "Barnett Formula".

Named after the former Chief Secretary to the Treasury, Lord Barnett, the mathematical formula has been in use in Scotland and Northern Ireland since 1979.