Corporation Tax Rate Cut Likely

11 September 2014

N.I. looks set to be handed the power to slash corporation tax in a move with the potential to significantly boost economy.

According to a recent Belfast Telegraph article, senior sources in London and Belfast predict that an announcement will be made no later than October by Prime Minister David Cameron.

Finance Minister Simon Hamilton said: "I am optimistic that we will get a positive answer from the Prime Minister. "I think that the Government wants to do this and we have made a very robust case to them."

A senior Tory source concurred with this assessment. However, the cost of cutting the tax is likely to be more than £200m a year.

Lowering the rate of corporation tax is seen by the local business community and all the main parties as a key to revitalising the economy. It could reduce reliance on public spending and raise wages in the private sector by attracting in hi-tech companies.

The Republic's rate of 12.5%, compared to 20% here, has been crucial to attracting critical clusters of American corporations seeking overseas bases. It was the main reason companies like Google, Facebook, Apple, Microsoft and Pfizer set up shop south of the border. A complicated US tax-avoidance scheme known as the "double Irish sandwich" has added to the attraction. It has, for instance, allowed Google to pay just 2.4% tax on its overseas earnings.

The upfront cost of making the switch is considerable. Sammy Wilson, Mr Hamilton's predecessor, has estimated that initial loss of revenue for every percentage point reduction in corporation tax would be £40m a year.

Northern Irelandmust meet this money from its own resources because EU rules say a central government like Westminster cannot subsidise tax reductions made by a regional Assembly like Stormont.

If Mr Cameron makes the announcement as expected, legislation would have to be completed before parliament dissolves on March 30. After that it would take another two years before the tax would actually be reduced, but in the meantime Invest NI could recruit overseas investors on the basis that the change was coming.