Assembly Finance Committee inputs to Varney Review

Session: 2006/2007

Date: 04 July 2007

Reference: F&P 06/07

The Northern Ireland Assembly’s Statutory Committee for Finance and Personnel today agreed its submission to the Review, led by Sir David Varney, into the Role of Tax Policy in Support of Growth and Investment in Northern Ireland. The Committee considered the views of the Economic Research Institute of Northern Ireland and Sir George Quigley, Chair of the Industrial Task Force when drawing up its submission. Members were also briefed on several occasions by Department of Finance and Personnel officials on the approach being proposed for the Northern Ireland Executive’s submission to the Review.
In addition, the Committee welcomed the Minister of Finance and Personnel, Rt Hon Peter Robinson MP, MLA, who briefed members on his Department’s strategic priorities.

Speaking after the meeting, Committee Chairperson, Mitchel McLaughlin, MLA, said:

“The case has been well made for fiscal incentives, particularly a competitive rate of corporation tax which will place the north on a level with the south and enable it to attract a much larger share of foreign direct investment and increase productivity. The Committee’s submission highlights the various options available for achieving this. In the Committee’s view, HM Treasury has both the expertise and resources to address the legal and administrative barriers to providing a more competitive rate of corporation tax, which will help transform the local economy.”

“Members agreed that the issue is now one of whether the political will exists in the UK Government to recognise our unique circumstances and to acknowledge that its ‘one size fits all’ approach for the UK is inappropriate for the economy here.”

“The Committee will examine closely the conclusions and recommendations in the Review report in the autumn, especially the evidence on which they are based.”

BACKGROUND INFORMATION

The conclusions and recommendations contained in the Committee’s submission to the Varney Review are attached. The complete submission can be obtained on the Committee’s homepage on the Northern Ireland Assembly website at: http://archive.niassembly.gov.uk/finance/2007mandate/finhome_07.htm

The Committee for Finance and Personnel is one of 11 Statutory Committees of the Northern Ireland Assembly, which are set up to advise and assist each Northern Ireland Minister in the formulation of policy with respect to matters within his/her responsibilities as a Minister. Statutory Committees have powers as described in Strand One of the Belfast Agreement i.e. a scrutiny, policy development and consultation role with respect to the department with which each is associated, together with a role in the initiation of legislation.

As per paragraph 9 of Strand One of the Belfast Agreement, Statutory Committees have the power to:

  • Consider and advise on departmental budgets and annual plans in the context of the overall budget allocation;
  • Approve relevant secondary legislation and take the Committee stage of relevant primary legislation;
  • Call for persons and papers;
  • Initiate inquiries and make reports; and
  • Consider and advise on matters brought to the Committee by its minister.

The Committee for Finance and Personnel has eleven Members:

Mitchel McLaughlin (Chairperson) (Sinn Fein) 
Mervyn Storey (Deputy Chairperson) (DUP)
Roy Beggs (UUP)
Dr Stephen Farry (Alliance)
Simon Hamilton (DUP)
Fra McCann (Sinn Fein)
Jennifer McCann (Sinn Fein)
Adrian McQuillan (DUP) 
Declan O’Loan (SDLP)
Dawn Purvis (PUP)
Peter Weir (DUP)

Media enquiries should be addressed to:

Clerk of the Committee for Finance and Personnel, Room 419, Parliament Buildings, Belfast BT4 3XX.
Telephone 028 9052 1843.

EXTRACT FROM COMMITTEE FOR FINANCE AND PERSONNEL SUBMISSION TO THE VARNEY REVIEW

Conclusions and Recommendations

1. In relation to corporation tax, the Committee believes that the case has already been well made and that compelling empirical evidence exists as to how a lower corporation tax would increase FDI and improve productivity in NI. The Committee has already referred the Review to the reports made by the economic sub-group to the Committee on the Preparation for Government and to the ERINI research report on corporation tax. It would also draw attention to the recent report from the Centre for Economics and Business Research on behalf of the Taxpayers’ Alliance on the impact of changes in corporation tax rates on investment. The Committee also notes the previous Chancellor’s commitment to international competitiveness on business taxation in his last Budget statement.

2. The Review must also take account of the fact that NI is in direct competition with the lower corporation tax rate in RoI and how that economy has benefited from the policy. The fact that RoI Ministers are extremely concerned with the European Union Commission’s potential tax policy to unify corporation tax across Europe reflects the importance which the Irish Government still attaches to a low rate of corporation tax. The Committee understands that the Review Team recently visited Dublin and was informed of the support in RoI for a lower rate of corporation tax in NI.

3. The evidence indicates that solutions can be found to the legal and administrative barriers to providing NI with a competitive rate of corporation tax. In the Committee’s view, Treasury has both the expertise and the resources to address positively the legal and administrative barriers to a reduced corporation tax in NI. The Committee believes that the issue now is whether the political will exists within the UK Government to recognise the unique circumstances in NI and acknowledge that its ‘one size fits all’ approach for the UK is inappropriate for the NI economy.

4. The Committee received a paper by the University of Ulster economist, Mike Smyth, which demonstrates the need for flexibility in regional policy within the UK. It also shows that NI’s headline gross value added per head remains static and is showing no sign of moving closer to the UK average. The convergence of unemployment rates in the UK reflects the growth in relatively low paid, low productivity service sector jobs in the UK regions and this is what has happened in NI in particular.

5. The Committee agrees with ERINI’s views on the proposal for greater focus on tax breaks for inputs to the production process (e.g. enhancing or extending breaks such as capital allowances and R&D tax credits to cover activities such as training expenses or marketing costs). It is not correct to equate these tax adjustments with the impact of a lower rate of corporation tax. Adjusting taxes on the factors that go into the production process is not the same as altering a tax to influence the strategic location decisions of multinational companies.

6. The Committee does not see amendments to the tax system to reduce expenditure incurred by companies on inputs such as R&D, training and marketing as an alternative to a reduction in the rate of corporation tax. It agrees with Sir George Quigley that the latter is universally accepted as an important means of influencing the location decisions of multinationals and the former are not. The Committee also notes the point by Sir George Quigley that the Harris research argued a strong case for operating an FDI strategy to attract larger companies more likely to have the capabilities to undertake R&D in higher value-added areas, but did not suggest that this would be best achieved by deploying an R&D tax credit scheme.

7. The Committee believes that a tax credit concession on its own, which might be taken up by some companies (many of which will already be doing the R&D, training and marketing which are part of a successful company’s agenda) will leave NI without the tax competitiveness to access FDI sufficiently to get onto a new economic trajectory which only a reduction in corporation tax can deliver. Also, on the basis of the experience to date, the Committee considers that the current suite of economic instruments available will not deliver economic convergence with other parts of the UK.

8. In conclusion, the Committee calls upon the Review to take full account of:

  • the weight of evidence in support of the case for NI having a competitive rate of corporation tax;
  • the availability of different options for achieving a competitive rate of corporation tax in NI; and
  • the range of approaches to overcoming any associated legal or administrative barriers.

Whilst recognising the value of additional fiscal incentives and other measures to boost the NI economy, the Committee sees these as a complement, rather than as an alternative, to a competitive rate of corporation tax.

The Committee awaits the outcome of the Review in the autumn and will carefully examine the conclusions and recommendations together with the evidence on which they are based.

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