Corporation Tax (Northern Ireland) Bill — House of Commons, 2015-01-27
Topic: Macroeconomics
Shabana Mahmood (Labour, Centre-left): I am afraid that on this occasion I must give the hon. Gentleman a similar answer to that from the Secretary of State. This Bill is looking at the devolution of this power. It is not for me to say to the Northern Ireland Executive, or Northern Ireland politicians of any description, what that rate should be. Once this Bill passes and we hit the 2017 timetable, that will be a matter for the representatives in Northern Ireland and nobody else There are a number of issues, and they have been touched on by Members. We all need to consider them deeply as this progresses both through the House and in the further discussions that will take place as a result of the Stormont House agreement. First, as has been said, the impact of the Azores decision is important. The devolution of corporation tax needs to be done in a way that ensures it is not caught by EU rules on state aid. In order to meet the third of the three conditions set out in that judgment regarding fiscal autonomy, the Northern Ireland Executive would need to bear the full fiscal consequences of changes in tax revenues resulting from a new corporation tax rate so the block grant would be adjusted to reflect the fiscal costs of a reduction in the corporation tax rate. That is an important issue, and we heard from the hon. Member for South Down about amendments she and her colleagues might want to introduce to address the impact and the modelling behind how some aspects of that would work in practice. There will be a trade-off with public spending cuts and some difficult choices will therefore have to be made, and it is important that those impacts are fully considered and thought through, particularly because, as I said earlier, even the private sector in Northern Ireland is highly dependent at this stage on Government contracts The £300 million adjustment that might be required is a burden that may well increase if Northern Ireland were to have a much lower corporation tax rate that then increased the cost and the offsetting from the block grant. The hon. Member for East Antrim asked some questions about the formula that will be imposed in order to calculate the forgone tax by the rest of the UK. It would be helpful to have some clarification from the Financial Secretary on how that formula will operate in practice. I am sure we will address the detail in Committee, but we would like an outline of his thinking now Conditionality is attached to the Stormont House agreement. The financial annex adds conditionality to the progress of this Bill, in order to ensure that any changes are fiscally sustainable, stating that there must be "a clear commitment to put the Executive’s finances on a permanently sustainable footing for the future." The Secretary of State did not in her opening speech labour too much the issue of putting the Executive’s finances on a stable footing for the future. There is some detail in the financial annex to the agreement, but that is an important condition that has not necessarily been well ventilated in the debate we have had thus far. Again, however, I am sure we will return to that issue in Committee Many Members highlighted the fact that the headline rate of corporation tax is not a panacea. It does not in and of itself result automatically in economic growth, and it was only one of a number of reasons, as many commentators and academics have said, why the Republic of Ireland experienced its economic miracle from the mid-’90s onwards. None of us in this House should see it as a panacea. Investment in skills in particular is just as important, as is investment in infrastructure and, as Members have said, looking at planning rules. All these issues will be crucial. It would be a mistake to think that Northern Ireland’s economy will automatically rebalance just because it has a lower rate of corporation tax—a rate more on a par with that in the Republic of Ireland. That alone will not achieve what we all want, which is a thriving and growing Northern Ireland economy. Other changes will be needed, and it would be helpful to hear from the Financial Secretary the Government’s thinking on some of them We have talked a lot about corporation tax not being the only way to achieve economic rebalancing, but as the hon. Member for South Down pointed out, the Institute for Fiscal Studies said in its 2013 green budget that it is a tax which, over time, can vary substantially in revenue terms, and much more so than total receipts from national income. We will need to hear more about how the volatility of corporation tax might impact on the Northern Ireland economy, and particularly about any modelling the Treasury has done on its impact on Northern Ireland’s finances As I have said, we recognise that there are potential gains for the people of Northern Ireland from this measure. However, we want responsibly to consider and ventilate the risks it also poses, which we will carefully scrutinise as we progress. We will also carefully consider anti-avoidance measures, to ensure that the Bill does not simply become an opportunity for businesses to brass-plate and base themselves in Northern Ireland, with no other economic benefits for the people of Northern Ireland. I look forward to the debate in Committee.