When the modern economic history of Northern Ireland is written, the campaign to lower corporation tax will either form an interesting yet inconsequential footnote, or take centre stage as the policy that helped redefine the economy. Although much of the debate has centred on rebalancing Northern Ireland’s excessively large public sector, the policy does offer another more potent potential – the power to rebalance our private sector. Invest NI has enjoyed tremendous success recently in driving inward investment, but the nature of that investment has been focussed on sectors such as software development and back office services. Over the long-term we need to rediscover our historical genius for making things. Securing corporation tax powers could accelerate growth in those knowledge-economy sectors in which we already excel, but, more importantly, it could give manufacturing a badly needed adrenalin shot.
Opponents argue that the cost of corporation tax isn’t worth the risk to the Westminster block grant. As a firm which specialises in advising inward investment bodies and FDI clients across the globe, including the World Bank and Invest Hong Kong, OCO Global’s experience is that corporation tax – if implemented strategically – could be a game changer. OCO Global’s forecasts suggest that global FDI is back on course for a path of steady, if unexciting growth. The model, which includes 115 countries and 29 sectors, predicts that by 2024 there will be 16,000 FDI projects and c.200,000 jobs up for grabs. These are projects which a more competitive Northern Ireland, thanks to lower corporation tax, could be targeting. Investors consider a wide range of factors when selecting potential regions, from the availability of skills to the quality of infrastructure. Corporation tax is but one of these factors – and by no means the most important – but it is the last great differentiator between Northern Ireland and our main competitor south of the border. On a per capita basis Northern Ireland is performing significantly worse than the south in attracting FDI jobs. The Republic’s tax rate has undoubtedly been a major factor in its huge successes in securing FDI projects and it’s why the Irish Government has fought so hard to maintain its preferential rate. As a policy, however, it’s not just the sole preserve of Dublin.
Other clients of ours, such the Netherlands, Costa Rica, Hong Kong and Lithuania have all utilised it as an effective economic lever to encourage growth. With a more competitive proposition OCO Global estimates that lower corporation tax should enable Northern Ireland to directly attract 40,000-plus new jobs over the next decade. There are, however, indirect benefits too and our work with the Dutch Government suggests that each FDI job creates a further 1.5 jobs in the wider economy and that every extra £1m in salaries generates a further £1.6m elsewhere. Perhaps though the greatest appeal of lower corporation tax is the opportunity to change the type of projects we compete for and to start the process of rebalancing our private sector – a process that will ensure a more equitable spread of projects across Northern Ireland. We currently do well in sectors that are city-centre friendly – much to the chagrin of those living beyond Greater Belfast. Lower corporation tax would give Invest NI the tools it needs to realistically target projects in sectors such as advanced manufacturing, engineering or life sciences – sectors that don’t rely upon Grade ‘A’ office space in Belfast city centre. OCO Global’s recent work with the local Life & Health Sciences sector suggests that a lower tax rate coupled to a new, dedicated strategy, could deliver economic success in the sector, an area where the Republic has reaped huge rewards, but Northern Ireland has not.
This, of course, depends on whether the policy can be implemented. As I write, that’s very much up for debate. From the highs of the Chancellor’s Autumn Statement which set out agreement in principle to the lows of December’s abortive political discussions with the Prime Minister and Taoiseach – no one can yet be sure if principle can be converted into reality. Those who have argued for Northern Ireland’s ability to lower corporation tax have faced many hidden summits on their journey. They were told it would never happen – the EU, Treasury and Westminster parties would not countenance it. But countenance it they have, and at last, the principle has been conceded. The summit has now been reached, but a vista of problems has come into sight. The Executive’s financial credibility, the difficulties in balancing its budget and the related absence of any more “big cheques” from Westminster until tough political decisions are taken locally, have piled on the pressure.
The danger is that corporation tax may fall at the last hurdle. In the absence of any alternatives that would be a tragic acceptance that Northern Ireland’s economic performance will fall ever further behind the rest of these islands. While we currently do well for FDI projects, we could do so much better. In a world where investors, particularly US investors, tend to view Northern Ireland in an island-wide context, we’re simply not competing on a level playing field. If we want an economy riddled by a systemic lack of ambition our choice is the status quo. If, however, we want an economy that can afford excellent public services and can give more of our young people gainful employment at home, we need to step-up and embrace the radical potential lower corporation tax offers.