Corporation Tax in Northern Ireland

Written evidence from Peninsula Hi-Tech Ltd

1.      What effect will the reduction of corporation tax rate on a UK wide basis announced in the June 2010 Budget have on the competitiveness of the Northern Ireland economy?

None. About as useful as ‘throwing snowballs into Hell’. The failed economy of N.Ireland does not allow many companies here in N.Ireland the luxury of benefiting from the proposed reduction from 28% to 24%? (Over 4 year time scale). The Inland Revenue returns for N.Ireland prove this statement to be correct.

2.      What would be the benefits of equalizing the corporation tax rate in Northern Ireland with that of the Republic of Ireland?

Immense. The Republic of Ireland with 10% corporation tax up to 2003 and now 12.5% is the most successful country in the EU as a location for foreign direct investment (FDI) across all sectors. The South has 9 of the worlds 10 top software companies.

8 of the worlds 10 top pharmaceutical companies. Of the top 50 banks worldwide more than half have presence here tax incentived through low corporation and other finance favourable legislation creating international business in Dublin and many other locations throughout the South since early 90’s.

The Industrial Development Agency (IDA) report stated in 2009 140,000 people in direct employment in over 600 IDA supported multi-national corporations in a small country of 4.0m people. Not even the UK with 61m on a like for like population basis matches this record. Foreign multi-national companies provide indirect employment for a further 240,000, incur €19 billion in direct expenditure and pay €7 billion in payroll tax. Corporation tax income receipted to the exchequer provides 50% of all corporate taxes.

Despite the worst recession since the Wall Street crash in 1929 existing hi-tech companies have announced expansion plans i.e. Google, Facebook, McAfee, Telefonica, AXA, Zurich Group relocating their headquarters to Dublin as well as many other companies and see Ireland as a first choice location when seeking to expand.

The Department of Finance in Dublin have enacted tax incentives for research and development (R&D), Intellectual Property (IP) management centres. FDI projects rank Ireland as No.1 for FDI jobs per capita in 2009 according to IBM Global locations.

Price Waterhouse Coopers accountants to major international companies worldwide have ranked the Republic of Ireland as first in Europe for lowest tax rates since 2007 each year their paying taxes report places Ireland as the lowest tax region. It is not possible to compete with the South in this unfair and tax skewed market place where 20% of the land mass of Ireland remains behind ‘economic iron curtain’ maintained by the South. I have been aware of this for decades and have written to the Irish Government and spoken to the IDA since 1989 that I as the first private sector builder of new technology infrastructure in Northern Ireland could not ever compete with the South for American FDI companies. I have had meetings with the IDA and enclose copies of my letters to the Irish Government and Senior DETI and IDA personnel. I am fully aware of the stranglehold the South has and will continue to hold with the distorted tax advantages that has left the Ulster Science & Technology Park buildings www.ulstersciencepark.com vacant for more than 50% of the time over the last 20 years.

The Assistant Secretary of DETI in Dublin has accepted in his reply to me that the Ulster Science and Technology Park on the Buncrana Road in Derry located 20 miles from the Letterkenny IDA Business and Technology Park has benefited and created more jobs in an isolated town of 14,000 population and competes more successfully than a city of 110,000 population with lower cost base and higher unemployment population. ‘The major selling point for IDA Ireland in seeking to attract inward investment is the 12.5% rate of corporation tax in the South’. Extract from Department of Enterprise Trade and Innovation letter to me from Assistant Secretary Brian Whitney. He also states that ‘the situation encountered by me in running the Ulster Science & Technology Park (USTP) given that it operates in close proximity to the IDA Business and Technology Park in Letterkenny may provide a particularly powerful example to illustrate the difficulties created for me by the different corporate taxation regimes in any further discussion on this matter with the British Government’.

I have the letters of reply to prove my case that the South’s taxation advantaged policies is a curse to commerce and job creation here in Northern Ireland. The Irish Republic’s success as the fifth freest economy on the world (2010 index of economic freedom) does not apply to the ⅓ population of the island of Ireland and the 20% land mass that Northern Ireland encompasses. (Area 12,121sq/km or 5,452sq.miles Rep of Ireland Area 70,282sq.km or 27,136.59 sq. miles)

The Irish Republic with its 80% land mass 4.0million population without the 30 years of desolation and destruction suffered by the North continues to advance despite the recession as the PWC 2010 CEO Pulse Report Survey states that 40% of CEO’s of multinational companies with Irish operations are considering making additional investment increase of 25% in 2009. The people of Northern Ireland cannot continue to pay reparation through unemployment and its attendant ills. The need to have a 5% corporation tax for at least the next 10 years to help undo the harm that 30 years of violence and its withered legacy has left.

Northern Ireland as a sterling region would enhance the United Kingdoms’ role in attracting major pharmaceutical/Biotechnology companies that the republic has had a monopoly on for decades. The need to change the unproductive policies that have been civil service driven since the troubles began must be changed, we have a failed economy and a fragile peace that requires a private sector focused job creating onus to increase productivity.

3.      What alternative measures could be introduced by the UK Government to make the NI economy more competitive?

Reduce the size of the public sector. This will reduce the cost of servicing the debt burden of taxation that occurs with too many in sheltered employment seeking low risk livelihoods with little productive effort. The policies of the past have resulted in too many Government departments regulating and revenue seeking to justify their roles. The evidence is all around you to see ‘taxing vacant properties in pot-holed streets that have not seen a barrel of bitmac in 40 years’. Planning departments that are so dysfunctional and unable to discharge their duties that one has to believe the system is actually delinquent in the time span that it takes to renew/replace what was already the beneficiary of planning approval decades past. The public sector is unquestionably a blight to commerce in Northern Ireland and I have first hand knowledge of this fact.

4.      Is a reduction in corporation tax the simplest and quickest way to make the NI economy more competitive and how long would it be before Northern Ireland realised the benefits?

Yes. On both counts I say yes. FDI multi-nationals are already located in the South the proven template of success exists across the border. The South is 1st for FDI jobs per capita 1st for FDI and corporate tax, 2nd lowest total tax rate in EU make Northern Ireland the lowest with 5% corporation tax to year 2020 to rebalance and undo the harm of 40 years of manufacturing loss and decline and 30 years of violence. The Irish Republic is the 3rd most globalised nation in the world, only Singapore and Hong Kong are ahead. It is immediate and cost effective and will utilise the wasted talents of the unemployed and the assets of the under-utilised infrastructure already in place, i.e. good housing, good schools, telecommunications and buildings. Peninsula has more that 300,000sq.ft. of high quality vacant employment creating infrastructure in Derry for years. There is no tax return to revenue when thousands who should be working at the Ulster Science and Technology Park have no jobs. The buildings are lying vacant, non-income producing except for Land & Property Rates division seeking rates of thousands of pounds on vacant high quality computer designed buildings specifically and solely pioneered by Peninsula since 1989 to measure out a share in the community creating work with the digital block by first building with the concrete block.

5.      What are the legal barriers to the introduction of different corporation tax rates on a regional basis within the UK?

None. All secular laws are manmade and can be altered, amended or abolished, no other region in the UK has a land frontier where the dominant role of the Irish Governments protectionist policies and low corporation tax this hinders FDI investment from looking at the whole island for investment and job creation. No other region of the UK has had to endure 30 years of lost opportunities due to civil unrest.

The newer EU countries that have recently joined have cost and tax advantages that the EU recognise as a necessary lever to bring income levels to the norm in the EU. This fair and equitable policy will have the support of the EU. In fact the reality is unjust and unfair for the UK Government and the Irish Government as members of the EU to be advocates and implementers of a one island economy through equality of tax policies.

6.      What would be the effect of reduced tax revenue in Northern Ireland?

A failed economy which I have worked in for more than 30 years is not a tax generating economy Northern Ireland does not produce enough tax to pay for the Public Service staff and the diminishing services that it provides. The London treasury subsidises Northern Ireland as economic basket case to the sum of £9 billion every year. The real effect of low revenue accruals and getting lower as Northern Irelands economy fails year on year to generate income will continue if the Conservative Government fails to implement low corporation tax level of 5% to give Northern Ireland the impetus to attract new investment and also to counteract the malign influences that prey on the disaffected.

The Inland Revenue statistics prove that areas such as Derry and other places west of the Bann have so much unemployment and low incomes that they are incapable of paying tax and are in fact a burden that requires tax transfer funds to meet their living costs.

7.      What evidence is there from other countries that having different corporation tax rates on a regional basis is effective?

The evidence is on Northern Ireland’s doorstep where Irish Republic corporation tax of 12.5% is emulated by a least seven other countries in Europe with corporation tax levels of 9% Montenegro and Cyprus on 10%.

8.      What are the implications for other regions if there were different levels of corporation tax within the UK?

All Positive. The British Government could redeploy the billions of tax generated in the Greater London Southern regions of the UK to improve its own infrastructure and that of the rest of the UK mainland.

The other regions of the UK have and to this day in the North West of England benefit from Enterprise Zone status in deprived regions of Tyne and Sunderland. I am not aware of the UK Government having any great difficulties with selectively engineering areas of the UK to benefit from Enterprise Zone status. I might add the Enterprise Zone status granted to Northern Ireland in 1981 with particular reference to its failure here in Derry to create jobs can be evidenced by visiting the former Courtaulds factory at Campsie. The largest factory in Europe, 1 million square foot, is increasingly decrepit in appearance minimal in its contribution to job creation and gifted away at 25p per sq.ft. and former Ministry of Commerce factories also in Springtown lying vacant and derelict. A modern Fruit of the Loom factory at Campsie has been vacant also for years and the beneficiary of many millions of grant aid that should be a productive job creating zone of employment for new technology companies similar to those in Southern Ireland today. The examples I have given are just a small sample of the loss of manufacturing in textiles and engineering that have not been replaced by new technology based enterprises that our near neighbour has so wisely targeted.

We need politicians with the ‘wisdom to see and the courage to change’ from the failed policies that are destroying hope.

The EU have in 2001 sought to tax harmonise rates to a higher median level but have failed to enforce this policy. The UK Government, a signatory to the Lisbon Treaty has opt out policies as has Ireland on taxation and can in any case veto the EU wish to increase tax burdens. It is also likely that the EU may wish to prevent job creating agencies from 2013 assisting companies by way of grant aid. In the light of possible damaging policies regarding corporation tax the UK Government should seek the support of the Southern Irish Government to justify refusal to agree corporation tax increases to the EU median level desired by France or Germany by accepting the existing corporation tax level of 12.5% for Irish Republic and initial 5% corporation tax to 2020 for N.Ireland. The 5% rate will only ameliorate the serious problem of unemployment and lack of job creation as the financially induced crisis has and will continue to beggar Northern Ireland to at least 2015. The lower 5% tax will also differentiate the all island economy and help to focus inward investment to the very deprived Ulster Province of Northern Ireland.

I have copied this letter together with my letter of reply dated 2nd September, 2010 to the Irish Republic Department of Enterprise Trade and Innovation Assistant Secretary, Mr Brian Whitney. This letter was in response to my meeting with him in Dublin on 13th July, 2010 at his office and with a Senior IDA Officer. The meeting at my request was to seek the support of the Irish Government to recognise that fiscal policies and rigid enforcement of economic border since joining the EU in 1973 was 1930’s protectionist policy that has no place on this small island where both jurisdictions are in the common market as well as a global market. The UK Government has not custom patrolled or stopped me personally as a cross border businessman since 1973.

I thank you for your letter of 3rd September, 2010. I am enclosing copies to the Secretary of State and all members of the Northern Ireland Affairs Committee.

13 September 2010