Corporation Tax - Northern Ireland Affairs Committee Contents

Examination of Witnesses (Questions 82-117)

CBI Northern Ireland, gave evidence.

  Q82 Chair: I apologise for the slight delay. As you saw, there has been a Division and there may be another fairly soon. I do not know whether it will happen immediately, but if it happens we will have to disappear and suspend the Committee for 15 minutes. In the meantime, we should get started.

  May I welcome you to the Committee? Thank you very much for coming. As you know, this is part of our inquiry into the different levels of corporation tax between the United Kingdom and Ireland and the particular effect that has on Northern Ireland. Given the time constraints, can you very briefly introduce yourselves and make an extremely short opening statement, if I may make that plea? I think that we probably have a good idea about what you do, but if you would like to summarise that, it would be very helpful.

  Terence Brannigan: I am Terence Brannigan, and I am the chairman of CBI Northern Ireland.

  Nigel Smyth: I am Nigel Smyth, and I am the director of CBI Northern Ireland.

  Terence Brannigan: I will try to keep it brief. The context for considering a lower corporation tax in Northern Ireland is important and the challenges facing Northern Ireland, as you will all be aware, are very significant. Until 2008, we had an economy that experienced significant growth in employment, but much of that growth, you will be very aware, was driven by increasing public expenditure. Indeed, employment was driven in the same way. An unsustainable property and building boom, which itself was partly driven by cheap credit, has all come to an end. We've come to a sharp and painful end, leaving a regional economy with low levels of productivity, low earnings levels, high levels of economic inactivity and high dependence on benefits, and an economy dominated by SMEs and the public sector. The public sector is extremely dominant, representing 70% plus of both direct and indirect GDP.

  Northern Ireland has an economy which is still lagging behind the recovery in the rest of UK because of that property boom and bust and, of course, coming from a troubled past. Our legacy has left us in a difficult, painful, ongoing, challenging position. We face a very significant challenge in growing the economy in the years ahead, particularly in attracting more investment and meaningful investment. It is only through investment that we'll get the jobs that we so desperately need. We believe that the development of a low and competitive rate of corporation tax will be transformational—I underline that word. It is not a silver bullet and it will not be instant, but it will provide a very significant marketing platform to attract and to encourage more investment. With that investment, the local economy will be part of the positive impact of that. It is believed that between 30% and 40% of growth comes in indigenous companies.

  In recent weeks, the CBI published some research on the UK as a place to invest. The key findings from that research, which focused on the FTSE 350 companies, showed that the key drivers which influence companies' decisions to invest are access to markets, political and economic stability, and then, after that, the nature and level of regulation and, immediately thereafter, business taxation. It has a very, very significant impact on the decision for people to invest.

  We fully understand that the low rate of tax itself is not the answer. It's not a silver bullet, but as I said, it could be incredibly significant, and it's abundantly clear that in those places that have enjoyed a lower rate of corporation tax, there has been very significant success in attracting the right kinds of investment and then growing employment.

  Chair: Thank you. You've basically covered the question I was going to ask about productivity levels. Can we move on to Ian Paisley?

  Q83 Ian Paisley: Welcome, and thank you for coming. The foreign firms that have decided to come and invest in Northern Ireland, in your experience, why have they decided to come and invest? At the moment, obviously, we have a high tax rate. Why have they decided to come and invest? What do you think drives them to Northern Ireland?

  Terence Brannigan: It should be said—obviously, I've been focusing on the need for a low corporation tax—that there are some very attractive things within Northern Ireland. We've got a very young and highly skilled work force. We've got a very good education system. We've got two excellent universities renowned for their research: Queen's university, for example, is part of the Russell group of universities. We've got a low cost base, it has to be said, both in terms of labour and in terms of real estate. We have a very good IT infrastructure; we have universal access. We've got the Kelvin project, so the speed and capacity of access to information is exceptional, particularly if you're looking from North America for access into Europe. We have some significant and major pluses. That's why, I believe, we've had the successes that we've had.

  Q84 Ian Paisley: I want to be clear. This is on your wish list? You want a reduction in corporation tax—CBI Northern Ireland would welcome that?

  Terence Brannigan: Absolutely.

  Ian Paisley: That's good.

  Nigel Smyth: May I just add that I think that a lot of what modest success we have attracted in recent years has been cost centres rather than profit centres? A lot of it has been around call centres and technical support centres. A number of investments have been in financial services—Halifax, Santander, ICICI Bank, Fujitsu and a number of other companies, some of which already had a presence in Northern Ireland and were building on that—but most of the investments have been in cost centres. That leaves the risk that at some stage, when costs get out of line elsewhere and in Northern Ireland, they are fairly mobile.

  Q85 Ian Paisley: In terms of Invest Northern Ireland's track record of encouraging firms to come, is there anything more that it could do, in your opinion?

  Terence Brannigan: Invest Northern Ireland's worked incredibly hard against a difficult backcloth—a very competitive backcloth, obviously, with a land border with the Republic of Ireland, which enjoys a rate of 12.5%. That is a very difficult sell against. We and Invest NI have, I believe, made the best of what we have in terms of marketing and being able to sell Northern Ireland, but as I say, we labour under that major disadvantage. There are, obviously, things that we need to be packaging up going forward, in that corporation tax isn't the only answer: things like investment in research and development, etcetera.

  Q86 Ian Paisley: Terry, you're a hard-nosed business man. You've run a massive company, one of the biggest in our Province. Would you, as a businessman, take the gamble and say, "Let's go in lower than 12.5%," or would you go in at the same level?

  Terence Brannigan: I would go in lower.

  Q87 Lady Hermon: And have you a figure when you say lower?

  Terence Brannigan: Ten per cent.

  Q88 Chair: On that point, we've just been to Dublin for two days and had a very positive response to the idea of a lower but harmonised rate. If we went in at 10%, would that not put at risk the very strong co-operation that we have with the Irish embassy here and everybody we met in Dublin? Would that not be rather provocative?

  Terence Brannigan: I think 12.5%, in itself, is provocative.

  Chair: That's not what we found. We were told that they would welcome 12.5%.

  Nigel Smyth: The CBI view is for a low and competitive tax rate. We know that the Republic of Ireland has got that and uses it as a very powerful marketing tool. The marketing aspect of it is very important; having it above the 12.5% doesn't give that. The 12.5% is very attractive, alongside the fact that the cost base—particularly labour costs in Northern Ireland—would perhaps be in the order of 15 to 30% lower than in the Republic of Ireland. Even getting 12.5% would be significant. If you go beyond that, you have an additional advantage.

Q89 Oliver Colvile: Gentlemen, thank you very much for coming. As an aside, one of the things that came out of our trip down to the Republic over the past couple of days was a sense that it wanted to see a dynamic and vibrant Northern Irish economy, because it saw that as an opportunity to sell into markets. That, I think, is in everybody's interest. However, for a second or so, I want to try to explore with you how we ended up getting into a position where the public sector became such a dominant force within Northern Ireland. Was it a political decision that was taken? As the troubles took place, was a decision taken here at Westminster that we needed to make sure that the Northern Irish people actually had some work to do, or was it just a gradual process whereby the public sector improved?

  Terence Brannigan: I think there are too many ingredients in the mix to be able to come to a very simple answer to that, to be honest. If I had the answer, I would probably patent it. There is a famous quote, which I am sure I will misquote: "Every time you think you've got the answer to the Irish question, they change the question." There are so many things in the mix that have affected and impacted on the issue of employment within Northern Ireland that it's impossible to say where it started and finished, and what was the major ingredient. But, for sure, as confidence fell away in the private sector, the public sector stepped in, and as money became more freely available, more and more expenditure was made in the public sector. While that stimulated the private sector, particularly in construction, at the same time there were significant numbers—we doubled our public sector spend in 10 years, which is massive. That is very significant. The massive part of public sector spend has always been labour.

  We have grown a culture of dependence on the public sector, which we have to get out of. We must get away from that dependence. Everyone has talked about rebalancing the economy, which is a very simple phrase, but an incredibly difficult thing to do. It will take a significant amount of time. There needs to be a major lever that we pull in order to change that and swing that balance. I cannot see another game in town. I genuinely cannot see another stimulus that could be as powerful, in terms of shifting that balance away from public sector dependence, both in terms of expenditure and employment.

  Chair: We were addressing why companies go to Northern Ireland in this set of questions. Is there anybody else who would like to ask something on this point?

  Q90 Mel Stride: Obviously, we are focusing on the 12.5% as this headline number, but as you have touched on, we have got the other tax elements, including payroll taxes, R and D credits, IP release, and so on. Will you talk a little about those and about how competitive you feel that the North is compared to the South in that particular area of taxation?

  Nigel Smyth: In terms of personal taxes, the Republic traditionally—

  Q91 Mel Stride: In terms of corporate taxes.

  Nigel Smyth: In terms of corporate taxes, the South has come from a position of very low corporate taxes. It had to harmonise in, I think, 2002. Before that it had 10% manufacturing and 10% in financial services. It then brought its broader business commercial services into line at 12.5% in 2002. My understanding is that it didn't see a tax drop—it actually had more taxes coming on the back of that. Part of the strategy then was actually to bring down domestic taxes on the back of that. The VAT rates are relatively high. I do understand that in the International Financial Services Centre there are particular tax issues to do with various things, but I am not an expert in tax and I cannot comment further on the detailed aspects.

  Certainly, if you actually look at its investment coming in this year, that is genuine investment bringing significant numbers of jobs. The biggest benefit would appear to be the corporation tax; it is attracting that investment, rather than any other particular taxes. It has an R and D tax credit too, which is similar, I understand, to the position in the UK, although there are some slight differences. It introduced that, I think, just after the UK introduced its own R and D tax credit.

  Q92 Mel Stride: I am thinking specifically here of taxes paid by corporations, but not at the 12.5% or 28% that we have at the moment—other underlying taxes faced by them, including the payroll, R and D, IP and so on. Do you feel that Northern Ireland has an advantage in that area, with regard to those other corporation tax elements?

  Terence Brannigan: They would have been broadly similar. There are two things going on here. One is that if you look at what has traditionally happened in the Republic up until the recent financial difficulties, its rates of tax were generally lower or around about the same as those enjoyed in Northern Ireland or, indeed, the UK; the big skew was corporation tax. Recently, of course, it has been addressing the whole tax regime. It is interesting to note that the one thing that it hasn't changed is the corporation tax, so while it has been raising other tax thresholds, that is more to do with its economic travails, rather than any competitive issue. That is about its own economy, but the one thing that it has absolutely not touched, because of the impact that it has been having, is corporation tax. That says a lot in itself.

  Nigel Smyth: Could I just respond? It has a property tax. Businesses pay a property tax, although the domestic sector doesn't. My understanding is that it has something that is equivalent to our national insurance contributions, too. The IFSC—the International Financial Services Centre—had, for the first 10 years, a rate rebate scheme built into that, but, more broadly, it has the property taxes and the other national insurance.

  Q93 Naomi Long: You talked earlier about some of the positives, in terms of being able to attract inward investment. Obviously, some of that has been done on an island-wide basis, but the difficulty and the crunch always come when people look at the corporation tax differential. Although we can market the island, if you like, to the US and so on, that always puts us at a competitive disadvantage.

  You mentioned going below 12.5%. Obviously, 12.5% equalises us and, if you like, eliminates the Republic's advantage, but it gives Northern Ireland no advantage. If you go below that, is there any reason to think that that co-operation would cease? Given that we have continued to co-operate with the Republic when there is a massive differential in its favour, would it not be in its interests to continue to co-operate and to compete on some of the other issues, in the same way that we have done while there has been a differential in place in its favour?

  Terence Brannigan: To be perfectly honest, it is difficult for me to judge that, but let us just apply some logic to it. I understand that some Members may be concerned about it being seen to be provocative, but if the Republic truly wishes to see Northern Ireland get out of the major slump that it has been in for a significantly long time, surely it would allow us that 2.5% advantage. Given where we sit, given the employment issues that we have and given the history that we have suffered, my personal view is that it is not a lot to ask, but you will be better able to judge that, in terms of talking to those in government within the Republic.

  David Simpson: In relation to the corporation tax, it is really not the rate of tax, or whether it is 12.5 or 10%; it is what it is going to cost the Executive at the end of the day. If we go for 12.5%—I am sure we will hear from the Minister later on—it could cost £300 million or £400 million. I don't know what the exact figure is. If we go down lower, it would obviously cost that bit more, so it will therefore take longer to claw that back.

  I would agree, incidentally, with Ian Paisley with regard to the rate. I think it should be lower than 12.5%, and I speak as a businessman in Northern Ireland. I think it would certainly give that advantage, and I don't believe for a minute that it would cause any difficulties with the South—it may get them to wake up a wee bit. I certainly think that Northern Ireland would deserve that, after 40 years of what it has gone through.

  Chair: That was more like a statement than a question.

  David Simpson: It is, but, in relation to the cost, I think they would agree with the overall cost factor.

  Q94 Lady Hermon: Exactly. It would be interesting for the Committee to hear the cost. If the CBI is very keen on the 10%, it must have made a calculation as to the amount that the Exchequer would lose if corporation tax were reduced to 10%. That amount would come out of the block grant going to the Executive in Northern Ireland, which concerns me considerably. What is the estimate of the cost if it were 10%?

  Terence Brannigan: The estimates swing between £150 million and £250 million. That is a massive bracket, and we do not have an answer from the Treasury as yet. My understanding is that we are due to have an answer by the end of the month as to what the quantum is. It has been impacted significantly, obviously, because the banks used to be a major contributor and no longer are, so there has been a significant change in the amount of corporation tax that has been taken from Northern Ireland. The fact is that we don't know. The Treasury has not been able to tell as yet, and unless the Minister has it up his sleeve, I have not heard a definitive figure. My understanding is there is supposed to be a definitive figure by the end of this month.

  Chair: That is my understanding of it, yes.

  Q95 Dr Alasdair McDonnell: Gentlemen, thank you very much for all your efforts on this subject. The question I want to ask is very simple. Would you want the reduction to be applied across the board to all businesses, whether existing or new? In other words, do you want to differentiate between new inward investment or new start-ups, and old, existing businesses? Could you apply it to clusters of interest, such as biomedical stuff or ICT stuff, or is it just a blanket? In other words, would you favour the blanket reduction, or would you favour trying to create some sort of selectivity?

    Terence Brannigan: That is a good question. In looking at that I have looked at the various models that you could use, and I reverted to the best model of all, which is other people's experience. Other people's experience tells us that if you are selective, you end up going general. Nigel just gave a very good example of that in the Republic of Ireland. In 1987 it introduced a 10% rate for financial services, and I think it was sitting at 24% for other things. Manufacturing and financial services had 10% and the rest of the economy was 24%. The Republic came to the conclusion very quickly that it needed a single rate across all businesses, which they set at 12.5%. It is not the only country that has had that experience, so I would rely on other people's experience. It is easier to administer, it is easier to manage and it appears to be best for the economy to have a single, lower rate across all businesses.

  Nigel Smyth: I think, from a European Commission perspective, we will only have one rate; I do not believe that it will allow us to differentiate. I think if you try to differentiate, you start introducing distortions within even the Northern Ireland economy, which would be unhelpful.

  Q96 Dr McDonnell: We're different in many ways, but one particular difference relevant here is that Northern Ireland has the land border that other parts of Britain do not have. In trying to tackle this, has anyone given any thought or consideration to similar situations within other European states, for instance Germany or East Germany and Poland—some of the old EU states and some of the new states from behind the iron curtain? How do they handle their tax differentials?

  Terence Brannigan: I'll profess almost total ignorance here. They say that a little knowledge is a dangerous thing; the little knowledge that I do have is that in the old central European countries—Bosnia, Macedonia and that sort of area—they have had to come up with a rate that is quite similar. My understanding is that they are sitting around 10%. There seems to be a lesson there that they have certainly come to a much lower rate than some of their major neighbours such as Germany, and they seem to have settled around 10%.

  Q97 Dr McDonnell: But has anybody done a particular study of those? Would it be possible for the CBI or somebody to take a look at some of those things?

  Nigel Smyth: I am not aware of that. The CBI has done a lot of work on tax which I can bring to the Committee's attention. Two years ago, we produced a major tax report looking at the whole area of UK competitiveness. That concluded that the UK should move towards something like 18% corporation tax over several years and outlined the benefits of doing that. It is about effective tax rates, coming back to David's point earlier, in terms of allowances. The UK still has an attractive corporate tax rate perhaps when compared with Germany, but corporate taxes in Germany in relation to either profit or GDP are significantly lower than they are in the UK. So there is concern across the UK on that.

  Q98 Dr McDonnell: On a general point, you expressed yourself in favour of a reduction to 10%. I apologise for missing your introduction as I was delayed downstairs by the vote, but would you do that as a one-off or on a phased basis? Some people have talked about phasing.

  Terence Brannigan: We have had a heck of a debate ourselves within CBI on this in Northern Ireland. I think there is a consensus. There is a consensus within all the business organisations in Northern Ireland that we need a lower rate corporation tax. There is a consensus that we need at least to have a rate of 12%, which would equate to the Republic's. There is a wish to have a big bang approach: get it in, get it in quickly, get it in effectively and then let's see the benefit accrue. However, there is an understandable and major concern about the initial impact. Hopefully we will very quickly have an accurate answer that we can all agree to on what the impact will be.

  We are all focusing our attention on the possible impact on our block grant. If it is toward the higher end, we would probably need to introduce it over, say, a four-year period, rather than take the big bang approach, because I just think it would be too much for the Northern Ireland economy and the Northern Ireland budget to be able to manage in the short term, however regrettable that might be. My instinct says, "Get it in, get it in quickly, get it in effectively," but this is one of the times when I have reined back my enthusiasm.

  Q99 Lady Hermon: Mr Brannigan, you made a very impressive opening statement and described the proposed reduction in corporation tax as transformational, but not a silver bullet. You see it as part of a package of reforms. What else has the CBI concluded would be necessary along with, if agreed, a reduced corporation tax?

  Terence Brannigan: It's interesting because the reduction in corporation tax has been around as a debate for quite some time. It made a comeback, as it were, under the guise of enterprise zone. When I asked what enterprise zone meant, I was told that actually it is about corporation tax, but it started some thinking going. I know that Nigel gave a lot of thought to it. I would love to steal his thunder but, Nigel, if you would?

  Lady Hermon: Nigel, please. It's lovely to have the two of you here.

  Nigel Smyth: It goes back to Terry's opening statement: for any company moving or investing it is a package of measures. The focus is very much on the business taxation rates, but it is also about access to markets; it is about the level of regulation; it is about the skilled work force. Our experience of engaging with our colleagues in the South was that, not just tax, but their skills and their focus in their technical colleges and universities were a major strength too. I think in Northern Ireland we would agree. We will need a totally new focus and foreign direct investment strategy from Invest NI, which is going to target profit centres. We need to make sure that our skills are lined up on the back of that.

  In terms of other things we could look at, as we have highlighted in our paper, there are additional tax incentives. They are not transformational but are strategically focused in terms of enhanced R and D tax credit and enhanced training credits, etcetera, on the back of that. We have also given further thought to the development of things like Belfast port as an enterprise zone and Belfast international airport. There is a very good example in the Republic of Ireland in the Shannon free zone, which has about 110 multinational companies based around the airport. The airport has full clearance procedures for accessing the US, which are not very costly, but very important if you can get them. Our understanding is that Dublin is going to get even better clearance facilities. If we could have those at the international airport, that would help.

  There are other UK taxes that we looked at. Two in particular stand out at the minute: one is air passenger duty and the other is the aggregates tax. Both have significant distortional impacts on the island of Ireland. Both are being devolved to Scotland in 2014-15. They should be devolved to Northern Ireland next year because, in terms of tourism and inward investment, strategies for the UK will not be particular or relevant to Northern Ireland. So, we could look at a number of things around that, a lot of which would not be particularly expensive, but would have quite a significant impact for drawing in tourism and, indeed, helping with foreign direct investment.

  Terence Brannigan: But if you put that kind of package together, led by a lowering of corporation tax, as a big headline, it would be a super marketing slogan. Get that, and then get such things as enterprise zones around the port or the airport, and you start to make Northern Ireland a true enterprise zone. That could be exceptional—really exciting in terms of driving forward.

  Q100 Mel Stride: Can I come back to the issue of phasing? When we were in the Republic recently, we met the IDA, and one point it stressed firmly to us is that it is not just the rate of 12.5%, but the certainty that that rate will prevail. Indeed, people have been looking at lower rates for many years in the Republic, and that certainty is proven. The suggestion was made that, if the rate came down from 12.5% and even though that would be more attractive in the short term, that might prompt the suggestion that if it can go down, it can also go up again. Do you feel that the idea of phasing, and of not going straight in at one rate and holding it, has that inherent weakness or uncertainty about it?

  Terence Brannigan: That is exceptionally important. We would have to make a statement right up front that our intention was to be absolutely wedded to going to 12.5% or 10%—whatever the rate was set at—within a given time, and we would have to stick to that for exactly that reason. There would have to be certainty, and that would have to be long term. In my view, you cannot do this for three years and say, "Let's try it out and see how it goes, chaps." The word you use is the crunch word for me—there has to be certainty around it. If we were going to phase it because, in the short term, we could not afford to bring it in with a big bang, as I would like, you would have to have certainty around it. That would mean saying clearly to everyone, "We are starting here. Next year it will there, and the year after there. And by the end of four years—or whatever—it will 12.5%, and it will be there for the long term."

  Nigel Smyth: Can I add that certainty features prominently in the CBI's report on tax from two years ago? To go back to the phasing, we understand it is going to take one, two, three years to bring the additional investment in, so there will be a lot of dead-weight in the first year, from which the existing companies will benefit. From an economic perspective, you don't get your bang from the buck early on. Agreeing with Terence, I think we have to agree a very defined path to get there and we then have to stick with it, for at least 10 years and probably for 15 years. If there is any move from that, there is no point in even trying to do it.

  Chair: Thank you. We will move on slightly.

  Q101 Gavin Williamson: I thought it was interesting that you picked up on the point that a business decision to invest in an area isn't just one thing alone. On the tax side, obviously we pay more than one tax, unfortunately. There is a lot of cost in terms of employment tax. At our last session, a number of tax experts said that payroll taxes are more onerous in the Republic than in the United Kingdom. Would you agree with that statement?

  Terence Brannigan: Referring back to what I said earlier, it depends on when you take the measurement.

  Q102 Gavin Williamson: Today.

  Terence Brannigan: Today—yes, because the Republic has had significant change in the past year or so. But, if we are talking about corporation tax and the impact a change in it might have in a package of measures and as part of a whole tax regime—looking at it from when it was introduced right up to recent times, with the major economic problems we have had—the Republic's tax regime was no worse in those other areas, and in some areas it was lower than ours. It is only in recent times that some of those have gone up significantly.

  Nigel Smyth: If you went back 10 years, they would have had much higher personal tax rates. Because they were doing so well, they brought those down quite significantly, and they have had to reverse that. We also have to remember the context: they don't have property taxes in the domestic sector, and they do not have water charges. You have to look at that in the round.

  Q103 Gavin Williamson: But don't you tend to find that if you are a business and you are locating, you look at the cost to the business?

  Nigel Smyth: I think you said yourself, there is a whole range of things.

  Q104 Gavin Williamson: Indeed, but you are looking at national insurance and things like that, and what it will cost you as a business. When you are thinking, "I am going to employ 1,000 people," those are all key criteria that need to be taken on board.

  Nigel Smyth: Yes they are.

  Q105 Gavin Williamson: In the last evidence session, the witnesses stated that even though corporation tax has been lowered, the Republic of Ireland has benefitted by increased tax revenue through employment taxes. They felt that more revenue had been generated through employment taxes, as well as corporation tax. However, in Northern Ireland, the Northern Ireland Assembly would have to take the hit from the reduced income from corporation tax, whereas the money from employment taxes would go into the general Exchequer. Do you think that that would create a tension?

  Terence Brannigan: No, in a way I think the opposite. We have had significant moneys. We have been dependent on the Exchequer to the tune of £9 billion per annum. I don't think that there are too many people in Northern Ireland who would not wish for the day when the subvention was reduced significantly and Northern Ireland was seen to be paying its way more. We all know the history and the significant problems we've had and we've been grateful for the support that we've had, but we want to have independence in terms of our economy. We want to stand on our own two feet, but we need the levers that will allow us to do that. This is a significant lever.

  If we can go back to the bundle of taxes, the significant thing for me is that when they lowered corporation tax, they did not see the overall tax take drop—as Nigel said—for exactly the reason you are giving. The volume overcame the discount, as it were. It is about getting the pricing right and driving the volume. You may have got a corporation tax reduction to 12.5%, but the volume of tax you were getting went up significantly, and also in those other areas, so there was a major compensatory factor. Those taxes, and other taxes, go to the UK Exchequer, and I don't think we have a problem with that, but for sure, we want to have some of the levers in our own hands. We want the ability to make some of those decisions and to drive major employment opportunities for our young people. This will help to do that.

  Nigel Smyth: I know that the Economic Reform Group gave evidence two weeks ago. There is a lot of detail in that report. The more you look at it, the more it seems that the Treasury is in a win-win situation—it has no risk. We in Northern Ireland take the risk. We take the early hit. If we don't get the investment, we will have to take the pain. If we are successful, the Treasury will gain from the VAT and the employment taxes that come with that.

  Q106 Gavin Williamson: This is probably a really unfair question, so I apologise for asking it—you probably can't give an answer in some ways. If you were a gambling man—or gentleman—how long do you think it would take to start seeing the benefits of this change? I realise that it must be part of a much larger package, but do you think that people in Northern Ireland would start to see benefits in two years, five years or 10 years?

  Terence Brannigan: First, I don't think it is an unfair question. I think that people in Northern Ireland have the right to ask that question if you are asking us to take a risk, and this is a risk. I am not a gambling man, but I am a risk taker. As a business man, you have to take risks in order to go forward. I believe that within five years we would see major benefits and it would turn around significantly. I believe that that is what we are there to do. If you are going to show leadership and enterprise, you have to take risk. That has to be a measured risk, of course. That's why Lady Hermon was right to ask what the cost would be. We need to know how much. My assessment at this moment in time would be that within five years you would see the benefit start to accrue.

  Q107 Lady Hermon: To carry on from that, what is your assessment of how many additional jobs would be created in Northern Ireland within five years if corporation tax were reduced to the 12.5%?

  Terence Brannigan: In 10 years we said about 45,000 jobs, so over a 20-year period you are talking about 90,000—that has been the equation. It is interesting because there are statistics that tell us that a 1% reduction in corporation tax brings a 1% increase in employment.

  Q108 Lady Hermon: Those are figures used in the Republic of Ireland?

  Nigel Smyth: No, the CBI report and various other sources, which we can make sure your Committee has a copy of.

  Terence Brannigan: Significant research was done. A 1% reduction in corporation tax brings a 1% increase in employment. There is an interesting statistic, in terms of North American intervention—that is, FDI from North America to cover the US. It has been calculated that a 10% reduction in corporation tax brings a 60% increase in US investment. At the moment, 74% of the FDI going into the Republic comes from—where?—North America, and 20% comes from Europe, mostly from France and Germany.

  That is why we are focused on corporation tax. It is not something that has been pulled out of the air. There is a lot of statistical evidence that says, "If you do it, it works." It is not just in the Republic of Ireland—look at the Azores and why we have the Azores agreement; or look at the Basque region in Spain, where there was a very significant impact when the same thing was done. There are other areas in the world where this has been done and it has had the same impact. It is evidence based—it does work.

  Q109 Lady Hermon: To repeat the question, in five years' time, if you were a gambling man, how many additional jobs do you think would be created in Northern Ireland?

  Terence Brannigan: Of course, it isn't linear. It isn't a straight line, so I can't just divide the 45 in two.

  Q110 Lady Hermon: Given the current American economy, I do not think that drawing comparisons with what has happened in the past equates to the present time.

  I am concerned that you have admitted, Mr Brannigan, quite rightly, that this is a risk. So I want to know, what guarantees has the CBI calculated? What number of jobs would be created in five years in Northern Ireland if we reduce corporation tax? It is a high-risk strategy and I want to know what the CBI is telling us this afternoon about the creation of jobs in Northern Ireland. What is the guarantee that we will create a significant number of jobs?

  Terence Brannigan: The evidence says that we will. If I take a risk, it is like any risk in business, Lady Hermon: when I am looking at it, I look to see what the evidence is telling me and extrapolate it from there. The evidence says that we will develop significant jobs. Guarantee? No. There is no guarantee and it would be totally misleading of me to sit here and say that I could guarantee you. I couldn't guarantee you anything.

  Lady Hermon: That is very frank and fair, which I appreciate.

  Chair: We should have finished this session three minutes ago, but given that we were slightly delayed, are you okay to carry on? We will try to finish by five minutes to 4. Do you mind if I move on to Joe, who has a completely different area of questioning?

  Q111 Mr Benton: Good afternoon. In 2007, Sir David Varney made a reference to the fact that the lowering of corporation tax to 12.5% would lead to a displacement of capital and profits from the rest of the UK. I wonder what your observations are on that—on the possibility that companies that are now based in Great Britain would move to Northern Ireland to take advantage of the lower tax rate.

  Secondly, is the view that you have expressed today fully shared by other CBI members? If I were a CBI member in another depressed community, in Merseyside or the North-East—indeed, I might extend it to the devolved Governments of Scotland and Wales—my reaction, with some justification, might be to say, "Well, I've got depressed areas also. Is it justifiable for us to benefit from these rates as well?" I am afraid there is a lot in that, but I have tried to be as quick as possible.

  Terence Brannigan: If I were being cynical, I would say that there was no surprise in the Varney report. I could have told you what the outcome would be. But that would be cynical and I am not a cynic. Moving on to your main point, would we see a shift from disadvantaged areas of the UK, of which there are a number, to Northern Ireland? I genuinely don't believe so, but then I would say that, because I am arguing on behalf of Northern Ireland. But I genuinely don't believe so, for several reasons.

  The relocation of existing operations is an exceptionally difficult, costly, time-consuming and risky business. I have done it and it is not something to be looked forward to. It is very costly both in money and in terms of resource. It is not easily undertaken. Secondly, if that were going to happen, you would probably have seen a wholesale shift into the Republic of Ireland from the UK. We sit on the same island and it is as easy to move it from the North-East or from Merseyside into the Republic of Ireland as it would be into the North of Ireland. Indeed, you would have seen a major shift from the North of Ireland down the road, down the A1 to Dublin and down to Cork and across to Limerick, and of course we haven't seen that. There has been very little of that, so I do not believe that that is a risk. I understand people's concern about that, but I genuinely do not believe that to be a high risk.

  Nigel Smyth: I don't think there is any evidence whatsoever to substantiate that. In Northern Ireland in the last decade, probably not even a handful of companies have even thought of moving from Northern Ireland to the Republic. As Terry said, it's not just a tax but a whole range of things that come with that, so you're really only looking at the fairly mobile. At a UK level, yes—if somebody's headquarters are moving, which could go to Switzerland or elsewhere. Dublin has secured a number of those in recent years. But I don't think there's any evidence. If we look at the Irish Development Association's 68 investments this year, not one of them comes from the UK. The vast majority are from the USA looking to access new markets.

  Q112 Mr Benton: Is that the view right across the CBI?

  Nigel Smyth: The CBI's view is to support very strongly a lower corporation tax rate. This is specific to Northern Ireland. We are going to have to take the pain that comes with that. We believe it is in the interests of Northern Ireland in terms of job creation that we actually do that. We do need to know what the cost is.

  Chair: We are running out of time.

  Q113 David Simpson: May I follow on very briefly from Joe's point? In discussions with the business community in my area, they of course welcome the corporation tax being lowered, but they also have emphasised that they would like to see a level playing field. By that, they mean how do we protect against brass plating if this is introduced? Companies in my area of Craigavon—the second largest manufacturing base in Northern Ireland—are saying, "OK, fine, we'll have this, but other companies are going to come in and put a brass plate in the door for convenience." It would have to be enshrined in legislation somewhere. How do you think it can be protected?

  Terence Brannigan: Every time we have talked about corporation tax, that has been one of the concerns. Our experience has been that it hasn't happened very much. Indeed, when it started to happen, rules and regulations were introduced. The easiest one for me is head count, and that is probably what I would align it with, so there are relatively simple, straightforward ways. What you don't want is a regulatory system that has to be blown out of proportion in order to manage that kind of thing. There are reasonably simple, straightforward mechanisms that you can introduce, and head count is one of them.

  Q114 David Simpson: It has happened in the South of Ireland—not to a great degree, but it has happened in the Republic. Apart from that, apart from the taxation and so on, what other non-economic reforms do you think could help stimulate, for example, planning reform in Northern Ireland?

  Terence Brannigan: If you are going to chase after a significant increase in foreign direct investment, then the single most important thing for me, besides the economic drivers, is creating an environment that is business-friendly—a culture that is business-friendly. If you have excessive regulation, if it is very difficult and long-winded to get things done—I'm not just talking about planning, but planning is the best example, because we all know about it and it is a major frustration for everyone, public and private sector, in Northern Ireland— Believe me, if you get some of these major corporations who are used to being able to make decisions quickly and get things done quickly—we are talking about massive pieces of investment—they expect you to be able to move quickly. That is it for me—a business-friendly environment, a business-driven culture with speed of action, ease of regulation and the ability for things, such as planning, to be fast-tracked. That is exceptionally important to give people confidence.

  Chair: One very last question.

  Q115 Oliver Colvile: Where would you see the investment priorities for Northern Ireland to ensure that you can retain the infrastructure and, more importantly, the skills base as well? We admitted earlier that it was very important to maintain that skills base, because that will be a principal reason why people will come and do business in Northern Ireland.

    Terence Brannigan: It is a good point, given where we are with our budget. You will all be aware of the 7% reduction in what I call the revenue expenditure—the day-to-day budget. I believe that that is relatively comfortable to manage, although no cut is comfortable. The capital expenditure budget reduced by 37%. I have little doubt that we will probably need to transfer revenue to capital, because to allow all these things to happen you need an infrastructure that will be able to sustain the kind of foreign direct investment that we are talking about. That is part of the ease of doing business. We need to invest in our infrastructure and in our people. The obvious things are infrastructure and skills.

  One of the things that we really, really need to focus on is ensuring that we keep our young people. This is my biggest single fear if we do not do this. I go back to the time when I had just come through my education and, like a lot of my friends and colleagues, left Northern Ireland. Why? Because there was nothing there for them to do in terms of a career. We lost a generation of people—a generation of people: all our best. Those who didn't leave went into the public sector, so we have some of the best brains and exceptional talent within our public sector. Let us not forget that. Northern Ireland has exceptional talent within our public sector, but in our private sector we lost a generation. We cannot afford to do that again. Unless we make this kind of investment, unless we take this kind of decision, we will lose them.

  Q116 Lady Hermon: So does the CBI have a view yet about the proposed increase in student fees? Will that affect our skills base in Northern Ireland?

  Chair: Very quickly please, because we have to move on.

  Nigel Smyth: The CBI has a national view. We haven't taken a local view. That is now being considered by the Department for Employment and Learning.

  Q117 Lady Hermon: But you will come to a view.

  Nigel Smyth: We will come to a view, yes.

  Chair: We have to move on. That was a very interesting session. Thank you very much for coming. I am sorry to have to rush, but we have one more session this afternoon. Thank you very much for coming today and giving your evidence.

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