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 transformationalI 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 saidobviously, I've been focusing on the need for a
low corporation taxthat 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
taxCBI 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 servicesHalifax,
Santander, ICICI Bank, Fujitsu and a number of other companies,
some of which already had a presence in Northern Ireland and were
building on thatbut 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 backclotha
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 baseparticularly labour costs in
Northern Irelandwould 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 numberswe 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 dropit
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 momentother 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 IFSCthe International Financial Services Centrehad,
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 onit 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 Southit 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 Polandsome 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 countriesBosnia, Macedonia
and that sort of areathey 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 exceptionalreally
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 atwithin 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 methere 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 yearsor
whateverit 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: Todayyes,
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 regimelooking at it from when it was introduced
right up to recent times, with the major economic problems we
have hadthe 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 dropas Nigel
saidfor 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 situationit 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 ityou
probably can't give an answer in some ways. If you were a gambling
manor gentlemanhow 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 90,000that 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 interventionthat 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 fromwhere?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 Irelandlook
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 basedit 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 thaton 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-Eastindeed,
I might extend it to the devolved Governments of Scotland and
Walesmy 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, yesif 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 Craigavonthe second largest manufacturing base in Northern
Irelandare 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 Irelandnot 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-friendlya
culture that is business-friendly. If you have excessive regulation,
if it is very difficult and long-winded to get things doneI'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
quicklywe are talking about massive pieces of investmentthey
expect you to be able to move quickly. That is it for mea
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 expenditurethe
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 peoplea 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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