Written evidence from the Northern Ireland
Independent Retail Trade Association
The Northern Ireland Independent Retail Trade Association
is the representative body for the independent retail sector in
Northern Ireland.
Although the Association was only formed in Spring
2000 it already represents the interests of over 1,250 independent
retail members throughout the Province. Our collective membership
employs more than 30,000 staff and has an annual turnover of over
£3 billion to the Northern Ireland economy.
NIIRTA membership includes wholesalers, independent
retailers of all kinds, suppliers to the sector and affiliated
traders groups.
Our member stores are generally owned and managed
by local families rather than large multi-national companies with
shareholders. These member stores are absolutely vital in providing
local employment as well as a strong focal point within the local
community.
We very much welcome the opportunity to submit evidence
on this subject.
Northern Ireland is a small business economy—with
98% of all businesses classified as "small". The independent
retail sector is the biggest sub-sector of that economy and plays
a crucial role as the backbone of the private sector.
A number of recent decisions have encouraged NIIRTA
to believe that the Northern Ireland Executive has recognised
the value of the independent retail sector to the local economy.
This economy faces unprecedented challenges in the
years ahead, and it is important that all sectors and levels of
government consider all the options open to them. Corporation
Tax rates is a critical area for consideration.
NIIRTA is also a socially responsible organisation
who through its members, strives for a sustainable future in terms
of social, ethical and environmental factors.
INTRODUCTION
The Northern Ireland Independent Retail Trade
Association strongly supports the proposal to reduce corporation
tax rates for Northern Ireland
The independent retail sector will principally benefit
from any reduction as the wider economy flourishes and increases
its competitiveness, especially in respect to the Republic of
Ireland, and attracting much more significant levels of Foreign
Direct Investment.
When the Economic Reform Group launched its report,
The Case for a Reduced Rate
of Corporation Tax in Northern Ireland,[1]
NIIRTA Chief Executive, Glyn Roberts commented:
"This is a very well researched and professional
report which should be required reading for all of our MLAs and
MPs if they want to see a major step change in the Northern Ireland
Economy."
"There is no doubt that more FDI for Northern
Ireland as a result of a lower Corporation Tax rate would be a
win-win for both creating new jobs and the knock on effect this
would have for our indigenous small businesses."
"More large companies coming to Northern
Ireland and therefore more people spending would be clearly beneficial
for local retailers and suppliers."
"The Economic Reform Group has also kick-started
an important debate about what future fiscal powers our Assembly
should have to ensure it plays a bigger role in making our local
economy fit for purpose."[2]
There have been many reports and surveys on this
issue in recent years. NIIRTA now firmly believes that the
time for action has arrived. Business owners are becoming
frustrated at a lack of tangible action, which needs to be addressed
as a priority by both the devolved and national governments.
The current fiscal instability should be viewed as
an opportunity to take the radical decisions which will refocus
and grow the local economy.
Is a reduction in corporation tax the simplest
and quickest way to make the NI economy more competitive and how
long would it be before Northern Ireland realised the benefits?,
What alternative measures could be introduced by the UK Government
to make the NI economy more competitive? and what are the implications
for Northern Ireland?
No-one should make the mistake of thinking if a reduction
in Corporation Tax were to be implemented all Northern Ireland's
economic difficulties would be solved; there are EU states with
lower rates, and there are other considerations such as quality
of infrastructure, skills base, access to markets etc to be taken
into consideration.
Northern Ireland scores well in these areas but there
is room for significant improvement. There is not a huge difference
when comparsions are made to the Republic of Ireland, therefore
a reduction in Corporation Tax could rapidly level the playing
field with the Republic and should fairly quickly enable Invest
NI to be much stronger in negotiating with those multi-nationals
who are clearly expressing a preference for the Republic of Ireland
at this time.
Despite its troubles the Republic of Ireland is demonstrating
that its continued low rate of corporation tax is still a popular
measure for encouraging a new generation of foreign investment.
Even a cursory look at recent IDA press releases[3]
indicates the level of ongoing FDI activity, principally from
American multi-nationals, is increasing.
The challenge will be government's ability to deliver
the resources required to improve (or indeed, maintain), Northern
Ireland's competitive position in light of the predicted deep
cuts in public expenditure.
There have already been significant steps to improve
local competitiveness. Initiatives such as MATRIX, Town Centre
regeneration master plans, the restructuring of Invest NI and
high levels of infrastructure spending are rapidly improving the
"Northern Ireland product", from those independent retailers
focused on the domestic market (including servicing the growth
in the tourist sector) to the export-driven, technology-led businesses.
All have a part to play in building the local economy.
Many of the decisions to improve the local economy
are in the hands of the devolved Assembly, and NIIRTA believes
that there is an opportunity to consider an imaginative partnership
with the Republic of Ireland, building on existing cross-border
economic development initiatives, and encouraging greater co-ordination
in corporation tax policy, amongst other strategic tools.
With the ever improving political situation, and
close partnerships emerging such as the all-island Single Energy
Market and tourism partnerships, there is greater scope than ever
to create economic structures which can benefit both sides of
the border whilst retaining their separate sovereign statuses.
What effect will the reduction in the corporation
tax rate on a UK wide basis announced in the June 2010 Budget
have on the competiveness of the Northern Ireland economy?
While the declaration that Corporation Tax is to
be reduced over the next four years will be welcomed by all businesses
in the UK, the fact is that even after the four years of reduction,
the Corporation Tax rate will be around 6% higher than the Republic—a
position that is simply not sustainable from a Northern Ireland
perspective, and therefore any government proposal which fails
to address this point will have little or no impact.
What would be the effect of reduced tax revenue
in Northern Ireland?
Business confidence has proved to be resolutely low,
and it is becoming clear that radical stimulus measures are going
to be required to sustain economic growth. The requirement for
Northern Ireland to initially forfeit a significant budgetary
figure as part of a Corporation Tax reduction is a challenge which
will require detailed consideration. Already faced with receiving
a lower block grant allocation, a further reduction through corporation
tax concessions will mean further pain in the short term. The
inevitable reduction in government services will hurt all stakeholders,
however, NIIRTA believes that if the local economy is to be rebalanced
effectively then such hard decisions must be taken and it is advantageous
to take them now so as to allow the private sector to "get
on with the job" of moving forward.
Laying the foundations for a better tomorrow needs
to take into account the consequences for the present day and
those businesses trading in the current environment. The independent
retail sector, already facing many pressures, finds the marketplace
already extremely challenging—a further erosion of short-and-medium
term spending power could prove hugely damaging, perhaps terminally.
Therefore a reduction in the rate should be accompanied by measures
to protect short term economy stability; such measures must be
agreed on the basis of interdepartmental co-operation within the
Northern Ireland Executive.
European Union Rules—The Implications
NIIRTA welcomed the clarity that determined that
EU rules permit a reduction of corporation tax in a region within
a member state (ie Northern Ireland within the context of the
United Kingdom). Given that the "region" must have "political
and administrative authority to introduce its own tax regime"[4]
this is a quite a step forward for the Northern Ireland Assembly
and all those represented in it must ensure that it is underpinned
by stability and long-term thinking to make this a viable option.
The Implications for the Independent Retail Sector
The independent retail sector will be a key player
in any economic redevelopment plan for Northern Ireland, and will
benefit greatly as a consequence of the increased wealth generated
from the provision of high value jobs and miscellaneous work filtering
down from larger organisations. Therefore it is fair to say that
the initial tool of a lowering of corporation tax will have a
significant "ripple effect" throughout the district
economies where inward investors can be attracted to. Such large
organisations are often generous patrons of local projects and
community based activities, and the positive sense of economic
activity provides a stimulus in itself to town and city centre
planning. There is a real concern of a lack of funding being forthcoming
from Government in the years ahead (despite a significant number
of master plans being released recently by the Department for
Social Development) and therefore the attraction of large businesses
can compensate to a degree, and act as a driver in their own right.
What would be the benefits of equalizing the corporation
tax rate in Northern Ireland with that of the Republic of Ireland?
& what evidence is there from other countries that having
different corporation tax rates on a regional basis is effective?
The benefits of equalizing the corporation tax rate
is clear when one considers the remarkable achievement of the
Republic of Ireland, which despite the current downturn, continues
to house a strong, export-oriented business sector.
How the Irish government transformed the country's
tax system and as a result turned Ireland into one of the world's
best performing economies, is well known. It is fair to assume
that a significant amount of the investment that has located in
the Republic of Ireland could have been located north of the border
if conditions had been more favourable.
A major contributor to Ireland's export performance
in both manufacturing and services has been its success in becoming
host location to multinational companies in key high value-added
sectors like pharmaceuticals, medical devices and ICT. As the
Republic's Government acknowledges, Ireland's very competitive
corporation tax regime played a crucial role in attracting such
investors and it has made clear that, notwithstanding the current
pressure on the public finances, this competitive advantage will
be maintained.
CONCLUSION
There has been much written of the economic challenge
ahead. However, it is also an opportunity for business and the
public sector to work within a new tax and spending framework,
and through necessity, take forward new innovative approaches
to doing business and operate with new levels of efficiency.
NIIRTA supports the reduction in corporation tax
to bring Northern Ireland into line with the Republic of Ireland—with
appropriate measures to assist and protect as far as possible
existing business sectors, who may suffer consequences in funding
shortfalls as a result of initial lower budget allocations. The
experience of the Republic of Ireland has demonstrated that low
levels of corporation tax can act as a significant driver in generating
significant levels of FDI and thus support a prospering indigenous
sector, through growth in employee wage levels etc. However, not
everything has been perfect and Northern Ireland can learn from
mistakes made, such as consider carefully the geographical locating
of FDI projects to maximise spread and create a genuine provide
wide economic strength.
Many indigenous businesses, large and small, including
many NIIRTA members—will gain both directly and indirectly
from a more competitive rate of corporation tax. This would position
Northern Ireland better as a cost effective place to do business,
thus attracting major international investors.
A better commercial environment benefits all businesses—and
the independent retail sector will grow significantly aided by
growth in the wider economic picture.
There is a unique opportunity for radical action
to rebalance and grow the Northern Ireland economy, principally
through private sector growth and innovation. However, politicians
must show the same enthusiasm for economic development and fiscal
planning as they do in creating the current structures for political
development.
They must also show the will to communicate and "sell"
hard and unpopular messages to the electorate. There will inevitably
be short term cost implications for longer term economic benefit,
but there is no alternative to radical thought and the time to
take the leap is now.
6 September 2010
1 http://ergni.org/reports/report_corporation_tax_may_2010.pdf Back
2
NIIRTA Press Release-NIIRTA Welcome ERG Report on Corporation
Tax, 16 February 2010-www.niirta.com Back
3
http://www.idaireland.com/news-media/press-releases/ Back
4
http://ergni.org/reports/report_corporation_tax_may_2010.pdf Back
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