Written evidence from Bombardier Aerospace
Belfast
INTRODUCTION
1. Bombardier Aerospace Belfast is the largest
manufacturing company in Northern Ireland, with some 5,000 employees,
annual sales in excess of US$800 million and generates close to
10% of Northern Ireland's manufacturing exports. The Belfast site
has benefitted from over US$2 billion investment since 1989 to
make it a centre of excellence for the design and manufacture
of fuselages, wings, nacelles and advanced composites, as well
as after market support.
2. Bombardier Aerospace Belfast's strategy is
to provide our customers with innovative, higher added value aerospace
products and services. As economies around the world recognise
the wider economic benefits associated with the aerospace business
sector (highly skilled workforce, cutting edge technology, extensive
supply chain), competition to attract major aerospace programmes
is intensifying. Bombardier fully supports a proposed reduction
of the corporation tax rate in Northern Ireland as an important
contribution towards the creation of a more competitive business
environment in which we can more effectively compete for future
long-term aerospace development projects.
3. 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 a welcome step in the right direction, the
impact of the reduction from 28% to 24% will have a very limited
effect on our operations or on the economy. As part of Bombardier
Aerospace, our Belfast operation regularly competes for work packages
on new Bombardier aircraft programmes including against one or
more of its sister sites as well as other potential host locations
worldwide. In line with a focus on shareholder value and return,
Bombardier Aerospace at Group level takes into consideration after
tax returns as part of this evaluation and therefore the tax rate
in any jurisdiction is very relevant to decisions on where to
locate major long term development projects. The ability to participate
in the Group's investment plans going forward is crucial for the
future of the Belfast operation.
4. What would be the benefits of equalizing
the corporation tax rate in Northern Ireland with that of the
Republic of Ireland?
A corporate tax rate reduction, from the 24% already
announced in the UK, down to that applied in the Republic of Ireland
(12.5%), would constitute a major improvement in the after tax
competitiveness of our Belfast operation, and improve the competitiveness
of Belfast bids for future long term development projects. More
generally, as the Republic of Ireland also offers a R&D Tax
Credit scheme similar to that of the UK, equalising the corporation
tax rate would significantly enhance Northern Ireland's relative
value proposition for potential and existing inward investors.
5. What alternative measures could be introduced
by the UK Government to make the NI economy more competitive?
A range of measures, in addition, rather than as
an alternative, to tax equalisation with the Republic, are required
to ensure Northern Ireland maintains and develops an attractive
environment for its aerospace sector. As a major investor in research
and development, Bombardier strongly believes that the on-going
availability of, and improvements to, the R & D tax credit
scheme, are essential. This tax credit is a key element in all
Bombardier Aerospace Belfast's bids. It directly impacts our competitiveness,
and therefore has an important bearing on decisions at Group level
on whether research and development programmes should be located
in Northern Ireland. A good example of such a high technology
programme is the Bombardier CSeries commercial aircraft programme
launched by Bombardier in 2008, where Belfast successfully competed
for and was awarded the contract to design, develop and manufacture
the aircraft's wings. The wings will be made mainly from advanced
composites using a technology developed and patented by Bombardier
in Northern Ireland. This investment, the largest in Northern
Ireland's history, is currently underway and has a total value
of some £520 million which also includes a new fully equipped
wing manufacturing plant. Some 800 jobs will be generated at full
production with many more in the UK supply chain.
A further measure is also very important to Bombardier's
decisions on where to locate investments. Given the large scale
initial investment and long development cycle (four years or more)
associated with aerospace development programmes, and the absence
in the commercial market of viable financing for new aircraft
programmes, the ability of the company to access repayable launch
investment is critical. This type of investment is available in
a number of other jurisdictions and, if UK is to remain an attractive
location for large internationally mobile aerospace development
programmes, it must be retained. Essentially, a range of measures
are therefore required, including early stage R&D support,
product development investment, and a favourable tax regime which
takes into account that profits are generated through the normal
20-25 year aerospace programme life.
6. 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?
We believe it is both the simplest and quickest way
to begin to re-balance Northern Ireland's economy. In addition
to the other measures outlined above, it will significantly increase
Northern Ireland's attractiveness as a location, not only for
future aerospace development programmes but also for the R&D-driven,
high value added investment in other sectors which has been an
indispensable element in the Republic of Ireland's development
as a formidable performer in the world's export markets.
7. What are the legal barriers to the introduction
of different corporation tax rates on a regional basis within
the UK?
Any part of the UK which wished to have a different
rate of Corporation tax would have to satisfy the criteria set
out in the European Court's Azores judgement. We understand that
it has already been established that Northern Ireland, if given
the power to determine its own Corporation tax rate, will be able
to meet all the Azores criteria.
8. What would be the effect of reduced tax
revenue in Northern Ireland?
It would be for the Northern Ireland Government to
deal with the consequences of the initial reduction in the yield
from corporation tax. The need to do so would not arise immediately
since time would obviously elapse before the new arrangements
were in place. It would then be for the Northern Ireland Government
to decide when and how to trigger the tax reduction. This could,
for example, be phased in over, say three years, to allow for
the likelihood that it would take time for new foreign direct
investors to be attracted by the prospect of a reduction in the
corporation tax rate and to set up in Northern Ireland and begin
making profits. If the lower tax rate were phased, the reduction
in the amount available for NI public expenditure would likewise
be phased. Given the prize of obtaining a powerful new economic
weapon, any consequential reordering of public expenditure priorities
would be fully in line with the Government's aim of re-balancing
the economy.
9. What evidence is there from other countries
that having different corporation tax rates on a regional basis
is effective?
There is extensive research literature indicating
the effect of corporation tax reductions on the location of green
field investment but one has to go no further than the Republic
of Ireland to find a practical example. It has consistently achieved
a share of foreign direct investment far in excess of what might
have been expected on the basis of its factor endowments. Its
12.5% corporation tax regime is accepted by the Government of
the Republic as key to that achievement. When the current programme
of tax increases and spending cuts to reduce the Republic's deficit
was instituted, the Government made clear that the retention of
the 12.5% corporation tax rate was a priority. According to statistics
produced by the United Nations Conference on Trade and Development
(UNCTAD), of 71 billion dollars of foreign direct investment attracted
to the UK and the Republic in 2009, 25 billion dollars went to
the Republic—a wholly disproportionate amount by any criteria.
It represented 4% of all the foreign direct investment which went
to developed countries. Critically important is the way in which
the low tax rate has proved capable of attracting very high quality
investment.
10. What are the implications for other regions
if there were different levels of corporation tax within the UK?
There is no reason why lower taxes could not be deployed
in other regions if considered necessary to deliver the required
improvement in economic activity levels, provided that the Azores
criteria are satisfied.
16 September 2010
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