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Lord Molyneaux of Killead: I support the case made by my noble friend Lord Rathcavan. As the Committee will know, he is an outstanding figure in the world of commerce and industry in Northern Ireland and further afield. He will share my view that for many years we have been far too dependent on government employment. Sooner or later some sectors will disappear, so that it is important that there should be a compensating factor.

I derive a good deal of encouragement from the sympathy shown by the noble Lord, Lord Cope, particularly as he is a former Treasury Minister. I am sure that he will do all he can to persuade his successors to be equally sympathetic.

4.30 p.m.

Lord Cope of Berkeley: Encouraged by the noble Lord, Lord Molyneaux, I support the spirit of the amendment. Taxation decisions on corporation tax and the other main taxes discussed in the previous amendment should remain in the Treasury, in the central government of the United Kingdom. I support the proposition that the Treasury and everyone else need to address the discrepancy in corporation tax between the Republic of Ireland and Northern Ireland. I am in no doubt that it has an increasingly serious effect on inward investment and that that in turn will be damaging to the

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economy of Northern Ireland. That economy is important for itself, but also for its contribution to bringing peace and good order to the Province. It will be much more difficult to achieve the kind of atmosphere we want in Northern Ireland if people are under great economic pressure. They continue to have high unemployment. There is extremely high unemployment in some areas of the Province, particularly in the west where it is among the highest in the European Union.

That discrepancy needs to be addressed. I am sure that the Assembly will wish to discuss it as well and make its points known. As I understand it, the Assembly can do so under the Bill. I hope that that is correct.

Lord Fitt: This is one of the most sensible amendments that we have had to the Bill since its introduction in the House. I am not in a close relationship with the business community or commerce but I know from discussions that I have had in Northern Ireland that there is full support for the recommendations made by the noble Lord, Lord Rathcavan.

There is another way to look at the problem. The British Government have put a great deal of energy into making the Belfast agreement, first, come on to the books and then ensuring, even within the past 24 or 48 hours, that it continues down the road to success. That is one way that the British Government could prove their intent, that they want to help Northern Ireland, that they want to see outside investment being attracted to it, that they want to see a reduction in the unemployment figures there.

If there is a reduction in the tax and it attracts industry, not only from America but also from other places, to Northern Ireland, it would lead to a consequent reduction in unemployment. It would mean that those who are at present unemployed and in receipt of welfare benefits would no longer claim welfare benefits from the state, so there would be a claw-back into the coffers of the British Government. It would not be all one-way traffic, it would not be regarded as a welfare gesture. If people are unemployed then the attraction of investment would mean that they would possibly pay tax back to the Exchequer if they had jobs.

In view of what was said by the noble Lord, Lord Rathcavan, which is supported by the vast majority of elected representatives in Northern Ireland--and it will meet with total unanimity from Northern Ireland representatives in this House--the Government should give serious consideration to the amendment.

Lord Goodhart: Like all the speakers in the debate other than those who come from Northern Ireland, I recognise that there is a problem, it is serious and needs attention. But I must agree that it is not best dealt with by this proposal. Corporation tax, among all kinds of taxation, is one of the least suitable for the creation of differential rates within one jurisdiction. It is not just a matter of tax rates between Northern Ireland and the Republic of Ireland, but potentially of tax rates between Northern Ireland and Great Britain. The reduction would have to be very substantial in order for it to be effective, given the extremely low rate of tax in the Republic of

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Ireland. It would merely shift the discrepancy from one between the north and south of Ireland to one between Northern Ireland and Great Britain, with all the problems to which that would give rise.

If Northern Ireland were to achieve tax haven status for corporation tax within the United Kingdom, it would open up all the problems of transfer pricing and so on within this one jurisdiction. For that reason, while it is clear that something should be done so that Northern Ireland provides no less favourable an opportunity for inward investment than the Republic of Ireland, I am unable to support the amendment.

Lord Dubs: This has been an interesting discussion and in reply to my noble friend Lord Fitt I must say that the Government are totally committed to getting levels of unemployment down, creating more jobs and encouraging inward investment. That is why the Secretary of State and other Ministers have been on the 11-city tour in the United States. It is all intended to encourage inward investment and to tackle unemployment.

But corporation tax is not the only area where there are possibilities of encouraging inward investment. I appreciate that corporation tax in the Republic of Ireland is significantly lower than in the United Kingdom. But there are other ways in which countries develop a package of incentives to encourage inward investment. For example, we have the IDB in Northern Ireland which helps with inward investment. No doubt there are other ways in which the Secretary of State, on her 11-city tour, encouraged potential North American investors to look at Northern Ireland as an attractive investment opportunity.

I ought to say that on the disincentive side, I believe that the events at Drumcree in July were probably a greater disincentive to inward investment than any other factor. If only people would show more sense in relation to Drumcree next year, maybe some North American companies that have been deterred in the past from coming to Northern Ireland will proceed to do so.

I understand that the purpose of Amendments Nos. 234 and 235 is primarily to enable the Assembly to discuss corporation tax in Northern Ireland. It is important to note that corporation tax provisions are determined centrally by the Treasury in the context of the United Kingdom's overall fiscal policy. To do otherwise might produce undesirable distortions within the UK single market. For that reason, it is important that corporation tax, like other taxes, remains an excepted matter. Despite the comments made by the noble Lord, Lord Rathcavan, my understanding is that there was no consensus in the talks for the Assembly to have the power to vary taxes. There is certainly nothing in the Belfast agreement about tax-raising powers.

However, I should also make it clear that keeping corporation tax as an excepted matter does not rule out the possibility of a differential regime in the future within different parts of the United Kingdom. It simply means that it can only be introduced by a Westminster Bill. There are such Finance Bills each session. But lest the comments I made just now are likely to be

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misunderstood, I should make it clear that the Government have no plans to introduce a differential regime. All I am describing is the theoretical possibility of achieving the noble Lord's end through Westminster legislation rather than through changing the Bill.

Equally, I should also add--and I have mentioned this before--the agreement has provisions for regular reviews. If a proposal emerged from such a review, we would consider it carefully.

The noble Lord, Lord Holme, mentioned increased co-operation with the republic as regards attracting inward investment. That is certainly an attractive possibility, although I am bound to say that there is some tension, given that Northern Ireland would be competing with the republic. Nevertheless, co-operation is interesting. I hope that the noble Lord will treat that, as well as the other remarks I have made, as suggesting an element of imaginative sympathy, which is what he asked for. I reassure the Committee, as I sought to reassure the noble Lord, Lord Fitt, that the Government want to do everything possible to encourage inward investment. However, we do not believe that the amendment of the noble Lord is the right way to proceed.

Lord Holme of Cheltenham: Before the noble Lord sits down, I thank him for his very generous response to my suggestion. We must get over to our friends in the Republic of Ireland that there is a price to be paid by them as well as by the United Kingdom to ensure that the future of Northern Ireland is as prosperous as can be. I feel no compunction about making those representations as strongly as possible in the new bodies that have been established. If they regard their mission as to take a larger and larger share of the Irish inward investment cake then it will be at the expense of Northern Ireland. Therefore, although I agree with the noble Lord that it takes a little leap of the imagination it is a case that we should make quite strongly to them.

Lord Dubs: Even though corporation tax in Northern Ireland is an excepted matter there is nothing to prevent the Assembly discussing that matter and putting proposals to the Government. To address the point just made by the noble Lord, equally there is nothing to prevent that issue being discussed in the North South Ministerial Council or the British-Irish Council. All of these are contexts in which the point made by the noble Lord can be given an airing in the interests of Northern Ireland and co-operation between Northern Ireland and Dublin, but responsibility for taxation must rest with Her Majesty's Government. More generally, the promotion of Northern Ireland trade under paragraph 16 of Schedule 3 is a transferred matter. Therefore, the Assembly can take a whole range of actions to promote such trade.

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