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There is a convincing case for reducing the corporation tax rate in Northern Ireland, not least so it can better compete with the Republic of Ireland, concludes the Northern Ireland Affairs Committee in a report published today.

The committee supports the principle of devolving to the Northern Ireland Executive the decision over whether or not to amend the rate of corporation tax, and believes this would assist the indigenous private sector to expand, innovate and employ more staff.

The committee’s report uses 12.5% as a benchmark for the lower rate of corporation tax, but suggests that on the basis that the decision is devolved to the Northern Ireland executive it may, in due course, choose a lower rate.

To maximise the benefits of a lower rate, the committee says continued progress needs to be made on other economic development policy mechanisms, including planning, education, and incentives for research and development and exporting.

Maximising Northern Ireland’s competiveness must be the goal of the UK Government and the Northern Ireland Executive, and the committee recommends they work together to produce a clear, single package of incentives that is good for businesses already working hard in Northern Ireland, and attractive to potential foreign investors.

'Not a panacea' 

Low corporation tax is not a panacea for all Northern Ireland’s economic ills, warns the committee, and there are considerable implementation issues: direct comparisons with the Republic of Ireland and its experience with 12.5% are difficult because the UK and Irish tax systems are different; and the UK Government would have to satisfy the criteria laid down in the Azores judgment for the tax reduction to satisfy EU rules on state aids.

This means the decision to vary the rate must be devolved to Northern Ireland, the receipts for corporation tax raised in Northern Ireland would be kept in Northern Ireland, but at the same time the block grant would be reduced by the same amount as the initial corporation tax receipts.

HM Treasury 

The committee was surprised to discover HM Treasury do not know how much corporation tax is raised in Northern Ireland.

It is important that the Northern Ireland Executive has as much information as possible before deciding if, and how, it wishes to lower the rate, and at least a better idea of the amount of financial risk they are taking on.

Furthermore, the benefits of lowering corporation tax must not be outweighed by the costs to businesses and HMRC, an issue also identified by previous Commissions into devolving corporation tax to Scotland and Wales.

Laurence Robertson MP, Chair of the committee, said,

"The 12.5% rate of corporation tax in Ireland has attracted significant inward investment and a number of large companies, as well as the ability to compete better with emerging economies.

The evidence we received from businesses, trade unions, economists and politicians formed a convincing argument for a lower rate for Northern Ireland, which could help to unlock the potential of its private sector by boosting growth, innovation and exports.

Northern Ireland's ability to compete with other countries, and to retain expertise in its workforce, is vital for the success of its economic future and we urge the Government to examine carefully our recommendations."

• Report: Corporation tax in Northern Ireland
• Northern Ireland Affairs Committee