Corporation Tax (Northern Ireland) Bill

Lord Bew Excerpts

Tuesday 17th March 2015 Lords Chamber

[Lord Bew (CB)]

My Lords, as I wish to say some cautious and possibly even sceptical things about the Bill, and the project of the Bill, I think in all fairness that I should begin by reminding the House of exactly why it has been brought forward by the Minister today. In his fine maiden speech, the noble Lord, Lord Hay, alluded to some of this. He, like Mr Mark Durkan in the other place, will be aware that in their own constituencies there are people who are working just over the land border for companies which are paying a very low rate of corporation tax. The land border is actually a real and perceptive issue in explaining why the Northern Ireland Assembly has decided to go down this road. There is, I think, a certain pride in the Northern Ireland Assembly that one thing has been done to address the old dependence of the Northern Ireland economy on the state; one move has been made that makes a gesture towards acknowledging the problem, and it is the decision of all the parties to ask for this power. I must say that there is an immediate difficulty: expectations are raised. The Northern Ireland Assembly may possibly find that the expectations raised by this will be somewhat disappointed. That is something which has to be borne in mind.

The Minister referred in her opening speech to the ways in which the project is now covered in the fog and ambiguities relating to the recent crisis of the Stormont House agreement, and I agree with her absolutely. However, even in the months leading up to the Stormont House agreement—and here I mention the “Wonga loan” referred to by the noble Lord, Lord Empey—it was clear that there was a difficulty in Northern Ireland about the public debate. It was very striking that in the days before the Prime Minister arrived it was considered to be the height of local patriotism by large sections of the Assembly to rattle the begging bowl as loudly as possible. No respect or attention was paid to such factors as a needs basis, and here I would mention the north-east of England or the West Midlands. Actually, if we had a block grant on that basis, on the face of it, Northern Ireland would really face significant reductions.

I say this not because I do not believe in the union and the necessity within the union for regions that are less well-off to be looked after in both the good times and the bad times. I was struck last Thursday in your Lordships’ House by a debate in which the noble Lord, Lord Shipley, spoke about the 70th anniversary of Dresden. He spoke as somebody whose father had been an air raid warden in Coventry on the night of one of the worst bombings. A number of other British cities were mentioned as having suffered the bombing. Actually, Belfast was the city that lost almost 1,000 people in one night, the second heaviest loss of life as a result of German attacks.

The union means that you are there in good times and in bad times, and that is the great attraction of the idea. I absolutely accept the argument that Northern Ireland has required and has received special and generous treatment from the Treasury in recent times, but there is a problem with devolution. As I am sitting beside the noble Baroness, Lady O’Neill, I cannot help thinking about her kinsman’s autobiography. Terence O’Neill, later Lord O’Neill of the Maine, discussed some of these issues. He explains in his autobiography that he could not convey, even to well educated people within Northern Ireland, that Northern Ireland, even in 1968, was subsidised by the Treasury. He had to take that into account in his relationship with the British Government.

One of the most remarkable achievements of devolution in Northern Ireland was to move away from the Government of Ireland Act, which set up an unsustainable basis for the funding of Northern Ireland, and replace it with the principle of parity. It was the achievement least understood by the population at large. That is the paradox of Northern Irish devolution. Devolution is again having that effect internally. The population does not seem to understand. The public debate is not sufficiently informed by the realities of the relationship to the Treasury.

There is a second ambiguity at the moment which was not alluded to by the Minister in her opening speech. That is the situation regarding future developments with respect to corporation tax. The Chancellor has spoken recently about the possibility of UK corporation tax going to 15%. The Republic’s corporation tax is now 12.5%. In real terms, the Republic’s corporation tax, because of devices known as the “double Irish”, is something like 3% to 4%. That is the clue to so much of the attraction of inward investment which has kept that economy afloat, but it is actually a remarkably low effective corporation tax.

By the way, this House has seen an unusual amount of capitalist knocking for the House of Lords this afternoon, but I would like to add my two-pennyworth. One of the implications of the discussion we have had is that the Varney report referred to, originally produced in the Treasury, said that corporation tax was not the decisive factor in the decision of companies to employ, and there were other factors, and it was really only number six. Actually, this Bill is impossible without the assumption that this polling, or this word from our capitalist class, is a lie. It is based on the assumption that they are simply not telling the truth about why they behave as they do, and that actually they follow the low rate of corporation tax. The experience of the Irish economy is the key thing, and all the other things that they talk about as vitally important are not really that important. They might fill in a form and say that, but look at how they behave. That is my little bit added to the unusual wave of anti-capitalist rhetoric sweeping the House of Lords this afternoon. This legislation is tacitly based on the fact that what companies tell us about their behaviour with respect to corporation tax is not the full truth—to put it as simply as that.

If the Treasury achieves the aim of getting 15%, and if the unusual mechanisms known as the “double Irish”—which pushed Irish corporation tax down to 3% or 4%, or so it is reported—are now coming under attack from the United Kingdom Government, the European Union and the United States Government, is it not reasonable to think that, two years down the road—in effect, this legislation has a two-year stay on it—the level of corporation tax in the United Kingdom may not be that much removed from the real corporation tax levels of the Irish Republic? The legislation is driven by a keen desire on the part of the Government and the Assembly to show that something can be done to attempt to rebalance the Northern Irish economy. We all have to respect that. However, it may be the case that, two years from now, it might not have quite the meaning it seems to have today.

I conclude with one technical point which came up in the debate in the other place. There was unanimity across a number of the Northern Irish parties—the SDLP, Lady Sylvia Hermon, the Alliance Party and some in the Democratic Unionist Party—about those companies entitled to come within the ambit of eligibility for lower rates of corporation tax. Essentially, the point was made that credit unions and mutual societies had a case to be included and were not an example of potential brass-plating. I have campaigned with Mr Mark Durkan in the other place for the credit unions of Northern Ireland. They are racy of the soil and are used by as many as 30% of population. It does not seem to me that mutual societies and credit unions are an example of possible brass-plate abuse. If we are going ahead, I think that there is a case—certainly, it was argued across a number of the parties—for looking at the categories that might be included within the ambit of the legislation.