Corporation tax cost rises £100m

20 July 2011 Last updated at 10:01 GMT NI corporation tax cut estimate rises by over ?100m

The estimated annual cost of devolving corporation tax to Northern Ireland has increased by more than ?100m according to new Treasury figures.

If Stormont gains the power to lower corporation tax, it must compensate the UK government by a corresponding cut in the amount of money it receives each year for spending.

A previous Treasury estimate put that at around ?300m.

It is understood it has now presented a revised figure of about ?400m.

The reason for the increase is that the latest figure includes estimates for the profits earned by large UK companies - such as Tesco - who operate in Northern Ireland but declare their profits in Great Britain.

It is thought that if corporation tax is lowered, some of those companies may declare their Northern Ireland profits here.

Factoring in these so-called branch profits has increased the potential cost of devolution by a third.

Ministers and officials at Stormont are seeking further information from the Treasury over how the figure was worked out and believe other mitigating factors could bring the final figure down.

Negotiation

Finance Minister Sammy Wilson said on Wednesday that he could not confirm the latest figure, but that if the original estimate of a ?300m cut in the block grant was to increase it would be "even more challenging" for Northern Ireland.

He said if the cost was too high it would "deflate the economy immediately".

"We would be wanting to talk to the Treasury about just how feasible the whole situation would be," he added.

"However, there is considerable room for negotiation with the government over what other taxes you include, how much tax do they assume will be moved to Northern Ireland and the administration costs.

"That amounts to a couple of hundred million pounds and that is the kind of thing we need to talk to the government about."

The Treasury consultation on rebalancing the Northern Ireland economy, which included discussion of the devolution of the powers to set corporation tax closed on 8 July.

More than 700 responses have been received.

Low rates of corporation tax are considered an important means of attracting overseas investment.

The overall UK rate is 26% and will fall by 5% over the next four years, but will still be much higher than the 12.5% rate in the Irish Republic.

Both the first and deputy first ministers have said they want Northern Ireland to be able to set its own corporation tax rates in the future.

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