Mark Leftly: Expect a disunited kingdom when it comes to taxing corporations

Westminster Outlook The €60m (£47m) Santiago Calatrava-designed Samuel Beckett Bridge, with its support cables towering 48 metres over the River Liffey, is a symbol of Dublin’s commercial power.

Unfortunately, the structure was completed in 2009, when the darkest days of the financial crisis had reduced the Celtic Tiger’s roar to little more than a whimper. A five-fold increase in the initial budget, estimated in 1998, added a hubristic note to this harp-shaped bridge.

Nevertheless, Ireland has rebounded rather impressively: in September, an HSBC survey showed that this was the most optimistic country in Europe for trade prospects. Little more than a kilometre from Beckett Bridge is, so techies claim, the Irish equivalent of Silicon Valley, epitomised by Google Docks – Dublin’s tallest commercial building and the internet empire’s European headquarters.

While Googlers, as the staff are known, brainstorm at benches within the giant yellow and red “O”s of the 3D installations of the company logo, politicians north of the border look on with envy.

Northern Ireland’s economy is in a fragile state. An Ulster Bank survey last month showed that the economy is recovering at the slowest rate since last summer, while politicians in Stormont fight over the balancing of the budget and the difficult welfare reforms and police cuts that this will inevitably require.

But balance the budget Northern Ireland must if it is to be given the right to set its own corporation tax, and executive ministers have been laying out plans on how their departments will handle these spending cuts.

The vow to devolve corporation tax on the condition that Stormont sorts out its finances was an eye-catching announcement in an already crammed Autumn Statement on Wednesday. For years, Northern Ireland has struggled to tempt multinationals to base themselves in Belfast rather than Dublin, as it is hamstrung by a UK tax on business profits of 21 per cent, against just 12.5 per cent in the south.

Northern Ireland will now have the freedom to compete on its own border and will surely reduce corporation tax sharply in a move that will make the whole of Ireland an attractive destination for world business. No longer will the six counties of the north be shaded out when multinationals scour the map for possible headquarters locations.

But as George Osborne, David Cameron and Danny Alexander, the Chief Secretary to the Treasury, are all acutely aware, the timing could not have been much worse. Last week, the Smith Commission on Scottish devolution recommended handing a number of taxes, including income tax and air passenger duty, to the Holyrood parliament in the wake of the narrow “no” vote in the independence referendum... but not the duty on business profits.

Angus Robertson, the Scottish National Party’s leader in Westminster, went so far this week as to claim that the Better Together campaign only won because of a last-ditch promise to devolve everything – quite possibly including the kitchen sink – when the three main party leaders were spooked into thinking they could lose the union. Corporation tax, then, should have been included in the recommendations.

Nicola Sturgeon, Scotland’s new First Minister, told our Sunday sister paper last weekend that handing Northern Ireland corporation tax would “blow apart any claims that it was not possible for Scotland”.

Ever since 45 per cent of Scottish residents said they wanted their own state in September, there have been fears that the SNP will seek more and more powers for Holyrood. Corporation tax will be one of those battlegrounds in the months to come.

It’s not just Scotland: Elfyn Llwyd, Plaid Cymru’s leader in the House of Commons, told the BBC this week that Wales should also have control of corporation tax.

What is, though, excellent timing is that this debate, this pressure, comes just as Westminster’s rhetoric is in danger of becoming virulently anti-business. The announcement that the UK will charge corporate tax avoiders 25 per cent on profits shifted to havens overseas, including the Republic of Ireland, may have been the Chancellor’s – but the language of all the parties has reached a level where it seems they will not be happy until they have introduced a tax on revenue.

By devolving levies on business profits to Scotland and Wales, mainland UK would become one of the most competitive corporation tax regions in Europe.

The UK might already have the lowest headline corporation tax among the G7 nations, but the huge gap between our rate and Ireland’s indicates there is room for a cut. Certainly Holyrood would think so as it looks to bolster Edinburgh’s financial services sector with a cut that would woo firms from London. Cardiff would probably need more than just a lower rate to achieve the same, but it would certainly be a start.

England would have to respond with its own corporation tax cut, or at least prove that the money raised has upgraded infrastructure and produced a highly skilled workforce – both improvements that would benefit multinationals.

Devolving the tax, and then competing the hell out of it, could then be an effective way of attracting a new wave of inward investment to these shores.

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