This morning we attended the launch of the Grow NI campaign. The idea is simple: Grow Northern Ireland, reduce corporation tax. But is it really that simple? In terms of execution maybe not but we don’t have to look very far to see what a straightforward gamer changer it can be.
You’ll find few dissenting voices when it comes to assessing the role the corporate tax rate played in the astounding levels of growth enjoyed in the Republic of Ireland, during the Celtic Tiger. 12.5% is something of a holy grail in the south and you’d be hard pressed to find a politician or business person who wouldn’t fight fight tooth and nail to keep it. On Tuesday the Northern Ireland Affairs Committee at Westminster published a report which stated Northern Ireland’s corporation tax rate should be dropped to match that of the Republic. There can be no doubt that this opening from Treasury is a once in a lifetime opportunity to fundamentally alter the future of Northern Ireland and we need to grasp it with both hands.
In terms of Foreign Direct Investment the 12.5% corporation tax is a powerful incentive in itself. Apart for the obvious monetary advantages it simplifies the message. The current approach is bloody confusing; at face value multinationals already assume that the corporation tax rate in Northern Ireland is in line with that of the Republic of Ireland. This leads to disappointment when they find out it isn’t and any grants offered by the Executive do not even begin to compensate. Critically, a change in the tax rate would set us up as the key location in the UK for multinationals, the Silicon Valley of Europe even, bringing huge long term social and economic benefits for NI.
Looking to local businesses for a moment, the current system seems to go the extra mile to support sick and ailing businesses through a combination of grants, R&D tax credits, and other devices which allow firms that cannot meet their commitments, never mind grow naturally, to survive long past their sell by date. Prolonging the weak is a disservice on so many levels; if we want thriving indigenous business the system needs to support the strong; especially those companies exporting abroad. A change in corporation tax would do exactly that.
It also provides a powerful incentive to firms to build their balance sheets by retaining profits; rather than the current (apparently widespread) practice of stripping the balance sheet via the directors’ account thus avoiding tax at the expense of long term growth. Or to put it another way: ‘thinking small.’
The first stage in any expansion sees a business consolidate and then starting to drive the balance sheet. Strong balance sheet growth quickly translates into long term employment, the ‘compounding’ that takes companies to the next level, an ability to execute on an M&A strategy, and the opportunity to command substantial ‘enterprise value’ in the global capital markets. A taxation structure that encourages this will give our indigenous firms a huge leg up in the long term; indeed done properly said compounding effects should see Northern Ireland businesses accelerate past those in other regions of the UK.
Finally, over and above the corporation tax rate; we should be designing a range of measures to make Belfast the target location for hedge funds who want to setup in the UK (or Europe for that matter). We’ve already one unique asset, the front office talent base, from the likes of First Derivatives, NYSE Euronext & CitiGroup. Companies such as NYSE, in combination with Project Kelvin, are building out the network. Add to this the right taxation and regulatory environment and we can be the best fintech hub in the UK and Europe.
The Grow NI campaign is a fantastic start; we now need the politicians to start setting ambitions goals and driving the key civil servants to deliver. ‘Let’s Keep Northern Ireland Moving Forward’ was the First Minister’s slogan of choice during the recent Assembly elections. Now is the time to do just that, to grasp this once in a lifetime opportunity and change Northern Ireland forever.
– Danny
Pictured with Eamon Donaghy at this morning’s launch.