George Osborne performed OK this morning on the Andrew Marr Show and he is beginning to build more compelling cases for “change”. The focus on supporting the SME sector by tax reductions is long overdue. Moreover his commitment to reduce the size of Whitehall should be welcomed. But it’s not enough.
Owen Paterson has hinted that he has sympathy for the view that Northern Ireland’s corporation tax rate is too high given our land-border with a nation with much lower corporation tax rates. However, I’m sure the other less developed regions of the UK – also heavily reliant on the public purse, and with puny commercial sectors – could also do with company tax incentives.
Osborne’s tax and spending plans tend to be defined, I’d imagine, by dinner conversations over claret in Notting Hill. The extent to which the regions act as a drain on public spending is often overlooked. Successive governments grumble and sign up to the Barnett Formula – rather than actively addressing the reasons for stunted growth in the regions.
But, frankly, the politicians of the less developed regions need a kick up the arse.
Wonderful businesses thrive in places like Northern Ireland or the NE of England against all the odds – and there aren’t enough of them. They face company taxes that disadvantage them against foreign competition. They face input prices and that are higher than in the SE of England. They face higher distribution and logistics costs. Their utility bills are higher. Soon they will be facing more so-called “green” taxes for being more distant from the centre of political and economic gravity. They need breaks but their politicians also need to be told that they need to start focusing on business development.
The best way to focus minds is with money. Paterson has hinted that in return for cutting the block grant he might be willing to argue the case for a massive decrease in corporation tax. However, the same rules should apply to other economically disadvantaged regions and Osborne should be arguing the case for this.
Reduction in block grants would, by necessity, result in reductions in public sector employment in the regions and short term pain (although it would be good to see the back of a plethora of quangos, and quite a few state funded “community groups”). However a wholesale review of regional company tax breaks could result in the economic redistribution that this country badly needs.
The commercial sector in Northern Ireland is, by all national and international metrics, miniscule. Our population, despite being small, should be able to support more large businesses – foreign and indigenous.
Foreign direct investment, when it does come here, comes, often, because of financial incentives based on target job creation. That form of stimulus means that companies that locate here are not here for the duration. When the going gets tough they pull out. Successive waves of FDI have been counterbalanced by waves of downsizing to less expensive global regions. We need to de-focus on the foreign and focus on UK businesses setting up shop in less developed regions because they are cheaper bases from which to do business.
There have been rumours that Diageo is considering re-locating outside of the UK. WPP and Microsoft have operations in the Republic of Ireland. Many other companies have set up shop in other countries simply because London is too expensive. Surely the UK government could put in place local tax havens that create the regional economic stimulus that is so needed in those regions.
Owen Paterson, when he is setting up his next set of talks at Hatfield House, might want to make this the topic for discussion. But he might want to think about his invite list.