Improving FDI and competitiveness
Cutting corporation tax is not the single route for economic success, the FDI workshop heard. Indeed, previous UK-wide reductions may lessen the impact of devolving the power.
Northern Ireland can take pride in consistently performing above the national average for foreign direct investment (FDI). The province has 3 per cent of the UK’s population but attracted 6 per cent of jobs from inward investment into the UK in 2012.
The province, though, cannot be complacent. Its performance – in absolute terms and relative to population and GDP – falls far short of the Republic of Ireland. The discussion after Iulia Siedschlag’s presentation focused on three linked questions:
1. what are the key drivers for FDI and competiveness?
2. what role could the devolution (and reduction) of corporation tax play?
3. what policies are needed?
The Independent Review of Economic Policy, published in September 2009, outlined some key explanatory factors for successful FDI and competitiveness. These are as follows: innovation; skills; entrepreneurship and enterprise; investment and infrastructure; competitiveness of markets; the extent of clustering; relationships with other organisations (e.g. universities and colleges); and institutional support (e.g. through the planning system).
The discussion group identified four key drivers, some of which did not necessarily fall into these categories:
• the need for re-skilling;
• the perceived lack of political stability in Northern Ireland;
• the supply of quality office accommodation; and
• the importance of sectoral policy.
There were diverging views on the potential difference that a further corporation tax reduction would make to the local economy.
The headline UK corporation tax rate has already been reduced, from 28 per cent in 2010 to 23 per cent in 2013, with a view to reaching 20 per cent in 2015. The differential, in comparison to the Irish rate will therefore fall from 15.5 per cent to 7.5 per cent. The UK’s small profits rate is already 20 per cent.
A lot depended on the ultimate objective. Corporation tax rates may be more relevant for promoting inward investment rather than the indigenous economy.
Delegates were sceptical about the idea of a ‘single ticket for success’. They also saw room for improvement in the political institutions and governance, notwithstanding the progress that has been made over the last 15 years.
Foreign direct investment therefore proved to be a live discussion topic at a time when the First Minister, deputy First Minister and the rest of the Executive are seeking to enhance Northern Ireland’s economic presence on the world stage.
