The impact on the block grant of
reducing the Corporation Tax Rate in
Northern Ireland
A comparison of HM Treasury
estimates of March 2011 to Grow NI
estimates in October 2015
Perceived Estimated Costs
£300m-£700m
Rebalancing the NI Economy
In order to meet the fiscal autonomy condition,
the NIE would need to bear the full fiscal
consequences of changes in tax revenues
resulting from a new Northern Ireland
corporation tax rate. This means that Northern
Ireland’s block grant would be adjusted to
reflect the fiscal costs of a reduction in the rate
of corporation tax.
HM Treasury 2011
HM Treasury estimate of initial cost of reducing the NI
corporation tax rate to 12.5% - March 2011
£M's
Cost of reducing corporation tax to exisitng companies
-225
Tax Motivated Incorporation
-50
Profit Shifting from GB
-55
Profit Shifting from the rest of the world
30
Additional Corporation Tax
20
Additional Other Taxes
50
Total NET Cost
Source: HM Treasury - Rebalancing the Northern Ireland Economy - March 2011
-230
HM Treasury Most Recent Estimate
I stress again that the arrangements for calculating
the block grant need to be agreed between the Treasury
and the Executive, so I cannot provide more details
here. Nor does the Azores judgment prescribe how the
adjustment should be made, recognising the very different
fiscal models in EU member states. However, our current
estimate, assuming rates of 12.5% in Northern Ireland
and 20% in the UK, is an adjustment of £325 million in
2019-20…
David Gauke Exchequer Secretary
HoC 5 February 2015
Published data on Current Treasury
Estimate of Reducing NI CT Rate
Rebalancing the NI Economy
The starting point for considering the
fiscal impacts of a reduction in
corporation tax rates in Northern
Ireland is to quantify the amount of
existing corporation tax paid in
Northern Ireland.
HM Treasury 2011
HMRC Disaggregated Tax Receipts
Northern
Ireland
Total HMRC Total HMRC
receipts
receipts
(Geographic) (Population)
Income
Capital
Tax Gains Tax
NICs
Corporation
Tax
VAT
(Onshore)
1999-00
6,147
6,208
1,662
26
1,190
1,323
595
2000-01
6,503
6,613
1,820
43
1,265
1,373
542
2001-02
6,554
6,692
1,642
37
1,341
1,523
513
2002-03
6,742
6,874
1,807
30
1,380
1,560
413
2003-04
7,665
7,786
2,252
49
1,552
1,753
432
2004-05
8,229
8,375
2,419
43
1,674
1,836
575
2005-06
8,758
9,024
2,604
113
1,822
1,850
701
2006-07
9,468
9,722
2,866
124
1,866
1,998
763
2007-08
10,165
10,378
2,913
210
2,117
2,140
785
2008-09
9,708
10,064
2,931
267
2,074
2,129
512
2009-10
8,940
9,110
2,550
55
2,027
1,966
411
2010-11
9,750
9,989
2,717
49
2,059
2,331
470
2011-12
10,222
10,534
2,581
44
2,153
2,850
446
2012-13
10,170
10,346
2,539
46
2,162
2,866
433
2013-14
10,514
10,647
2,620
34
2,282
2,972
478
2014-15
10,901
10,962
2,724
51
2,339
3,084
532
Rebalancing the NI Economy
These taxes are not devolved and
would accrue to the UK Exchequer.
However, indirect tax effects could be
considered carefully when calculating
the adjustment to the block grant as
long as doing so complied with the
Azores criteria and the UK fiscal
framework.
HM Treasury 2011
Knocking £45m off the cost!
The hon. Lady also raised the cost of tax-motivated
incorporation. That number has been revised significantly
downwards since the number she quoted was published.
For 2019-20, the first year of the steady state, TMI is
estimated to be only £5 million, presuming a 12.5% rate
in Northern Ireland and a 20% rate for the rest of the
UK. That revision has resulted in a significantly reduced
figure.
David Gauke Exchequer Secretary
HoC 5 February 2015
The GrowNI estimate of the initial cost of reducing the
NI Corporation Tax rate to 12.5% - Autumn 2015
Note
£M's
Cost of reducing corporation tax to existing companies
1
-182
NI Branches of UK Companies
2
0
Impact of excluding Financial Services
2
0
Tax Motivated Incorporation
3
-5
Profit Shifting from GB
4
-55
Profit Shifting from the rest of the world
4
30
Additional Corporation Tax
4
20
Additional Other Taxes
5
0
TOTAL NET COST
-192
The GrowNI estimate of the initial cost of reducing the
NI Corporation Tax rate to 12.5% - Autumn 2015
Note 1
Corporation Tax Rate in GB
Corporation Tax Rate in NI
Corporation Tax Receipts in NI in 2013/14 (in £M's)Lost Corporation Tax due to rate reduction (in £M's)-
19%
12.5%
£532
£182
Note 2
No information has been published on these points
Note 3
As per statement by David Gauke during committee stage of Corporation Tax (NI) Bill
5 Feb 2015
Note 4
As per HM Treasury - Rebalancing the Northern Ireland Economy - March 2011
Note 5
Based on HM Government policy of ignoring secondary receipts - but not specified
as being excluded by EU Commission
The Cost of Public Services in NI (2012)
£23.8 Billion
Tax Receipts in NI (2012)
£14.1 Billion
The NI ‘Deficit’ (2012)
£9.6 Billion
Impact of Reducing CT to 12.5%
< 2% of the NI Deficit
< 1% of the Gross Public Expenditure
Rebalancing the NI Economy
As in the case of the Calman proposals
in Scotland it may be prudent to have
an initial transitional phase in order to
test the new system in which the UK
Government bears the risk of
differences between plan and outturn.
HM Treasury 2011
Financing the cost
• If the initial cost is £200m per annum
• If it takes 15 years to break even
• Could we pay £100m per annum for 15 years?
Financing the Annual Cost of
Reduced NI Corporation Tax Rate
£250
£200
£150
£100
£50
£0
Year 0
Year 3
Year 6
Cost up Front
Year 9
Cost Averaged
Year 12
Year 15
Conclusion
• Lower Corporation Tax will deliver FDI to NI
• FDI will deliver well paid long term jobs throughout NI
• GrowNI estimate the initial annual cost is £192m
• If early year costs are spread the cost could be £100m p.a.
• 1 April 2017 is still achievable as a start date
• What are we waiting for?