Wednesday, June 27, 2012

Economic argument part 1

This week the UK Treasury has dashed hopes of a cut in the Corporation Tax (CT) in Northern Ireland from the UK rate of 24% to 12.5% to match the rate of the Republic of Ireland. This of course does not come as any surpirse. There are two main reasons why the Westminster Government and Treasury would not/will not agree to a cut in CT.

One reason is that if NI received a special dispensation to cut it's rate of CT, Scotland, Wales and North East England would be up in arms if they are not also allowed a similar cut. The other major reason is that if the cut in CT for NI was enforced there would also be nothing to stop large companies based in London and other parts of Britain from relocating in Northern Ireland to avail of the lower rates and pay less taxes resulting in fundamental job losses in greater London and other parts of Britain as well as decimating the tax take from Corporation Tax for the UK exchequer.

Calls for a reduction in CT in the North demonstrate the weakness of the Northern Ireland economy. The reason for this weak economy boils down to simple economic policy. Economic policy of course is made up largely of fiscal policy. In NI fiscal policy is controlled by London. The UK government determines fiscal and economic policy on the basis of policy decisions which will maximise the tax take for the UK as a whole. Not surprisingly this is entirely based on what is in the best interests of the greater London and South East England region. The UK government can afford to charge high Corporation Tax in London as being one of the major cities of the world and a financial powerhouse companies need to have a base in London regardless of the taxes imposed. The UK government can also charge other high taxes such as airport passenger duty (APD) for similar reasons without affecting tourism or business in the greater London area.

While British economic policy may indeed maximise the tax revenues for the UK exchequer it has done nothing to prevent a basket case economy that has developed in the North with a public sector which employs almost a third of its total workforce, compared with 21 per cent across the UK and less than 20% in the Republic. By throwing thousands of poorly paid public sector jobs and a block grant of some £6 billion at Northern Ireland the UK government has largely succeeded in disguising the real state of the local economy in Northern Ireland. The truth is that NI will never reach its potential as part of the UK and will forever point the begging bowl towards London.

Of course there is an alternative, an alternative where economic and fiscal policy would be focused on what is in the best interests of the region, economic and fiscal policy which would allow Northern Ireland to reach its undoubted potential. The economic opportunities and strenghts of Northern Ireland are almost identical to that of the Republic of Ireland. In this context a United Ireland makes economic sense. An all Ireland economic policy would have huge benefits for the six north eastern counties of Ireland. CT of 12.5% would create between 58,000  and  90,000 private sector jobs in the medium term. The abolishment of APD and agressive marketing of Ireland as one country would see the north reach it's vast tourism potential creating thousands of additional jobs in this industry vital to Ireland's economy.

These are just two examples of how focused economic policy that would be brought about in a United Ireland would allow Northern Ireland to dramatically increase foreign direct investment, tourism numbers leading to mass job creation allowing NI to  rebalance the economy (in terms of reducing public sector jobs and creating private sector jobs) and create wealth. Economic policy of the Republic of Ireland implemented in Northern Ireland would allow the region to reach its undoubted vast potential which cannot happen so long as NI is subject to UK economic policy tailored to meet the best interests of South East England. .


  1. Great post well written and put together.

  2. Glad to see you back Enda, I was fearing for you after six months away! I hope you don't mind but I've been blogging on some of the same territory in the interim, anyhow stick at it!

  3. Bangordub. The more the merrier. Do you have a link?

  4. Enda,
    Sorry, yes it's