Sunday, August 12, 2012

Economic woes

In a week that we have learned that 11,000 private sector jobs have been lost in two years a leading economist has warned that the North's economy is facing meltdown.

Attempts to lower the North's Corporation Tax rate appear to have failed. Although we hear Finance Minister Sammy Wilson insisting that the issue will be revisited in the Autumn, the fact is, The North will not receive a special dispensastion for a reduced CT rate. The main reasons for this are that if NI were to receive a lower CT rate from the rest of the UK, there would be nothing to stop British firms based in London from moving operations to The North in order to avail of the lower CT rate. The other reason is that if NI got a lower tax rate Scotland, Wales and North East England would be screaming from the rooftops for equal treatment. With a Scottish referendum on independence in the pipeline, offering NI a lower CT rate while refusing to give it to Scotland is a high risk strategy for the Tory-Lib Dem coalition. It could be enough to swing the referendum for the 'Yes' side.

With a CT rate of 24% a deterrent to Foreign Direct Investment (FDI), the key strategy used to attact FDI to The North has been Sustainable Financial Assistance (SFA). This is basically EU funding used to offer foreign companies cash to locate to the region. This economic lever used to attract FDI to NI is due to be abolished by the EU next year. Given that SFA sounds very much like bribery this should not come as a surprise.

With the two most powerful economic levers either being phased out (SFA) or unattainable (CT), The North does not have many hands left to play. There is one hand though, a pocket of aces, if only it could be seen!