Cutting corporation tax will help create tens of thousands of new jobs and prosperity for all in the North, business leaders said.
Northern Ireland’s major parties have campaigned for powers over the rate at which business profits are taxed to be devolved from London to Belfast.
As part of Tuesday’s deal the date for a tariff reduction, to 12.5%, will be April 2018, matching the Republic of Ireland in an effort to better compete for investment. Currently the rate is 20%.
In just over two years Northern Ireland will have a lower tax take on company returns than the rest of the UK.
CBI Northern Ireland chairman Colin Walsh said: “This announcement will undoubtedly provide a key ingredient to energise the private sector as well as attracting a new generation of inward investment businesses, thereby creating tens of thousands of new jobs ... (it will) boost prosperity for all, and transform our economic prospects.”
The new agreement puts back the target date for cutting the tax by a year.
Legislation has already been passed at Westminster to devolve responsibility to Stormont, but the handover of the power had been delayed by the destabilising political dispute.
British Chancellor George Osborne had said he will only grant it to Northern Ireland when the ministerial Executive’s finances are on a firm footing. Today’s agreement on welfare reform and other measures appears to have fulfilled that.
Advocates of a lower rate of tax on business profits in Northern Ireland point to a potentially transformative impact on a local economy that shares a land border with a jurisdiction – Ireland – where the tax is only 12.5%.
But critics claim reducing the local rate so significantly from the UK’s would damage public spending, as it would see the British Treasury cut an estimated £300 million off the Executive’s annual funding from the rest of the UK to offset the loss in revenue. It could also help encourage businesses within the UK to relocate.
The Chancellor has announced that the UK-wide rate will come down to 18% by 2020.
While narrowing the gap would mean less of a reduction in Treasury funding known as the block grant, it would also diminish the advantage for Northern Ireland over the rest of the UK in attracting big businesses to invest.
Local economist Eamonn Donaghy has recently suggested that the cost of implementing the lower rate of tax at as little as £100 million per year by spreading the early year costs, so the impact on the block grant would be much lower than initially forecast.
Linda Brown, director of the Institute of Directors (IoD) in Northern Ireland, said: “Today’s announcement was worth waiting for and will be warmly welcomed by the IoD membership, although ideally we would have preferred an earlier implementation date.
“As a region, we have been working to build a skilled labour force, and introducing a lower rate of corporation tax than the rest of the UK will provide an added incentive for leading global companies to locate here, which in turn will deliver thousands of jobs and support the local supply chain.”