CORPORATION TAX - WILL THE DEVIL BE IN THE DETAIL
22 April 2015In the light of significant media coverage and much political debate regarding the devolution of corporation tax to the Stormont Executive, I fear that it will take an imaginative and bold approach to maximise the potential inward investment opportunities that many perceive as the panacea to cure all ills.
A cut in corporation tax alone isn’t going to fuel inward investment, but combine it with our existing offering of low occupational costs and an educated workforce it makes NI an attractive proposition.
The media have been extremely vocal in reporting just how little corporation tax some “big corporations” pay pointing out that certain household names never actually pay the current 21% headline rate. Whilst it has to be accepted that a reduction in corporation tax may put Northern Ireland on the radar for a number of global businesses, the decision to invest may stand or fall on many of the practical issues affecting these companies.
When considering investment in a region, research shows that occupiers place equal or higher priority on criteria including: transport and infrastructure; labour costs and skills; telecoms infrastructure; legal and regulatory environment. Another key factor is social climate and stability, which although sporadically seeming to cause high-profile disruption to everyday life is largely behind us. The success of early adopters of the region as a “back-office” or “service centre” is crucial to the on-going sales pitch. Others continue to arrive with London-based Intelligent Environments announcing the creation of 50 jobs and US firm WhiteHat Security announcing 80 Belfast-based positions.
To follow through on that “sales pitch” we will need to see development momentum build in the office sector, and as yet we are not seeing rents that truly make development economically viable.
It strikes me that the gap between passing rents and viable rents is not the main hurdle to investment when assessed on the global scale, yet it fundamentally hinders the creation of quality accommodation suitable for target markets. At present there is little funding available for speculative office development due to the risk involved versus current returns.
There is clear existing demand for Grade A office accommodation which should continue to grow if a cut in corporation tax is delivered. The question is how we stimulate development to provide new supply?
Perhaps government departments could leave prominent office buildings as part of their on-going ‘rationalisation’ programme and allow the private sector to realise development opportunities? Just a thought!
Finally, in order to truly maximise the opportunity presented by reduced corporation tax we will need to deliver on a number of fronts, not least of which will be education. As a region we will have to ensure that we capitalise on our education system which will go hand-in-glove with a stemming of the so-called “brain drain” of graduates to other UK regions in search of employment. Our universities will have to be closely involved in closing the loop to provide appropriate graduates to meet the needs of global employers.