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Report rules out tax cut demands

17 December 07 18:28 GMT

A government expert has ruled out reducing corporation tax in Northern Ireland.

Cuts to 12.5%, to match the Republic of Ireland, would cost almost £300m a year in lost tax receipts, Sir David Varney's report said.

He said it would also displace existing businesses from the rest of the UK.

Companies have been lobbying for a major reduction to promote investment. The top rate of 30% for large companies is to be reduced to 28% by April.

Finance Minister Peter Robinson said he was "disappointed" at the findings.

Speaking on behalf of the Northern Ireland Executive he said: "We will continue to argue the case for a reduction in corporation tax. The issue will not go away."

He said a second review was to take place to identify policies and incentives for strengthening and sustaining private sector growth, investment and employment.

Irish Society of Chartered Accountants President Vincent Sheridan said the cut in corporation cax was needed to bed down the peace process.

"In terms of foreign direct investment we will miss the one and only opportunity to attract business to Northern Ireland through a globally competitive corporation tax rate," he said.

The Varney report, unveiled on Monday, said a reduced rate of corporation tax for Northern Ireland "would certainly come at a long-term cost in reduced resources to be shared by the UK regions or in the financing of public services".

"The policy would result in a net cost of about £2.2bn over 10 years, with no prospect of full cost recovery over the long run."

The vast majority of the 60,000 local companies pay a lower rate of 19% which is being increased to 22% in 2009.

The Republic's low corporation tax has been a key factor in its economic success.

Sir David said there had been little evidence put forward on other differences north and south of the border such as infrastructure, currency or VAT rates.

He added there was uncertainty about the amount of foreign direct investment that would flow from the cut.

"The academic evidence is that skills, rule of law, industrial relations, the potential for innovation and the quality of infrastructure are more important in determining the 'business fit' of potential investment," the report said.

"Indeed in many of these areas, taxation needs to be raised to fund the delivery of these public goods."

Sir David said the £51.5bn financial and economic package agreed with the Treasury last May and the peace process created the right platform for a proper business environment.

A major investment conference is planned for next spring to attract US companies.

Improving skills, reducing the size of the public sector relative to the economy as a whole and increasing the number of business start-ups were all recommended in the 132-page report.

"Promoting entrepreneurship, spending more on research and development, increasing the ratio of capital to workers in the economy and the percentage of the workforce with higher qualifications all have a significant bearings on regional labour productivity," it said.

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