speri.comment: the political economy blog

Corporation tax in Northern Ireland: a question of political economy

Enthusiasm for cutting corporation tax abounds across Northern Ireland’s political elites, but some fundamental questions have gone unasked

Andrew Baker, Faculty Professorial Fellow, SPERI

Andrew Baker

Andrew Baker

The corporation tax question in Northern Ireland is an issue of classical political economy, but such considerations have been absent from public debate.

Crucially, the pending decision on corporation tax will send a signal regarding the kind of future the citizens of Northern Ireland want. This is the matter of the good society – the values it prioritises, the interests it serves and the notions of justice, fairness and inclusion it represents.  These are moral and ethical questions, as well as economic ones.

There is a very plausible case for saying that Northern Ireland is the least neoliberal part of the UK. It was partly insulated from the economic restructuring of the 1980s and 90s due to civil conflict. Today, public expenditure accounts for 63% of output, compared to 39% in the rest of the UK, and the public sector accounts for 36% of all jobs, compared with 28% in Great Britain.

If Colin Crouch is correct, and neoliberalism involves the dominance of the giant corporation over public life, then Northern Ireland has arguably remained somewhat apart from the social and economic processes that transformed the rest of the UK over the last thirty years.

Northern Ireland has the highest concentration of SMEs (small and medium-sized enterprises with fewer than 250 employees) in the UK.  SMEs account for 81% of private-sector employment and 79% of private-sector turnover. Social relations in communities are not as widely marketised, commodified or individualised. Widespread credit unions, healthy church attendance, large numbers of family businesses, vibrant community and voluntary-sector groups: all are testimony to the existence of communities based on social cooperation and strong collective bonds.

But, for some, this is precisely the problem. Northern Ireland needs to look outward and attract inward investment from large corporations and restructure its society accordingly.

In this respect, the corporation tax debate signals the route that Northern Ireland intends to travel. This revolves around a simplistic conception of ‘rebalancing’ the economy by shrinking the public sector and growing the private sector via the attraction of mobile inward investment. While private sector growth is desirable, such ideas come straight out of the neoliberal play-book.  As the employees of HG Wilson recently discovered, when their parent company, Caterpillar, outsourced their jobs to China, the mobility of investment can be a double-edged sword, if it has little attachment or obligation to local communities.

However, just as awareness of many of the pathologies of neoliberal growth and development strategies is increasing, Northern Ireland’s political elites seem determined to move in the opposite direction.

The irony here is that few parts of the UK are better suited than Northern Ireland to experiment with different forms of economic ownership and innovative collaborative social partnerships.  One of the key theses in Hall and Soskice’s famous Varieties of Capitalism book was that Liberal Market Economies (LMEs) could not quickly become more like Coordinated Market Economies (CMEs,) because they could not reproduce cooperative social relationships in the necessary time.  But Northern Ireland does not share the same neoliberal subjectivities as other parts of the UK and, therefore, has the potential to explore alternative forms of economic organisation better suited to its own social fabric.

Post-crash, numerous voices have identified how neoliberalism is associated with the excessive power of corporate interests, producing rising inequality and unsustainable credit, housing and financial bubbles. Yet it is these very interests – an alliance of the big four accountancy firms, some corporate law firms and assorted business lobbies – that have been the key voices promoting a corporation tax cut in Northern Ireland.

In this respect, the key question of – ‘who benefits’ – must be applied to the corporation tax debate in Northern Ireland. For it is clear that beneficiaries will not be distributed evenly across the socio-economic spectrum.

If sequencing is pivotal to the potential success of a corporation tax cut (see earlier post), Northern Ireland will urgently need to upgrade its skills base. It will also need to upgrade its own infrastructure. All of this will require considerable public investment. But a corporation tax cut will be accompanied by an additional cut to the block grant of as much as 8.7%.

Furthermore, the timing of this policy is far from ideal. Northern Ireland is contemplating a substantial voluntary hit to its own public resources amidst a period of unprecedented private-sector deleveraging. Today, European-wide austerity is synchronised across both countries and public and private sectors.  But Northern Ireland is the only territory that seems to want to voluntarily double, or even treble, the hit to its public income in such straitened times.

This is where questions of inequality, social polarisation and who uses public services come to the fore. In those communities in Belfast most active in the recent flag protests, 85% of school-leavers have 2 GCSEs or less. In some working-class Catholic areas, the figures are only marginally better. It is high unlikely that these communities will benefit from the kind of high-end, high-skill investments required to make a prospective corporation tax cut work. Feelings of social exclusion, and of being left behind, can be a combustible political and social mix, as the recent protests illustrated.

One key lesson from the financial crisis is that inequality can be economically inefficient, as well as politically and socially corrosive.  But questions of inclusion, fairness and the dangers of a double polarisation have been overlooked in the corporation tax debate.

Ultimately, Northern Ireland has many pressing challenges to address that require public investment, before it can, or should, contemplate experimenting with corporation tax.  In this context, the corporation tax proposal is little more than a fantasy cure, but without an adequate diagnosis of the existing political economy, including its potential strengths, as well as its principal weaknesses.

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