Capitalising on corporation tax
A robust skills base could unlock new opportunities for investment.
While receiving broad support from many quarters, it is generally accepted that a reduction in corporation tax is not a panacea for the economy. A comprehensive development of the skills of the local labour force, amongst other factors, is essential.
‘Preparing for a lower corporation tax environment’, an Oxford Economics report commissioned by the Department for Employment and Learning in 2012, details that the experiences of low tax environments elsewhere have confirmed that skills and employability are key to realising full economic potential. Meanwhile, as more countries lower corporation tax and international competition increases, such a move would merely place Northern Ireland on the ‘radar’ of investors.
The report outlines that any genuine rebalancing of the economy and facilitation of maximum economic benefit from a reduced rate will necessitate a shift in skills supply. There will be implications for education and training institutions due to greater demand for additional high-quality degree level graduates, particularly from non-medical STEM subjects.
However, the low level of skills among unemployed people is a cause for concern. There are currently 557,000 working age people who are economically inactive, of which 53,000 are willing to work. Another 44,300 people claim unemployment benefit. Successfully attracting FDI will hinge on a major process of reactivation and upskilling to increase the employability of the individuals who fall within this demographic.
It is expected that increased profits for companies will, in turn, result in increased reinvestment back into their local operations. However, these businesses are under no obligation to reinvest additional revenue back into the local economy. Likewise, the positives produced by FDI are difficult to identify and separate from those created by wider developments in areas such as infrastructure, political stability and labour costs.
In 2014, EY’s European attractiveness survey explored the factors which companies take into consideration when deciding where they wish to establish operations. The survey found that the stability and transparency of political, legal and regulatory environments, transport infrastructure, and labour skill levels all ranked above corporation tax as an influence in this process.
Minister for Employment and Learning Stephen Farry contends: “We have to intensify our investment in places in our universities, colleges and apprenticeships if we are to truly maximise the benefits of corporation tax.” Both Farry and Colleges NI have criticised the 6.4 per cent cuts to the Department for Employment and Learning’s resources budget. These cuts will negatively impact upon apprenticeships and student places in further education colleges – crucial sectors in the campaign to attract and capitalise on increased FDI. Former Finance Minister Simon Hamilton, though, increased the Department of Enterprise, Trade and Investment budget by 10 per cent with the aim of creating a pipeline of skilled workers.
Speaking at a recent Northern Ireland Chamber of Commerce event, Farry stated: “We know that a lower level of corporation tax is not going to be successful in a vacuum. We have to invest in the other key drivers at the same time. That means things like infrastructure, it means sorting out the planning system and it means, most critically, investing in research and investing directly in skills.” He added: “So that will mean trying to change the balance more towards the STEM subjects, investing more in higher level skills. It means focusing on management and leadership because we know that there’ll be an even greater premium on those skills in that type of environment.”
