Chairman: Dr Anderson --- Mr Anderson?

Q25 Mr. Dave Anderson: Not yet and do not hold your breath! Have you looked at the economic impact on the rest of the United Kingdom if this goes ahead? Clearly it is going to be an advantage for where you are living but it will be a big disadvantage for where I live.

Mr Sheridan: Brian, you have considered this in a number of headings. We do not see that at all but Brian has looked at the displacement issues.

Mr Keegan: First of all, Mr Anderson, the overriding consideration is that the Exchequer has a very, very high level of subvention to Northern Ireland. That clearly is a very real cost to the economy. We feel that by stimulating economic growth in Northern Ireland that cost can be managed and contained so we feel there are going to be immediate savings in relation to that. Our second contention is that over the short to medium-term a reduction in a particular corporation tax rate in a particular region will be revenue neutral. I suppose the issue is in terms of how that benefit is managed within Northern Ireland in relation to the other regions. I suppose anywhere, whether it is a territory or whether it is a country, where a reduced rate is applied, there will always be attempts to tax plan to try and maximise the benefit of that rate without necessarily benefiting the region and the economic activity that would be put in place to foster. In terms of how that would be managed, there is an awful lot of international precedent in relation to matters such as transfer pricing and in relation to matters such as preventing individuals from incorporating activities purely for tax reasons. There are mechanisms for ensuring that the benefits will not be limited to the particular region to generate the economic activity for which they are designed. We have set down in a certain amount of detail quite a few of those considerations. From our own direct experience, certainly from our experience of dealing with this issue in the Republic, there are legal mechanisms in place to ensure that unnecessary distortions cannot arise.

Chairman: Could I ask you to make your answers just a little crisper and shorter because I do not want to cut short the questioning but we do need to get evidence as crisply as we can. Mr Anderson?

Mr. Dave Anderson: Perhaps I should have been a doctor because I did not understand what you said. The reality is if a company - and I will use the example of Orange - wants to open a call centre, and we have got a big call centre in the north east of England, if had come to Northern Ireland instead of the north east of England because you can offer a better deal on corporation tax, that has got to be detrimental to the north east of England, surely?

Chairman: The point Mr Anderson is making is we all accept that Northern Ireland is part of the island of Ireland and you are arguing a case, perfectly legitimately, but Northern Ireland is also part of the United Kingdom, and Mr Anderson represents an area of the United Kingdom which has had its share of deprivation and which has done its best to attract inward investment. The point he is putting to you very clearly and very simply is this: if we have a differential tax regime within the United Kingdom, it might have certain benefits with you in Northern Ireland but would it not have offsetting disadvantages for other parts of the United Kingdom? That is your point, Mr Anderson, is it not?

Q26 Mr. Dave Anderson: Absolutely.

Mr Keegan: The best observation I can make directly in relation to that is that surely it is best all round to ensure that those kinds of investments remain within the United Kingdom, whether they are located in Northern Ireland or otherwise, taking completely Mr Anderson's point. The increased attractiveness of Northern Ireland as a locale would increase the attractiveness overall of the UK as a locale for foreign direct investment.

Q27 Mr. Dave Anderson: Can I come back to where the President started about the politics of this. What you are saying to me is that I have got to go and tell the people of my area that we have got to give people in Northern Ireland a boost in their economy by reducing corporation tax, they already get a third more per head of public money spent on them at this moment in time, and we will receive £300 million less into the Exchequer as a result of doing this, and that is a good deal for the people in my area?

Mr Donaghy: Can I address some of those points, Mr Anderson. Certainly I cannot say to you for definite that there would not be either a migration or a reallocation of jobs.

Q28 Mr. Dave Anderson: That is the whole point of what you are doing, is it not? That is why you are doing it; you want companies to come into the place.

Mr Donaghy: Yes, we want companies to come into the place.

Q29 Mr. Dave Anderson: That means our jobs will go somewhere else.

Mr Donaghy: Yes but the somewhere else maybe another low-tax jurisdiction. Our constituency does not offer a low-tax jurisdiction. What we are hoping to do is create a place in Northern Ireland where this investor would consider coming to Northern Ireland. A call centre could go to Dublin, it could go to Bangalore, or it could go to Singapore. I think that certainly from an economic point of view, I could understand why you would prefer that to come to your constituency. We are not advocating displacement of business that is already in the UK or might consider coming to the UK. Yes, what we are hoping to do is to try and encourage businesses that would not be considering the UK in the first place. I understand the difficulties you may also have about the £300 million. I think that the figures that have been produced in the Varney Report certainly are mathematically possible, and statistically and economically I am not sure that I necessarily agree with them. Any set of economic projections or any model that you might be able to pull together is subject to the conditions that you put into the model and the assumptions that you make. Certainly another model that has been produced by the Economic Research Institute of Northern Ireland came up with a different analysis and different models. What we firmly believe is the actual model to look at is not a piece of paper on academic research; it is the model that is the Republic of Ireland. The impact in the Republic of Ireland is that there has been increased tax revenue all the way through. That means that not only will it not cost in the long term £300 million a year, in our view, but it will actually be a net contributor to the UK Exchequer. Therefore we are not saying we want a hand out; what we are looking for is a hand up.

Q30 Mr. Dave Anderson: Does that not only work if we take as read what you have said in your letter to us that the only contributing factor to the Irish Republic's development has been the reduction in corporation tax, not everything else that has happened in the Republic of Ireland?

Mr Donaghy: Hopefully that was not what was in our report.

Q31 Mr. Dave Anderson: "... only the cut in corporation tax rate successfully acted as a stimulus to wider economic growth."

Mr Donaghy: I think it was the final piece that pushed it over the edge. I think maybe the President can talk about that, but there were a whole lot of other factors at the time. A lot of those factors would have been present in Northern Ireland absent the political situation we had at the time and the other difficulties we had, but certainly nowadays, where those hopefully have been put to our past, when we compare like with like, I do not believe that corporation tax is the silver bullet but I do believe if a jurisdiction beside us has it and we do not have it, it is going to make it very difficult for us.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.

Promoted by Paul Foy on behalf of Dave Anderson, both of St Cuthbert's Church Hall, Shibdon Road, Blaydon, NE21 5PT