Dr Gareth Campbell (QUB)
The Fresh Start Agreement committed the NI Executive to reducing the corporation tax rate in Northern Ireland to 12.5% from 2018. The intention was to make the tax rate in NI the same as in ROI, and lower than in GB. However, within the past year the Irish government has cut its tax rate on certain types of profits to just 6.25%. Meanwhile, the British government has promised to cut its tax on profits to 17%. Further corporation tax rate cuts in ROI are possible, and in GB are very likely. This research analyses how the NI Executive should respond. It argues that simply maintaining the 12.5% rate, the default approach, would be the worst possible option. Matching cuts on an ad hoc basis would be unlikely, and suboptimal even if it happened. A much better approach would be to publicly commit now to match any cuts in the GB rate, reducing the NI rate to 11.5% by 2020, and possibly to 7% by 2025 if the GB rate is cut further. The best approach would be to commit to more than match any cuts in the main rate of corporation tax, but leave the small profits tax rate unchanged.