Devolution of corporation tax to Northern Ireland has moved a step closer after the House of Lords voted in favour of the legislation, but it will not become law until controversial welfare reforms have been agreed by the Stormont government.
Theresa Villiers, secretary of state for Northern Ireland, said it was fitting that the corporation tax bill had passed through the House of Lords on St Patrick’s Day.
In January, the Westminster government announced plans to devolve corporation tax setting powers to Northern Ireland, one of the key commitments in the Stormont House Agreement.
The current UK rate is 21% whereas in the Republic of Ireland firms pay 12.5%, and the move is intended to offer the Stormont government the option to reduce the rate in order to maintain competitiveness and encourage investment.
Estimates suggest cutting the tax could see some 40,000 jobs created and a 10% rise in output in Northern Ireland.
However, the Stormont government is currently involved in a long running dispute over welfare reform, which has made it hard to agree a budget.
Villiers said: ‘The new tax-setting powers will only be commenced if the executive parties put their finances on a long-term sustainable footing. Changes to the welfare system are a key part of this. I hope the parties will continue to work hard to resolve current issues and ensure this enormous opportunity is not lost.’
Under the legislation, which the government hopes to pass into law before May's general election. Northern Ireland will be able to set its own rate of corporation tax from April 2017. Small and medium sized companies, in which at least 75% of staff time and costs relate to work carried out in Northern Ireland, will qualify. Large firms, such as multinationals, will need to have a Northern Ireland Regional
Establishment (NIRE), with any trading income arising from the NIRE will be taxed at the Northern Ireland rate.