UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 385-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

NORTHERN IRELAND AFFAIRS COMMITTEE

THE VARNEY REVIEW OF TAX POLICY IN NORTHERN IRELAND

Wednesday 27 February 2008

Mr VINCENT SHERIDAN, Mr EAMONN DONAGHY and Mr BRIAN KEEGAN

Evidence heard in Public Questions 1 - 47

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 27 February 2008

Members present

Sir Patrick Cormack, in the Chair

Mr David Anderson

Mr John Grogan

Lady Hermon

Dr Alasdair McDonnell

Stephen Pound

Sammy Wilson

________________

Memorandum submitted by Institute of Chartered Accountants in Ireland

Examination of Witnesses

Witnesses: Mr Vincent Sheridan, President, Mr Eamonn Donaghy, Chair, ICAI NI Tax Committee, and Mr Brian Keegan, ICAI Head of Tax, Institute of Chartered Accountants in Ireland, gave evidence.

Q1 Chairman: Mr Sheridan, could I welcome you and your two colleagues. Before I ask you to say something, could I just make it plain first of all that we are delighted to see you and, secondly, that we are seeing you at your request, and the Committee at the moment is embarked upon a very important inquiry into aspects of policing in Northern Ireland and this is very much a one-off session. We have had requests from others as a result of acceding to your request but the Committee will deliberate when it has heard your evidence and had a chance to assess it as to whether we think it is appropriate for us to take this matter further or not. The commitment we made was to see you, which we are delighted to do, and that is what we are here for this afternoon. The House is engaged in a debate on the European Treaty, as you know, and there will be votes shortly after quarter past four, so I would like to feel that we can complete our evidence by then at the latest and we may finish a little before that. Would you like to introduce your two colleagues, Mr Sheridan, and then I believe you would like to make a short opening statement?

Mr Sheridan: Thank you, Chairman. I am Vincent Sheridan, the current President of the Institute of Chartered Accountants in Ireland. On my left is Brian Keegan, who is the Executive Director Tax in the Institute, and Eamonn Donaghy, on my right, is the Chairman of the Northern Ireland Tax Committee of the Institute. If I may then, Chairman, make a few opening remarks. First of all, I do thank you and your colleagues for the invitation to give evidence on behalf of the Institute of Chartered Accountants in Ireland in relation to the Varney Review of Tax Policy in Northern Ireland. As an Institute we represent over 17,000 accountants operating in both Northern Ireland and in the Republic of Ireland. The only banner that we carry is that of promoting economic development and sustainable employment and prosperity on the island of Ireland. As an Institute, we believe that we have made a significant contribution to the so-called Celtic Tiger of economic growth in the Republic of Ireland over the past 15 years. We fully support the introduction of a reduced tax rate in Northern Ireland of 12.5 %. Our support stems from our first-hand experience of its effect in the Irish economy. Sir David Varney was quite right to say that there was more to economic development in the Republic of Ireland than the tax rate - issues like the availability of a well-educated and skilled workforce, a stable and supportive pro-business culture, enormous goodwill, particularly in the USA, a sophisticated legal and regulatory environment, membership of the European Union, an English-speaking environment and reasonable communications and transport infrastructure. All these and more play their part, Chairman, but all are also present in Northern Ireland. However, low corporate tax rate provides the vital stimulant for foreign direct investment to choose Ireland ahead of other destinations with many similar attributes. Make no mistake, ladies and gentlemen, it is foreign direct investment that is the key to economic development in Northern Ireland and the means by which reliance on public sector employment and subsidies from other parts of the UK can be replaced by sustainable long-term and better-paying employment in the private sector. Clearly there are technical and administrative obstacles to be overcome, but these are surmountable, and the prize is worth the effort. The biggest potential obstacle is the constraint imposed by the European Union state aid prohibitions, and we are delighted that Sir David's report agrees with our submission that this barrier does not exist. There is a potential for loss of revenue from the proposed rate of corporation tax. Sir David in his report put this at approximately £280 million. We do not necessarily agree with the formula used, we think it will probably be lower than that, but even if it was this figure we would point out that this represents only 4% of the current level of UK subsidies going into Northern Ireland. However, we are extremely confident that any so-called loss of revenue would be replaced by higher income tax, VAT, capital receipts, and lower levels of social welfare and other dependency contributions. Indeed, we see no reason why the experience of the Republic of Ireland, ie that higher corporation tax receipts followed a reduction in the rate, would not be followed in Northern Ireland. We note that the Review does not fully explore the possible beneficial effects of other forms of tax incentive to help redress the economic imbalance within Northern Ireland which all commentators, including Sir David, have identified. We are clearly of the view that alternative tax incentives are very much a sub-optimal solution. They do not come near a reduced rate of corporation tax, but we would acknowledge that it is clear that even some specific tax incentives that do not impact on the main rate of corporation tax would be of some benefit to the Northern Ireland economy as it tries to compete in the global quest for foreign direct investment. Overall, while the Varney Report cogently identifies the challenges, it actually offers little in terms of solutions. A more proactive approach is required which builds up the potential of a Northern Ireland economy - and the importance of the Northern Ireland economy was actually noted in the Review. The case for a reduced rate of corporation tax in Northern Ireland has been strengthened by this report, not weakened even though the conclusions were non-supportive. Chairman, the policy arguments have disappeared; they do not hold up. It is now clearly a political matter and we would call on the Government to seize the opportunity today to invest in Northern Ireland and in the medium to long term give Northern Ireland a chance to reduce its dependency on direct subsidies in order to secure sustainable long-term development. Thank you.

Q2 Chairman: Thank you for that, it was a very precise and clear statement and I am grateful for it. Before I embark on the main question, could you just clarify a few small points. You said that you represent 17,000 accountants in the island of Ireland. How many of those are in fact from the North?

Mr Sheridan: I think it works out at about 4,000 or 5,000 in the North and the balance in the Republic.

Q3 Chairman: Yes, and you yourself are?

Mr Sheridan: I am in the Republic, I am resident in Dublin.

Q4 Chairman: But you are doing a good neighbourly act by leading this group this afternoon?

Mr Sheridan: I would not call it neighbourly in the sense that we are a Northern Ireland Institute. The Institute of Chartered Accountants represents accountants right across the island and I would think that next year's President, who will be from Belfast, would appear before a committee such as this in Dublin if called upon.

Q5 Chairman: The other two gentlemen are both from Northern Ireland?

Mr Sheridan: Brian is the Director of Tax for the Institute and he actually resides in Cork which is even further south. Eamonn is Chairman of the Northern Ireland Tax Committee and resides in Northern Ireland.

Mr Donaghy: Chairman, I can confirm that I am from Belfast.

Q6 Chairman: That at least is a relief, I thought we were about to become an international committee but, anyhow, thank you very much indeed for clarifying that. Of your members then, roughly 4,000 or 5,000 are from the North and the rest are from the Republic, but you work as an all of Ireland body and you have sub-committees presumably in Belfast?

Mr Donaghy: That is correct.

Q7 Chairman: And you are content being from Northern Ireland in saying that the North is properly and fully represented in the Councils of this organisation?

Mr Donaghy: Absolutely, I think that the all Ireland Institute of Chartered Accountants (which predates 1921 and the partition) has been one of the founding organisations in terms of economic co-operation North and South and very much it is representative of all its members. As I think the President said, next year's President will be from Belfast and on the basis that our Council is fully representative of all our members, I am very happy that this organisation is representative of all our members in the North.

Q8 Chairman: I would just say that the Committee pays regular visits to the Republic and we are delighted in the increased co-operation on many fronts that we see in our visits, so you are extremely welcome. I leave it to you, Mr Sheridan, to field the questions as you choose. I will direct them to you but if you wish Mr Donaghy and Mr Keegan to take some, that is up to you. How would you describe the current state of the Northern Ireland economy and what are the main challenges, in your view, the economy faces?

Mr Sheridan: I will give my overview and then pass over to Eamonn who has more direct experience. The stability that has come to Northern Ireland as a result of the political agreement has been tremendous and clearly was a first essential in seeking to get economic development. That is a quid pro quo, but economic development will not necessarily follow automatically from that, and this is our particular concern as an Institute. We believe that a lot more has to happen. We believe that political policy decisions have to be made. There are an awful lot of the features that I mentioned present in Northern Ireland - a well-educated workforce, sophisticated legal and regulatory environment - that are present in the Republic, but it is our very firm view in, and having lived through it I can attest to this personally, that foreign direct investment is the key to economic growth. The presence of a low tax rate was vital to securing that in the Republic. Given that Northern Ireland shares a land border with the Republic, it is very difficult to compete for foreign investment against the Republic of Ireland. I would say, though, that I think that there is a huge dividend to be garnered not only from Northern Ireland as a result of what we are lobbying for but also for the Republic. I think that the concept of a Northern Ireland economy is a huge rebirth for the entire island, and indeed I would say for the rest of the UK, because there are two things that one is immediately struck by in terms of the Northern Ireland economy. One is the amount of subsidies that are required from the UK, and if they can be reduced I think there is a win-win situation for the entire UK. Secondly, when you get down to employment in Northern Ireland, the proportion of the workforce that is employed in the public sector does not appear to us to be a healthy sign of an economy. The more we can get the private sector on board the better, and hopefully then the situation that exists now, where the average rate of pay from employers in the North is about 70% in that of the rest of the United Kingdom, the rising tide would lift that very important statistic.

Mr Donaghy: Chairman, I would like to echo something of what the President said. The Northern Ireland economy is a difficult animal to summarise in a short period of time. However, I think looking at some headline statistics could give a misleading view. The record employment rates that are in Northern Ireland at the minute would give the impression that the Northern Ireland economy is very buoyant and very strong. I think that there are a couple of key issues that can be masked by that statistic. Firstly, there is a huge level of economic inactivity from a large number of people who are currently claiming benefits, people who have never got into the workplace and who are incentivised effectively to stay out of the workplace. The lack of private sector investment into Northern Ireland means that it is difficult for those people to be incentivised to leave that economic inactivity. I think also the amount of public sector finance that has been introduced into Northern Ireland, and the growth from the public sector purse over the last number of years, has made a very significant impact into the Northern Ireland economy. I hate introducing statistics but the one that grabs me is that 61% of Northern Ireland GDP comes from the public sector. I think that is both unsustainable and unhealthy. As public finances start to tighten over the next number of years as anticipated, the question I would have to ask is how are we going to replace that lost economic activity and the answer must come from the private sector. The private sector needs a stimulus in order to grow and to develop, so from that perspective it is difficult to put a shape on it, but I do believe that the economic future of Northern Ireland is something that is currently unsure and potentially unstable and something that a reduced corporation tax rate would help to bolster and develop.

Q9 Chairman: But putting that on one side for a minute - and I accept your strong views on that - both the United Kingdom Government and the new Executive in Northern Ireland are taking steps to try and overcome some of the challenges that you have referred to, and to create incentives, and in particular we are having our minds increasingly focused on this major Investment Conference that is to take place at the end of the first week in May. How would you as professional accountants assess a) the success of the Executive and the UK Government in the steps that they are taking and b) the potential for this Investment Conference in May?

Mr Donaghy: I certainly welcome greatly, as does the Institute, the Investment Conference in May. I think the bringing of US multi-nationals to the shores of Northern Ireland to look at Northern Ireland as a potential place for investment is absolutely to be welcomed. Certainly all the other stimuli that are being looked at in terms of increased training and increased facilities and increased infrastructure also have to be fully welcomed. I would ask Brian maybe to comment on the impact in the South of Ireland. I think there is a misapprehension that if we get a low corporation tax rate that will be fantastic and that is all we need. I would refer to the reduced corporation tax rate as maybe the "X Factor" in terms of being able to ignite the growth that potentially could happen. It is that stimulus certainly in the foreign direct investment world that is required to bring together all the other issues that are being looked at.

Q10 Chairman: But you are not going to get this reduced corporate tax in the short term. You are quite legitimately campaigning for it and you are hoping to elicit the support of this Committee in that campaign, and that again is entirely legitimate, but in the short term you are not going to get it. You are not saying to the Committee - or are you saying - that the potential for the conference in May, if the other measures are being taken, will be negated by a failure to reduce corporation tax? You are not saying that, are you?

Mr Donaghy: I think "negated" would be too strong a word. What we will try and do is find a way of optimising the potential from the conference. I agree that it is fantastic to get the economic superpower that the US is to come and think about Northern Ireland, but maybe my colleague Brian can give you a perspective as to the type of things that will be on a chief executive officer's shopping lists. When comparing the Republic of Ireland and Northern Ireland as two potential locations for foreign direct investment, we believe that a lot of the items on that shopping list would be similar if not identical. However, there is one very important piece that is missing from that shopping list, as we referred to earlier, the X Factor, the idea of being able to go and say to a CEO, "Yes, we can compete with other jurisdictions especially the Republic of Ireland with a 12.5% rate so do not make your decision based on tax; make your decision based on other economic factors."

Q11 Chairman: Your fear is that having come to Belfast to enjoy the hospitality and scenery and all the rest of it, they will then go and invest in the South? That is your fear, is it?

Mr Sheridan: Chairman, if I can just address that. I think there is absolutely enormous international goodwill towards Northern Ireland in particular because of the history of problems and the fact that now there is a new beginning. However, I absolutely and sincerely believe that the economy is going to face a huge uphill battle in turning that goodwill into positive decisions when it comes to final decision time to invest abroad. The first decision that an international company makes is whether they go abroad and then they think where. They will certainly look at Northern Ireland, but to make that final decision my own belief is that it is going to be an insurmountable task for any serious investment unless there is a competitive rate of tax with the rest of the island. I think that is the political challenge.

Q12 Chairman: Did you want to come in Mr Keegan?

Mr Keegan: If I could just make the observation, Chairman, the very fact that there is an Investment Conference clearly is to be welcomed, but it does say something about the status of Northern Ireland in terms of the agenda for the FDI decision-makers. I do not think that should be overlooked. My colleagues have argued that 12.5% is key to the FDI decision-making process but there is a marketing aspect to that as well. It puts the region right up at the top of the decision-makers' agenda, and certain regions in the world have already been branded as potential destinations or potential locales for foreign direct investment. We feel it will take more than an Investment Conference to imprint on the minds of the FDI decision-makers that Northern Ireland is one of the key target destinations. We very much welcome the initiative but we feel it is a step forward rather than perhaps a compelling solution to the FDI decision-making process.

Q13 Chairman: One final question from me, and I want to go to Lady Hermon and to Mr Wilson, you are speaking here for a body which has the majority of members in the South. Is there a unanimity within your Institute for the line that you are arguing, bearing in mind the extra competitive power that the North would then have vis-à-vis the South?

Mr Sheridan: We have not gone to our members seeking a plebiscite, Chairman, but I believe there is total unanimity. We have, as Eamonn pointed out, a very representative Council (which is the governing body of the Institute) and the Council are totally behind the support that the Institute has given. This has not been just in respect of today. The Institute has been involved in this campaign for some considerable time, so total unanimity in our Institute would be my view. There are opportunities for the Republic. I think that it would create a new dynamism for the all-Ireland economy. Do not forget that foreign direct investment into Northern Ireland will include direct investment from the Republic. The Republic now has become quite a large overseas investor in the US. There is greater investment going into the US from the Republic of Ireland than there is from Germany into the US. I think the Republic of Ireland is now the fourth largest investor in the United Kingdom. There is opportunity on both sides of the border, but I think we will be a better Ireland if there is a developing economy in the North.

Chairman: Thank you very much indeed. Lady Hermon wants to come in briefly on this point and then I want to bring Mr Wilson in on the next section.

Q14 Lady Hermon: Could I invite our witnesses this afternoon to be a little bit more specific here. You have talked about foreign direct investment. Could I ask Mr Donaghy because he is Belfast-based, when this wonderful conference does take place at the beginning of May in Belfast, specifically and ideally what types of foreign direct investment should be coming to Northern Ireland? What would you expect to see ideally coming from the Republic of Ireland and investing in Northern Ireland?

Mr Donaghy: I think in today's world the concept of bringing in heavy manufacturing or a manufacturing base has passed. I think the move towards Asia and India has meant that is not going to happen. I think the way forward is based on the likes of intellectual property and telecommunications software. The idea would be to try and attract organisations to come to Northern Ireland to act as a central European hub, on the basis that what we are looking to try to achieve is to get organisations to come to Northern Ireland wanting to make profit, as opposed to organisations coming to Northern Ireland and wanting to spend money. Grants, subsidies, all the stuff that has been used over the years, both in the South and in the North, absolutely do have an attraction, but I think there is the encouragement to spend as opposed to the encouragement to generate profit. The type of organisations we would be looking to bring in would be the ones that we would hope would locate here and potentially do their development in Northern Ireland, with the objective of retaining a significant chunk of the profits derived from those activities in the North, and then we would still get the tax at 12.5%.

Q15 Lady Hermon: How influenced would those types of industries be by our corporation tax, particularly in light of the fact we have two very good universities, the intellectual property and the skills base to meet that sort of demand? How influenced would they be by a lower rate of corporation tax?

Mr Donaghy: Maybe Brian will give you a comment on how that has worked in the Republic of Ireland. I rather suspect that over the last ten years, when the type of FDI that we are talking about has been looking to locate in Europe, political instability has not helped Northern Ireland's cause but when one looks at the amount of investment that has gone into the Republic of Ireland and the investment that has gone into Northern Ireland, given similar educational establishments, given a similar hard-working English-speaking type of population the question is why has virtually all of that gone to the Republic of Ireland and very little in comparison gone to Northern Ireland? Our belief is that the tax rate has been a significant influencing factor in these investment decisions.

Mr Keegan: If I can just make an observation in regards to Lady Hermon's question. This is borne out of having trained in an international accountancy practice and having dealt with FDI projects. The kind of investment that we are looking for - high tech, high value-added, intellectual property-based type projects - originate largely in the United States. The parent companies are predominantly US based and I make this as an observation rather than a comment. A factor of the decision-making process within those organisations and that they regard corporation tax as a cost to business rather than as a levy on profits. In my experience of speaking to members who are involved in FDI projects, this really ranks very, very high in the minds of those decision-makers. I think that is a particular aspect which is worth highlighting to the Committee today.

Lady Hermon: Thank you.

Q16 Sammy Wilson: You mention, Eamonn, that a lot of the investment projects have gone to the Republic in the past, and I asked the question why they were not coming to Northern Ireland, and in the past was a big factor of course not the political instability in Northern Ireland, and now that the political instability has been not completely dealt with but it is receding, are there not big advantages which Northern Ireland now has over the Irish Republic such as an available supply of skilled labour, and we are already seeing overheating in the Irish economy, the fact that rents on property in Belfast are much lower than in Dublin, I think it is about a third, if not less, and that tax incentives probably bring tax rates down to maybe even below what they are in the Republic. Are all of those things which Varney has identified not sufficient to offset the plans to bring corporation tax down to a similar level in the headline rate?

Mr Donaghy: I will take the two points in reverse order. Firstly in terms of the other incentives that are available, we have looked at a way of analysing the other incentives that would be in Northern Ireland and the Republic of Ireland. That is a very difficult and complex process depending on expenditure, depending on timing, depending on exactly where you are going to locate. Unfortunately, large organisations tend to want to move fairly quickly and they want to be able to do an analysis of the various countries that they could locate in to say, "Well, if we stay here for five years we might get X amount of capital allowances and possibly a bit of research and development depending on what we spend." Yes, that can mathematically be worked out but I think that organisations want to see decision-making based on high-level issues, and I think the rate of corporation tax is something that can be calculated quickly and understood by boards of directors and chief executive officers. I think the other thing to note is that in 1995 the concept of Ireland being a low tax rate jurisdiction was not unheard of but was fairly novel. I think we have to realise that in today's FDI world where companies and businesses are very mobile, it is not just the Republic in town; there is Eastern Europe, Singapore, Costa Rica where businesses can locate, and therefore this is not just Northern Ireland competing against the Republic of Ireland; this is Northern Ireland in the big bad world of foreign direct investment trying to make its case. Certainly if Ireland were looked at, you are absolutely right, there are lots of advantages in Northern Ireland compared to the Republic of Ireland, but if Northern Ireland is not on the shortlist in the first place because of its tax rate, then unfortunately those differences and those advantages that Northern Ireland have may never get looked at.

Q17 Stephen Pound: Are you talking about back office relocation or primary plant?

Mr Donaghy: What we would ideally like to see is more than just back office.

Q18 Stephen Pound: Is that the sort of structure you are talking about in countries like Costa Rica?

Mr Donaghy: In many ways it is difficult. Costa Rica has made a niche market for itself in terms of research and development and back office. Any investment into Northern Ireland is going to be welcome but what we are looking for is sustainable, long-term investment where companies want to locate their profits as opposed to just necessarily reducing their costs.

Mr Keegan: Just one supplementary point if I might. You are absolutely right, Mr Wilson, in terms of labour costs there are advantages and in terms of rent rolls there are advantages. What we would love to see in Northern Ireland is highly profitable businesses, so if you have got an FDI company making profits of £100 million, which is not unheard of, with a rent roll of maybe £5 million year and staff costs possibly in the region of £30 million, yes, the advantages are there, but if you are looking at the tax differential on the profit of 100 million, which amounts to 15.5%, those very strong advantages, which we fully accept are there, economically are completely wiped out.

Q19 Sammy Wilson: This is where I am at a bit of a loss to maybe follow all that you are saying because while you are saying that the main stimulus was tax, Varney in his report indicated - and as an economics teacher I used to teach about cetiris paribus, all other things being equal, and everything else - that during the period when a lot of this foreign direct investment was being attracted to the Irish Republic the tax rates actually went up from 0% on firms which were exporting more than 50% of their output to 10%, and then to 12.5%, so therefore he did not believe that the tax stimulus was the major factor, and he pointed to all of the other things such as the supply of skilled labour, English speaking, European Union help with infrastructure, et cetera. So on the one hand you are saying it is absolutely essential and on the other hand Varney is saying it is not absolutely essential because look what has happened to tax rates at the same time as all of these other things. Who is right on that and how do you square those two arguments?

Mr Keegan: I think, Mr Wilson, you make a very good point and I think Sir David made a very good point but he may have overlooked, to my mind at least, what is a very important issue. If we think about the kind of industries that were truly mobile in the 1970s and 1980s they were typically either heavy manufacturing or assembly. The high-tech industries that we take completely for granted now just did not exist. The computer industry was embryonic, the entertainment industry has burgeoned out of all proportion. We had an export sales relief rate of 0% and we have had that since the mid-1950s, but there was no mobile business to be attracted in simply because that was not the nature of the industries in the 1950s and 1960s. It just so happened that the 10% rate of manufacturing that applied in Ireland in the 1990s caught a wave of new mobile industry and new services, particularly high-tech services. Another key area was the area of pharmaceuticals and osteo/polio aids and medical appliances where there were enormous technological leaps within that industry over that period of years. Suddenly those businesses became truly mobile and it actually made sense to relocate those businesses closer to a target market in Europe, or for whatever good commercial reason was there. I am not so sure it was the fact that those low rates were not working; there were low rates, but they were not working in an environment where there was a normal business really in a position to take advantage of them. We hit it lucky in the 1990s because we had this rate of manufacturing relief - we called it the 10% rate - and manufacturing basically meant anything that was employment grant-assisted. Things that we would not traditionally regard as manufacturing in the true sense of it, things like software development, things like some of the service provision that qualified as manufacturing by virtue of that legislation which said you are grant aided so you can call it that and everything is fine, would come under that heading, and that did attract industries. The difficulty with that though was that Europe said, "This is not on. What you are doing is effectively you are making up a tax rule which focuses in on one particular sector." It was at that stage that we introduced the generalised reduced corporation tax rate. I make that point first of all. My second feeling on the Varney Report - and I do not mean to criticise the report because it is a very good report in many respects - is that one of the things he missed was when Sir David talks about FDI he talks about FDI in manufacturing; he does not think in terms of FDI in services. In fact, services has been the big area where Northern Ireland has scored particularly in the last ten years and we are now one of the world's leading service exporters in Europe population-wise. I think if you factor in those two points it may help, I hope, to explain the point you raise.

Mr Sheridan: I think it is also where the opportunity lies and the opportunity lies in services going forward in terms of foreign direct investment. I am not so sure that there is that much mobile manufacturing investment going on, but if it is it is certainly not going to come to these islands; it will go somewhere else. It is really in services and I think it is disingenuous in the report to suggest that the rate goes from 0% to 12.5%. Tax is a relative game so there is no such thing as an objective tax rate that is good or bad. It is just there is a tax rate that is a lot more attractive or a lot less attractive and business, seeking to maximise its return on investment, will go towards the place where the tax rates are more attractive. There is no objective basis for it; it is a relative game.

Q20 Sammy Wilson: I just want to take one more point on the corporation tax. I imagine that another way in which firms make decisions is to look and talk to other firms who have invested. The Chancellor here has indicated that although we have a 40% corporation tax, very few firms pay it. I think only 30% of firms pay the top rate in Northern Ireland. It is considerably less than that because of allowances, et cetera. So when firms are looking at investment locations, do they not speak to other firms and whilst the headline rate of tax may be a certain amount, the actual amount of tax paid can be judged on what similar firms are paying in the same region, and therefore does the headline rate not become a little less important?

Mr Sheridan: We are queuing up to answer that question.

Mr Donaghy: I think you are absolutely right, the headline rate is not something that necessarily paid by other organisations. It was a bit disheartening that an argument was being put forward that only 3% of companies in Northern Ireland pay tax at the higher rate. I think I would have to say that with the continuing tax regime in Northern Ireland that we have that we will never get above 3%. The objective is to encourage and stimulate large companies to come to Northern Ireland to generate profits. That is what our objective is. It is not necessarily to facilitate existing companies to reduce their tax bills. I think headline tax rates are significant in the world of FDI on the basis it is something that can be directly comparable. You are absolutely right, the world is much more difficult than that, and the calculation of tax is a lot more difficult than that, but I think in terms of headlining, getting on to the lists, getting down to the final decision tree, it is very important and the headline corporation tax is always considered. There are obvious ways of reducing that which could be factored in. We find it difficult to be able to determine exactly what the effective rate of corporation tax would be. Of course models can be done to look at that but when it comes down to the final analysis for large corporates, the FDI type of investment that we would love to attract in Northern Ireland, the headline tax rate is one of the key determining factors when the rest of the shopping list has been looked at.

Mr Sheridan: I think the attraction of a low corporation tax rate is that it is sustainable long term. In the Republic we went through a period when there were all kinds of allowances available and they were very widely available, but a company looking to invest might find that they would have quite a low real tax rate during a period of very high capital investment, there might be double capital allowances, but it is not nearly so attractive as knowing that when you actually get through that period and the profits start coming in then there is going to be a lower payment of tax. I suppose the proof of the pudding was that the real growth in foreign direct investment followed on the introduction of a permanent low rate of corporation tax.

Q21 Sammy Wilson: You mention, and this Committee has looked at it in the past,- other taxes - capital taxes, indirect taxes and income taxes - and the differences there. We have seen the impact that has on certain businesses, fuel tax, et cetera, between Northern Ireland and the Republic. How important do you believe the alignment of those taxes between the two parts of the island are?

Mr Keegan: I think they are certainly contributing factors. Taking the obvious one in terms of income tax, obviously the income tax rate and the rate of PAYE applying to employees has a direct bearing on the attractiveness and the costs of establishing a business. In terms of the turnover taxes, things like value added tax, they essentially are consumer taxes. I know you know that better than I do, so for that reason if you have a policy which in general has a higher number of well-paid employed people in a region, those kinds of receipts are going to go up. In terms of capital taxes, the primary one being capital gains tax, I think it is only fair to say that probably in very many respects the UK regime is more favourable than the Irish regime in terms of the relief that is available and in terms of the recent initiatives announced by your Chancellor, so they are very, very important. They are though important in terms of being a consequence of rather than key to the investment decisions.

Mr Donaghy: Can I just say a couple of things. First of all, it is important to realise that we are not looking to put more money into the pockets of the Northern Ireland businesses and business owners. What we are trying to do is to attract foreign direct investment to locate and retain and reinvest the profits that they generate. This is not an attempt to try and reduce the overall tax burden of the entrepreneur in Northern Ireland. It is a genuine attempt to try and encourage businesses to come to Northern Ireland. I think one of the other impacts of the other taxes is that with economic stimulus and growth it creates other jobs and it creates wealth, and the payback in terms of PAYE, national insurance and capital gains tax will be something that can counter the reduced corporation tax that is likely to arise in the short term. As shown in the Republic of Ireland, the corporation tax take rate has still increased even though the tax rate was reduced. I think the overall impact of taxes has to be compared. We are not calling for the equalisation of all the taxes on the island of Ireland and there will be differences and we fully accept that, but the whole concept of a reduced corporation tax rate is to act as an economic stimulus and to encourage reinvestment into Northern Ireland.

Chairman: A number of people are trying to get in, I will call John Grogan, then David Anderson and then Alasdair McDonnell.

Q22 Mr Grogan: What have been the trends in foreign direct investment in Northern Ireland since the Good Friday Agreement?

Mr Donaghy: I think it is difficult to analyse that in great detail. There has been a significant number of service centres, call centres and back office centres that have been brought to Northern Ireland, which is fantastic in creating jobs but the problem with those types of investments is that when employment costs elsewhere become significantly lower those businesses tend to move away. The roots are on the rock as opposed to in the soil so it can be easier to go away. There has not been a significant amount of inward investment of the type we would hope, which is long term and sustainable, to make Northern Ireland the centre of a European operation and encourage them to try and make profits.

Q23 Mr Grogan: Do you think you could be accused of concentrating on one sector, albeit a very important sector? You keep on about high-tech services and so on but still manufacturing investment is quite important. You talk about back office investment and that is very important as well in many ways and the United Kingdom as a whole has got quite a good record. It is true, is it not, that we have got a much bigger share than we would deserve per head of population of foreign investment in the European Union. Do you think you could be accused of just concentrating on one sector?

Mr Donaghy: I think the slight differential that we have is that - and we have coined a phrase - we are north of the Watford Gap and on the wrong side of the Irish Sea. We also have a land border with a jurisdiction where the rate is 12.5%. Northern Ireland is absolutely part of the United Kingdom but we are different in many respects from other parts of the United Kingdom and therefore being at the far end of the United Kingdom means that we are potentially being overlooked.

Q24 Mr Grogan: Could I put it another way: are you in danger of being hoist by your own petard? You are coming up to a very important conference and your message could be that we are part of the United Kingdom which does get a more than average share of foreign direct investment; we have got many advantages as compared to the Republic, as we have heard about, in terms of the cost of offices and presumably other accommodation, in terms of wage rates, a very highly skilled and educated population, and so on, and we are really proud of that and we are a good place to come. Is not the danger that the message you are coming across with is you are emphasising one particular factor which you say is not in your favour and the danger is that it will become a self-fulfilling prophecy, and would it not be better to emphasise the many positive advantages to coming to Northern Ireland? Would that not be a better way forward?

Mr Donaghy: I agree entirely with you and we are in favour of emphasising any positive economic advantages that Northern Ireland will have. My own experience is of course slightly different in that when one has discussed this with senior executives in multi-national organisations that when they come to make the decision, it is not as if this is hidden under a stone and nobody knows about it. They know fine well what the corporation tax rates are in the North and what they have been in the South. This is not a silver bullet; it is not the only answer. The difficulty of course is that it is there, it is sitting in the room and everybody knows it is there, so us articulating this and saying we think this might be a problem is not going to make the other organisations say, "Oh, it is a problem." They know it is an issue, they know it is a problem, and what we are trying to achieve is a way of being able to take that problem out of the room to give us a level playing field with our other competitors, both the Republic of Ireland and other competitive FDI locations.

Mr Sheridan: Could I just say that it is certainly the Institute's wish to do everything possible to support the Investment Conference and we would not want to be seen to be negative, but we see this as being absolutely central to economic development. We made submissions to the Varney Report. Our request to the Committee to meet and to give evidence was in relation to the Varney Report. We took the view that we had to respond to the Varney Report, so that is what is driving us, not anything else. If I can get back to the sector that you are talking about, I think it is more deep-rooted than that. I think there are a number of things. Mobile foreign investment is increasingly centric on service-type industries. There is a reputation which has been gained for the island in a number of industries which is tremendous in a lot of ways - pharmaceutical technology, life sciences, financial services - and that is there to be exploited. I think it is relatively easy to exploit that. It just needs a key to turn to open that door. To overlook that would seem to me to be a major mistake.

Chairman: Dr Anderson --- Mr Anderson?

Q25 Mr Anderson: Not yet and do not hold your breath! Have 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 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 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 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 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 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 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 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.

Q32 Dr McDonnell: Surely the point is - and I am going to put this to you bluntly - the agenda here is not to suck jobs out of Newcastle or out of Wales but to suck jobs out of an overflow of business in the Irish Republic where the exhausted labour market has been fulfilled in Dublin and where there are companies that might have come to the Irish Republic but find there is a labour shortage there or find they are not able to get staff and step north? Is that not ultimately the agenda? It is to my mind.

Mr Sheridan: The agenda is to get more investment into Northern Ireland and Northern Ireland competing with the Republic is going to find it very difficult to get over that hurdle without lower corporation tax. There are problems of having a very successful economy such as labour shortages but if you talk to the Industrial Development Authority, who are the people who seek out the jobs, they have a very full book of interested inward investment opportunities facing them. Although there is a very big rate of employment and a low unemployment rate in the Republic, we have proved remarkable at getting immigration into the country to sustain further growth. It has slowed down a bit now. Certainly some of the investment that would go to Northern Ireland if it was able to compete on level terms with the Republic might be to the loss of the Republic. Fair call, but there is so much out there. If I can use the opportunity to make the point Mr Anderson made, I do not think that the Orange call centre is at risk. My own company runs a large call centre and if we were ever to move it from the midlands of Ireland, we would move it to India. That is the threat. We need to attract new investment and there is no other part of the United Kingdom that has quite the same competition across a land border as Northern Ireland has. It is very difficult.

Q33 Dr McDonnell: Can I come back here because I am trying to get to the nub of this. Surely the nub of our situation as a whole is there is a high level of subvention in Northern Ireland. The current regime is possibly more generous in some ways and you could suggest, if you go through all the detail, that there is a lot of generosity and that probably costs the Chancellor more than the Irish system costs them, but it is so complicated and hard to sell and hard to exploit and hard to understand that a lot of US investors' eyes glaze over after the third or fourth angle on it and they think that our system in the North is so complicated whereas the Southern Irish system is simple and straightforward of a 10% tax rate and 1% tax, which is understandable and easily sellable. Is that not the issue?

Mr Sheridan: I think that is the nub of it. One of the points I made in my opening statement was that the experience in the Republic in reducing the rate of corporation tax was such a simple approach to the issue and it actually increased the revenues from corporation tax. This has been no point over the last 20 years where the graph of corporation tax receipts in the Republic has not continued to go up. That does not happen with complicated allowances and marginal changes to these allowances every year. It is too complicated and there is no certainty with it going forward whereas the other is simple and straightforward. People make investments at the point of the projections that supports the investment decision, which must be backed up in the first instance by profit.

Q34 Dr McDonnell: Am I correct to believe that any initial shortfall or drop in tax will largely be compensated for within three years?

Mr Sheridan: We think it will be compensated for within three years just within corporation tax receipts. It will be compensated much quicker by increased income tax. It is not just that more people will be in employment but we think the average rate of pay in the North would move up towards UK levels at a pretty fast rate and value added tax would increase. In the Republic now our value added tax receipts are exceeding our corporation tax receipts and they have been generated by more people at work and a more buoyant economy. Peter Sutherland, who is President of a world trade body, recently said that the two factors that influenced the country's turnover were foreign direct investment and a low rate of corporation tax, because a low rate of corporation tax played a huge role in bringing foreign direct investment into the country, so the rising tide lifts all the boats in the harbour

Chairman: I am conscious that it is now 4 o'clock and we are into our last quarter of an hour. Did you want to come in at this point Lady Hermon and then Mr Pound?

Q35 Lady Hermon: I just wanted to see if Mr Donaghy had a brief point in response to Dr McDonnell before I ask my next question.

Mr Donaghy: I was only going to address the issue in terms of the fact that Northern Ireland has for a long time had a significant subvention to it from central government. That has been very necessary over the last 30 or 40 years with the difficulties that we have had. I appreciate that subvention is something that could be reviewed and considered as part of the bigger picture, but I think Varney says in his report that regions that are prepared to take an element of risk are those that deserve the best rewards. What we are hoping for and asking for, what we are seeking is that there is an element of investment into Northern Ireland. This is not a handout and we are not looking for a handout. What we are looking for is an investment to stimulate economic activity in Northern Ireland to help pull us out of a dependency culture and to help us into a situation where we can be net contributors to the United Kingdom. The benefactors here are not necessarily just the people of Northern Ireland but we hope we can contribute to the central funds as well.

Q36 Lady Hermon: I wonder as a matter of interest - and I have listened very carefully this afternoon - were you ever confident that the Varney Review team would recommend the lower rate of 12.5% corporation tax or did you have the view at the beginning that when the Varney Review was set up - and it was set up by the then Chancellor Gordon Brown before the political settlement in Northern Ireland was achieved - that Varney was kicking the issue of corporation tax at a lower rate into touch? Can I ask you to be frank on that.

Mr Donaghy: I will be very frank with you. I would have been exceedingly surprised if Sir David's report had fully vindicated our call and said that a reduced rate of corporation tax at 12.5% would be something that Northern Ireland should have immediately, so being frank I did not expect that to happen.

Q37 Lady Hermon: Why did you not expect that?

Mr Donaghy: I believe personally the political ramifications to the UK were always going to be very difficult, for the very reason Mr Anderson articulated, that the north of England, Scotland and Wales would all be knocking on the door to say, "We want a share of that as well please." We are not foolish enough to think that is not an issue; we do recognise that fully as an issue. However, we have got to focus on Northern Ireland and look at Northern Ireland's issues and try and address the economic instability Northern Ireland has had over the last 40 years, the dependency culture, and the fact that 40 miles down the road you can set up a company and pay tax at less than half what it is in the United Kingdom. We do believe that we have a differential as a result of the troubles and also because of our location. We are potentially drifting into becoming an economic backwater. The dependency culture that is there and the social deprivation that is there, yes, it is present in other parts of the United Kingdom as well but we have had such a dependency culture that we have hundreds of thousands of people now claiming incapacity benefit who are just not in the workforce and are not encouraged to go into the workforce because there is not sufficient private sector industry.

Stephen Pound: I want to ask a question but first of all can I say I greatly valued your opening comments, President Sheridan, particularly the selfless nobility from the Dublin perspective for the economy of the North, which I thought was admirable. I do not know if you are any relation to your namesake who held this House in such sway for many years ---

Chairman: Flattery gets him everywhere but let us have the question!

Q38 Stephen Pound: However, is not the inevitable logic of what you say about the corporation tax differential that if you view this from an EU perspective, taking Latvia and Cyprus at one end of the equation and Italy and Germany at the other, the median level of corporation tax in Europe is in the high of 20%s and after April in the UK it will be 28%, so is it not more logical to argue for an equalisation of Ireland up rather than Northern Ireland down?

Mr Sheridan: It depends, I suppose, where you are sitting, Mr Pound. Can I very briefly answer Lady Harmon's question because I can say with all honestly, and naively I would admit (I did not look at it from a political point of view) that I was very hopeful and then very disappointed when the report came out negative on two simple points. Firstly, I believed that any writer of any report on economic development in Northern Ireland must have seen the importance of foreign direct investment. Secondly, I could not see any way that you could be optimistic about foreign direct investment into Northern Ireland without having a competing rate with the Republic. It is a matter of absolute all-party agreement, all-elector agreement - and we have seen the result of having a lower corporate tax rate - that that is central to our economic policy and the right that Europe cannot vote away tax rates is central. Much as we all love the European Union, I suspect that our membership of the European Union would be put at risk if that was interfered with.

Q39 Stephen Pound: I was not implying fiscal harmonisation, although personally I see the logic of that, it just seems to me that if you look at this from the perspective of as much coolness as possible, it would seem that the country out of step is Ireland and the country in step is the United Kingdom.

Mr Sheridan: That is absolutely true, Mr Pound, but look at the results. The results have been spectacular. The Republic in the 1980s was not a great place to be. I was there, I worked there; it was not a great place to be. You crossed the border into Northern Ireland and there was every evidence of economic prosperity. The 1980s is not that long ago and it was a very bleak time in the Republic and we did not see how the objective of economic development was going to be achieved. A lot of things came together and I made reference to them early on, but the belief is a strong widespread belief - and one that I share - that the key and the biggest single ingredient and the stimulant that brought the others together was this low rate of corporation tax.

Q40 Stephen Pound: I agree with you as an incentive. One of the points Mr Donaghy made, which I thought was extremely powerful, when he talked about structural problems within Northern Ireland he talked about a large pool of people who are not economically engaged, and talked about the disbalancing effect of the overhang of public investment, to which we can probably add the large number of people engaged in agriculture and their age, there is a whole range of factors. Varney is now producing what we would colloquially call Varney II. What would you like to see collectively as the main thrust of Varney II? Would you like to see those structural internal issues within Northern Ireland addressed or do you think Varney II should simply re-visit Varney I in the light of your extremely good response to it?

Mr Sheridan: I will pass over to Eamonn but we have made a submission to Varney II. We did not bury our heads in the ground ---

Q41 Stephen Pound: I suspected you had not.

Mr Sheridan: If you read our response to Varney, we come back again to the importance of the corporation tax rate, but we have made a detailed submission to Varney II.

Q42 Chairman: You have seen Sir David and discussed it, have you?

Mr Donaghy: We met with Sir David back in June. I suppose one of the things that I was disappointed with in Varney back in December was the fact that there was a report that was produced the Monday before Christmas that basically said, no, you cannot have any corporation tax, let us take this off the table and move on. I believe this is such an intrinsic and important part of the future of the economy in Northern Ireland that it deserves a wider articulation and a wider debate than just the report that Sir David has produced. We are hugely grateful today to at least air our views on this issue. I would highly commend to the Committee that this is an issue that you may wish to consider further because I do believe that it is of fundamental importance that the economy of Northern Ireland is fostered and encouraged, not only to help us come from where we have been but also to help to become stronger members and contributors to the overall economy.

Q43 Stephen Pound: For the record, you are saying that Varney II should still have at its centrality the issue of corporation tax?

Mr Donaghy: We believe that, yes.

Lady Hermon: Do the terms of reference actually allow the Varney II to look at that?

Q44 Chairman: Are you not banging your head against the proverbial brick wall?

Mr Donaghy: Sometimes it has felt like that but if you give up too easily then it was not worth fighting for. I genuinely believe that this is a key issue and I would greatly commend the Committee to consider that in its deliberations.

Mr Sheridan: It is a brick wall for us but it might not be a brick wall for you and the Committee. Our hope is that by coming here today we might engage your interest in the subject and the passion which we feel for it and instigate some further inquiry into Varney I.

Q45 Chairman: Your passion is clearly undiminished. You are anxious that in spite of the fact that Varney has gone to Varney II that he should indeed turn that up and look again at corporation tax, which you seem to be implying is the golden key?

Mr Sheridan: It is. It is not the only key but I think an awful lot of the other things are in place. It is the stimulant that will capitalise on all of the other good things that are there. I would have serious concern that the Northern Ireland economy would not be able to capitalise on the very many positives without it having a rate of corporation tax comparable to the Republic.

Chairman: I see. Would it be a good quid pro quo if the Republic raised the fuel duty ---

Stephen Pound: I was very carefully not mentioning that, Chairman.

Q46 Chairman: You will know that this Committee has actually made certain recommendations in that field because of the problems caused there which must impinge upon many of the businesses that you serve and the people to whom you give advice. Does one good turn deserve another?

Mr Sheridan: We have not got the influence that you might ascribe to us but if we could help in other ways, well then we are certainly open to suggestions.

Q47 Chairman: The offer of your services is touching!

Mr Sheridan: Other rates of tax were mentioned earlier on, but could I say that it is a big thing for us as an Institute to get a hearing before this Committee and we do appreciate that but it was not lightly sought and we do really appreciate the importance of this. We will not be back, and I will be bold enough to speak on behalf of my successors, to talk about a unified rate of income tax or VAT or capital taxes because they do not have the same potential one way or the other. I cannot envisage any other issue where my Institute would be seeking to influence a Committee of this nature.

Chairman: We appreciate your passion and we appreciate your sincerity but we are faced with practical problems that as politicians elected to the United Kingdom Parliament we have to look at. This Committee has a specific and particular responsibility with regard to the affairs of Northern Ireland. Three members of this Committee serve on the Assembly and a fourth member is from Northern Ireland, so we of course are very anxious to see Northern Ireland prosper in every possible way. We are very anxious to see the imbalance of employment which at the moment is grossly distorted in favour of public service and we want to see that dealt with. We are listening carefully to what you are saying but the whole thrust of your evidence this afternoon has been that whatever is done would be enormously helped if this particular concession were to be made, and we have got to take on board those recommendations in a United Kingdom context and decide whether that is something that this Committee can recommend or not. We have certainly listened very carefully to the points you have made and you have made them with passion and conviction. We know that you are dedicated to a prosperous island of Ireland, both parts of it, and we share that sense of dedication. It is whether this particular dilemma can be resolved in a way that Varney thought it could not be resolved.

Stephen Pound: I would say, Chairman, that we do have form in this area where an earlier Committee inquiry dealt with the Aggregates Levy. There was a clear financial disadvantage to companies operating in Northern Ireland against the Republic and we were able to isolate that issue and make a recommendation to the then Chief Secretary of the Treasury, who agreed on a reduction in the Aggregates Levy in the North to prevent that competitive disadvantage that was being felt, so we are on your side on this. I cannot speak for the Committee but I think most of us are acutely aware of the points you have made dramatically and with expertise this afternoon and in the evidence to Varney.

Chairman: I have got to draw this to a close because a division has been called five minutes early. The bells are now ringing and we must go and vote but before you go I would say that we cannot commit as a Committee at this stage. We have got to reflect and deliberate on what you have said. We are very grateful to you for taking the trouble to come. We wish you great success in what you are doing individually and collectively towards the economy of the whole island of Ireland. Thank you very much.