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Lord Dubs moved Amendment No. 230:

Page 44, line 2, after ("Act;") insert ("war pensions;").

The noble Lord said: This amendment is necessary to ensure that war pensions fall into the excepted field. The pensions of former members of the armed forces clearly fall within the exception in paragraph 4 of Schedule 2, which covers the armed forces of the Crown. However, war pensions are also paid to persons who may not have been members of the armed forces of the Crown, such as civilians, merchant seamen, coastguards and former Polish airmen.

We estimate that around 120 of the 4,000 or so war pensioners in Northern Ireland receive their awards other than in respect of service in the armed forces. We therefore consider it important to ensure that their war pensions are treated in the same way as those who served in the armed forces. I beg to move.

Lord Cope of Berkeley: And quite right too!

On Question, amendment agreed to.

Lord Dubs moved Amendment No. 231:

Page 44, leave out line 7 and insert--
("8. Nationality; immigration, including asylum and the status and capacity of persons in the United Kingdom who are not British citizens; free movement of persons within the European Economic Area; issue of travel documents.").

The noble Lord said: This amendment will update the definition of nationality and immigration, which is an excepted matter in Schedule 2. The amendment brings the definition into line with the reservation in the Scotland Bill. It uses the term "British citizen", which was introduced in the British Nationality Act 1981. It also reflects the principle of free movement of persons within the European economic area. I beg to move.

On Question, amendment agreed to.

Lord Dubs moved Amendment No. 232:

Page 44, line 8, leave out ("Taxes") and insert ("The following matters--
(a) taxes or duties").

The noble Lord said: We are proposing these amendments to make it clear that the broad range of taxes and duties such as customs duties and agricultural levies are excepted matters. The amendments are purely technical and reflect our view that the term "taxes and duties" is preferable in the interests of clarity. Therefore I invite the noble Lord to withdraw his amendments, which have the same effect. I refer to government Amendments Nos. 232, 236 and 237. I beg to move.

Lord Cope of Berkeley: As the Minister has indicated, I attempted to re-write this provision so as to make it clear. The Government have also done that.

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Therefore I should accept their drafting rather than impose mine. However, their drafting still retains the words,

    "levied in Northern Ireland before the appointed day",
even after the Government's amendments have been included in the Bill. Does that prevent the United Kingdom from inventing a new duty? I was at the Treasury at the time that airport duty was introduced. I should not like to think that future Chancellors of the Exchequer were prevented from introducing such measures in respect of Northern Ireland because that would not, of course, have been levied in Northern Ireland before the appointed day.

Lord Dubs: That is certainly not the intention.

On Question, amendment agreed to.

[Amendment No. 233 not moved.]

Lord Rathcavan moved Amendment No. 234:

Page 44, line 8, after ("whole,") insert ("except Corporation Tax levied within Northern Ireland,").

The noble Lord said: This amendment and Amendment No. 265 flag up what is becoming an increasingly important issue for inward investment in manufacturing in Northern Ireland; that is, the huge difference between corporation tax rates in the Republic of Ireland and Northern Ireland. The figure is 10 per cent. in the Republic of Ireland and 31 per cent. in Northern Ireland. That matter greatly concerned those on the recent North American roadshow to attract inward investment headed by the Assembly First Minister, David Trimble, and his deputy, Seamus Mallon, and joined at several stages by the Secretary of State, Mo Mowlam.

At Second Reading of this Bill the Minister said that there was little support for fiscal powers in the discussions leading up to the agreement. He also said,

    "We would not seek to introduce such a significant change in the package unless there were widespread support for it".--[Official Report, 5/10/98; col. 227.]
I believe that that widespread support, while not perhaps apparent in the political discussions before the agreement, has since become clear in the political establishment of Northern Ireland since the agreement. For example, the Alliance Party's manifesto states,

    "Alliance supports power for the Assembly to reduce and increase tax".
The SDLP manifesto calls for,

    "fiscal powers for the Assembly".
The Ulster Unionist Party has called for tax incentives to match those available in the Republic of Ireland. Even Sinn Fein advocates tax harmonisation, which is hardly an argument for the status quo. These parties account for a clear majority of seats in the new Assembly.

I am also acutely aware that there is widespread concern in the Northern Ireland business community about these corporate tax levels. It is well known that many Northern Ireland manufacturing companies have created or purchased subsidiaries in the Republic of Ireland where they can complete a manufacturing process and maximise their profits with the low rate of

27 Oct 1998 : Column 1839

corporation tax. This is done quite legally but at the expense of corporation tax levied in Northern Ireland. The Treasury is losing out on tax receipts to the Republic of Ireland.

The current strategy review put in place by Mr. Adam Ingram, the Minister responsible for the economy in Northern Ireland, was established to find out the views of the business community on the development of the Northern Ireland economy. It will report soon. I believe that if the views of the CBI and the Chamber of Commerce are representative, the strategy review will come out strongly in favour of giving the Northern Ireland Assembly some fiscal responsibility for corporation tax and the ability to design a package for inward investment in manufacturing which is visibly competitive with that available across the land border.

I know of a large American pharmaceutical company already present in the Republic of Ireland. People in that company have told me there is no way in which they would set up a manufacturing plant in Northern Ireland with the current differential in corporation tax rates.

That was the message that participants in the Northern Ireland/North American roadshow were getting and they were concerned about the negative response and views expressed by First Minister, David Trimble, and his deputy, Seamus Mallon, in a recent article in the Irish News.

This issue will not go away. I fear that if it is not dealt with in this Bill it will become an even bigger issue in a year's time. I hope that the Minister has a more open mind today. The development of the Northern Ireland economy and new jobs are essential to the success of the peace process. These amendments highlight a matter which I am sure the new Assembly will wish to follow up. As the Minister confirmed earlier today, they will also give the Assembly the flexibility to play a part in such powers and responsibilities in due course. That cannot be done if corporation tax stays as an excepted matter. I beg to move.

Lord Desai: I have previously supported the spirit of the noble Lord's amendment. Clearly it will be difficult for the Government to have within the UK fiscal regime two different rates of corporation tax. The problem is that there are two fiscal regimes on the island which comprises Northern Ireland and the Republic of Ireland. Some way will have to be found to soften the blow of the higher corporation tax upon Northern Ireland business. I presume that my noble friend will say we cannot grant such powers to the Assembly. I hope that he and his colleagues will explore other ways which are, as it were, legally permissible under the single market legislation--or more surreptitious ones, if that is necessary--which will make up the difference. Whether one calls this danger money, special exclusion grant or whatever, one has to compensate inward investment for the 20 per cent. difference in corporation tax as that inward investment is badly needed in Northern Ireland. I hope that my noble friend will give a sympathetic answer to the noble Lord's amendment.

Lord Holme of Cheltenham: I, too, wish to support the spirit of the noble Lord's amendment. It is timely

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and I am quite certain that the recent mission to North America has found that as regards investment on the island of Ireland this differential, if weighed on the scales in a marginal decision, will weigh against the north versus the Republic of Ireland. Therefore the noble Lord is absolutely right to bring this matter to our attention. This discrepancy can do a great disservice to Northern Ireland industry as it tries to get into good shape in a competitive era. Certainly the United Kingdom as a whole has benefited from inward investment and, as we all know, it is very much needed in Northern Ireland and the right incentives are needed to attract it.

There is a further point that I wish to add to what the noble Lord, Lord Desai, has said. I agree with him that the method we are discussing is probably not the right way to achieve our aim, but is there not some other way within the ingenuity of the Government to compensate for this discrepancy? There is another point as regards strand two and strand three institutions. Is this not a matter for co-operation with the Irish Government? They must realise this situation is potentially a zero sum gain. In the end it could invite a competitive response from Northern Ireland, and instead of the island of Ireland as a whole benefiting from the considerable good will in the United States in particular but in other investment areas too, the danger is the situation will become competitive and everyone will lose out. This is exactly the kind of issue that ought to be dealt with in the new cross-border bodies and in strand three.

So I support the spirit of the amendment, while not supporting the substance. I hope that the Government's response will show some imaginative sympathy for the predicament in which Northern Ireland industry finds itself, at a competitive disadvantage to the Republic.

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