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Northern Irish Freedom Fight Turns Into Taxing Battle for U.K. Government

Photographer: Peter Muhly/AFP/Getty Images

Stormont Parliament buildings in Belfast, Northern Ireland. Close

Stormont Parliament buildings in Belfast, Northern Ireland.

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Photographer: Peter Muhly/AFP/Getty Images

Stormont Parliament buildings in Belfast, Northern Ireland.

For Belfast clothing retailer Michael Hamilton, power is money.

The owner of the Bureau, a store in downtown Belfast selling handcrafted Alden leather shoes at 600 pounds ($952) and designer jeans for 300 pounds, wants Northern Ireland to wrest control from the U.K. over taxes levied on companies and align them with Ireland to the south. The 46-year-old reckons it would attract employers and enrich the local population.

“Trading is brutal,” Hamilton said at his shop on Howard Street in the Northern Irish capital. “Getting corporation tax cut and attracting high-end jobs would be brilliant for us. It would be great if those people were living in Belfast.”

Political wrangling over who controls what within the U.K. is raising questions about the constitutional future of the country more than at any time for three centuries as Scotland pushes for independence. Devolved governments in Northern Ireland and Wales are seeking power over taxation and spending.

Prime Minister David Cameron set up a committee last year to look at demands by the administration in Belfast to opt out of the U.K.-wide company tax rate of 26 percent. The province plans to slash it to no more than 12.5 percent, the rate in the Republic of Ireland, which won sovereignty from Britain in 1922.

The recession has hastened the process of getting economic autonomy from London,” Mike Smyth, head of economics at the University of Ulster, said in a telephone interview last month. “It is inevitable that they will look for further autonomy. Corporation tax is essential. Attracting the big multinationals here with a low corporation tax rate is key.”

Negotiations

The proposal to cede company tax powers to Belfast was started in May by Secretary of State for Northern Ireland Owen Paterson and is being examined by a committee at the U.K. Parliament at Westminster in London.

“We continue to work with U.K. government ministers to move this work forward as quickly as possible,” the Finance Ministry in Belfast said in an e-mailed statement on March 1. A report on the proposal to hand company tax powers to Belfast from London is scheduled for the summer and the U.K. government will decide whether to approve the plan, the ministry said.

Northern Ireland, whose 1.8 million people make up 2.9 percent of the U.K.’s population, is the region in the country most dependent on state jobs and government spending, according to the Office for National Statistics.

Almost 28 percent of the workforce is employed by the state in Northern Ireland, compared with a U.K. average of 20.6 percent, the statistics office said. In Wales, the proportion is 25.6 percent and 23.7 percent in Scotland.

Cutting Jobs

The U.K. government aims to cut more than 700,000 public- sector jobs over the next six years as part of austerity measures aimed at reducing the budget deficit.

Private employers in Northern Ireland, part of the U.K. since it was separated from the rest of Ireland in 1921, created fewer than 3,000 jobs last year, compared with 13,000 in the Republic of Ireland via multinational companies enticed by the lower rate, according to data by Invest NI.

The number of unemployed in the province has doubled over the past three years, said Richard Ramsey, a Belfast-based economist at Ulster Bank Ltd., part of Royal Bank of Scotland Group Plc. Benefit claimants represent 6.9 percent of the working population, the second-highest of any region in the U.K., behind the northeast of England, he said.

Gap Widens

“The disparity between Northern Ireland and the rest of the U.K. is widening,” Ramsey said. “The region needs a game changer, corporation tax would be a big part of that.”

Companies such as Bank of New York Mellon Corp. have chosen to base themselves in Dublin’s International Financial Services Centre. Titanic Quarter, a 185-acre development in Belfast opened in 2008 on a dockside development named after the ill-fated liner built in a nearby dockyard, has so far attracted one client, Citigroup Inc.

Northern Ireland’s power-sharing assembly was revived in 2008 as part of a peace deal to end the three decade-long conflict known as the Troubles that claimed 3,500 lives.

While remaining in the U.K., the province now needs more economic freedom from London to revive the economy, said Nigel Dodds, deputy leader of the Democratic Unionist Party, the biggest in Northern Ireland.

“People aren’t asking about Irish unity, they are asking about bread and butter issues,” said Dodds.

Partitioned Country

Majority-Protestant Northern Ireland was partitioned from the rest of Ireland, which is mainly Catholic, following a three-year war between the Irish Republican Army and the British. In 1969, the Troubles began, with the IRA fighting for a united Ireland in a campaign that wasn’t officially declared over until 2005.

“Its about time we got corporate tax devolved,” Glyn Roberts, chief executive officer of the Northern Ireland Independent Retail Traders Association, which represents more than 1,300 businesses in the region, said. “It’s tough times for businesses here. We could learn some lessons from Dublin when it comes to attracting the big companies in.”

At the clothing store in Belfast, most of Hamilton’s sales are online. He longs for the passing trade of Dublin retailers, 100 miles (161 kilometers) across the border where firms from Google Inc. (GOOG) to Facebook Inc. (FB) have bases.

“Locally it’s so tough,” Hamilton said last week. “Corporation tax would bring proper quality jobs into the country. It would deliver a caliber of customer that we just don’t have here.”

To contact the reporter on this story: Colm Heatley in Belfast at cheatley@bloomberg.net

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net

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