Sunak blocks Truss’s tax cut plan for British businesses in Northern Ireland

Liz Truss’s plan to entice 200 British businesses back into trading in Northern Ireland by offering them tax cuts has been dropped amid opposition by Rishi Sunak over the costs of the scheme.

The Foreign Secretary had drawn up plans for an “economic stimulus package” and trading “green lanes” designed to make the territory attractive to companies based in the rest of the UK, despite ongoing issues with the Northern Ireland Protocol.

While Boris Johnson has repeatedly stressed he is prepared to trigger Article 16, an emergency clause that would suspend the Protocol altogether, Ms Truss believed that her plan could ease the situation temporarily in the hope that a political agreement could be reached over border checks.

She presented the ideas in a letter to Mr Johnson last month. But a Whitehall source said the Treasury did not “buy” the proposals or believe they would work. Another source denied that the proposals were ever formally discussed with the department.

The Whitehall source said the package of tax cuts would need to be “huge” to encourage the 200 businesses that have suspended trading in Northern Ireland over the Protocol issues to return. Ms Truss is said to have been “banking” on suggestions that Mr Johnson was keen on the idea of a stimulus package to ease concerns over trade in the short term.

The package was intended to help reverse the diversion of trade which ministers believe has taken place due to the checks and red tape imposed by the protocol, with goods flow between Northern Ireland and the Republic picking up as trade between Northern Ireland and Britain has fallen.

Those interested in the plan had wanted to ensure that British businesses considered it “worthwhile” to trade in Northern Ireland, by creating incentives for them to do so.

Another Whitehall source who confirmed that the idea had been killed off said: “Tax cuts are difficult legally and Northern Ireland had a lot of money from the new deal last year. Throwing money at Northern Ireland wouldn’t necessarily resolve the issue.”

‘Unintended trade war’

The source said that tax breaks in Northern Ireland could also spark “an unintended trade war if the EU retaliates via tariffs” and other measures. A government source added that public spending per head in Northern Ireland was already “well above” expenditure in the rest of the country.

The proposal did not even get as far as to be discussed with the Democratic Unionist Party, which is in regular talks with ministers about the problems caused by the Northern Ireland Protocol.

A DUP source said: “No proposal was put to us. We haven’t seen anything specific.

“Our view is that in the absence of an agreement with the EU it’s essential the Government moves quickly to take unilateral action in accordance with the powers available to it under Article 16.”

The demise of Ms Truss’s plan comes as Mr Johnson insisted that he was still willing to trigger Article 16 if the UK and EU cannot resolve an ongoing dispute over border checks on goods that are travelling from Great Britain to Northern Ireland but are not expected to travel onward into the Republic of Ireland.

The Protocol has moved regulatory and customs checks to the Irish Sea, with Northern Ireland remaining in the EU single market for goods. EU customs codes are applied at its ports.

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