The Barnett Squeeze and an overly rigid fiscal union

Mike Smyth argues on the Politics Show that the fiscal union between Great Britain and Northern Ireland is far too rigid, and that tax varying powers would allow for more regional autonomy and ‘compete’ against areas like the South East of England where most of the UK’s inward investment and wealth creation capacity resides. Mark Durkan also argues that the Barnett formula is exerting a squeeze on Northern Irish public expenditure, even as the level of Scotland’s public purse is on the rise. In fact Northern Ireland, alone of all UK regions, does okay in terms of monies to meet social need.In fact

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  • me

    What is this saying? Scotland is better funded because the PM is scottish, (and alaistair darling is scottish,) and labour are taking on the SNP, because as darling says they do not want the union fragmented? Throw money at scotland while the rest lose out? If I were English or living in England, I’d be furious at such a scenario.

    Is this favouratism??? Is it allowed???

    How will the squeeze affect NI public expenditure exactly? Is this the source of Reg Empeys problems?

  • dewi

    Me – I think it says throwing money at you whilst the rest of us lose out.LOL
    Not the needs based analysis shows London subsidised big time + Crossrail + Olympics + Queens and palaces and civil servants.
    Two things would be useful.
    1) A review of distribution philosophy of formula.
    2) Transparency of detail… Nobody understands it !

  • Comrade Stalin

    Back in the previous Executive/Assembly, the parties here approached Blair and lobbied quite hard for a reworking of Barnett (ideally in order to increase the level of funding to NI). Blair refused and instead gave us the financing we are saddled with today.

    It is funny how things change in politics, because it now looks like reform of Barnett is back on the agenda. The English taxpayer is pissed, and has good reason to be. The foundations of the UK are beginning to unravel when the English voters are asking themselves (and their MPs) – precisely what is the union doing for us ?

  • As Smyth points out though, in a way it’s good that Barnett is not any more generous otherwise public sector dependency would be even greater.

    It’s time the regions – including NI – stopped sponging off the south-east of England and learnt how to stand on their own two feet. Scotland is hooked on cash from England and in terms of job creation outside the State sector is almost as bad as here.

  • Suilven

    ‘It’s time the regions – including NI – stopped sponging off the south-east of England’

    Might be easier if the SE of England didn’t contain 90% of the UK’s corporate HQs, most central government jobs, the UK’s only stock market, etc., David. Hoarding the UK’s best-paying jobs in one small area then whining about paying more in tax is really taking the piss.

  • ex-unionist

    Maybe reunification with the south could solve these problems. I as a unionionist living in dublin have seen how much better the economy is run down here maybe we could see more non-public sector jobs being created and an end to international firms pulling out of places like londonderry aswell

  • Danny O’Connor

    I think that there was a lot of historic underfunding that needs to be addressed -Barnett seems to be allocated on a year on year basis and attempts to find money out of this allocation (that is really only to pay our yearly expenses) to address some of the problems in health housing roads etc is difficult without sqeezing other services if you dont have some other way of generating finances.Incidentally all this shows how depemdant the N I economy is on public sector jobs and things seem to be getting worse with the amount of private sector job being lost.
    What are deti and the strategic investnent board doing?

  • Dan

    Barnett is partly needs based and partly historic based assessment which assumes that over time we should move to the same spend per head. So as spending increases in England, spending will increase automatically by a lesser amount in Scotland, Wales and Northern Ireland to bring spending into alignment.

    So Salmond et al are complaining loudly about the stingy settlement from Westminster.

    The issue at present is the Conservative and Unionist Party (which in the 50’s had 40 of 70 seats in Scotland) have become in effect an English party with in 3 successive elections have held zero, 1, 1 seats in Scotland and similarly risible numbers in Wales. We have a Scottish Prime Minister that they want to wind up their base with the message that he is overtaxing them to take the booty off to North of the border.

    The argument in England is becoming heated and angry about the other 3 scrounging countries, Northern Ireland is rarely mentioned but would be effected by many of the possible solutions. In the debate by both the Tories and the SNP they propose that all tax income generated in each home country stays in that home country and there is flexibility as to how it is spent.

    Scotland would claim it brings in approximately what it spends and then adds in and by the way it is our Oil. In comparison to the English regions Scotland has spending per head somewhere in the middle and Tax income somewhere in the middle.

    Northern Ireland has the highest public spending in the UK and the lowest Tax base, if we move to anyone of the various schemes being pushed out by the SNP or the Tories Northern Ireland loses out big time in the crossfire.

  • Mick Fealty

    Great. A decent political conversation.

    Suilven’s point is well made. The accounting processes for regional wealth are neither consistent nor transparent. So HQ revenues, raised across the UK regions, show up in the SE account, including, it would seem likely, those raised from ‘Scottish oil’. Even the meeting need adjusted figures in the Brassneck piece, which show a huge excess are not actually put to use to targeting need in the poorer boroughs.

    That said, tight fiscal control over government tax and spend is likely to make more room for private investment and is a job of work which needs to be done regardless of the future political destiny of NI.

    Thus, perhaps, the apparent cowping of SF ‘tax and spend’ ministers to the DUP executive priorities for ‘smaller government’.

    One point worth making is that we don’t have this level of regional detail for the Republic, so it is difficult to make comparative judgements. Though we do know that Donegal has uncharacteristic high levels of unemployment in what is close to a full employment economy.

  • Comrade Stalin

    To some extent I agree with David’s point that we’re depending too much on having ourselves funded by the English taxpayer.

    On the other hand, I don’t think we have quite as clear a picture of taxation and spending on a regional basis as you might think, Mick. If you look around in Belfast, many of the employers (particularly in the retail sector) are headquartered in England, meaning they’ll be paying their corporation tax at their English address. Is the Inland Revenue able to calculate, in these cases, how much income tax and VAT revenue is coming from Northern Ireland ? Or does the company just pay a big VAT/tax bill at their English HQ to cover everything ?

  • Suilven

    My assumption when I see the regional figures, Comrade Stalin, is that it takes account of personal taxation (income tax, National Insurance) but not corporate taxation – I doubt HMRC can break this down by region earned rather than region paid.

    Therefore, while I agree wholeheartedly with you and Mick that NI needs to adjust its public/private employment ratio, to use the sketchy figures available to draw firm conclusions (like David Vance’s Harold Wilson-esque post above) seems premature.

  • Suilven

    Just to add – there’s an interesting article on constitutional arrangements and funding here:

    http://news.scotsman.com/index.cfm?id=1822102007

  • Mick Fealty

    CS,

    Isn’t what I just said (or am I just suffering Slugger madness?)

  • Prince Eoghan

    >>Scotland is hooked on cash from England<< D. Vance, great analysis...................NOT! Somewhere in Dan's piece he makes the salient point that we in Scotland more than pay our way despite all the corporation HQ's being located in London/SE. Added to this is examples like defence, all the salaries of Scots in the armed forces are paid via London, hardly fair to take this into account now is it, yet it is. Added to this we have vast regions in Scotland who do not support large populations yet need the infrastructure in place to make the lives of those(many of whom are English btw) who live there bearable. This all costs a much higher amount of money per head than would London. We in Scotland are paying more than £2,000 for every man woman and child for the Olympics. A good case for us asking the UK exchequer to fund our successful Commonwealth games you would think. And yet we will pay for it ourselves. Might I be permitted to quote Phil on another thread; "Whilst I don’t agree with the tactics of envy being whipped up by the Tory press (I believe that the Scottish government are entitled to spend their money on whatever they choose to, it isn’t their fault that the present set up means that they must go to the UK government with a begging bowl when they would rather raise their own revenue) but if it speeds up the process of English independence then I can live with that." In essence we in Scotland pay money into the pot that is the UK, are then forced to go to the begging bowl. It is not that hard to convince the English public of the myth that we are beggars then now is it.

  • Suilven

    A good post PE.

    I have to take issue with one statement though –
    ‘We in Scotland are paying more than £2,000 for every man woman and child for the Olympics.’

    = £2000 x 5 million = £10 billion.

    Scotland alone is not paying for London’s Olympics now, is it?

  • Prince Eoghan

    It is a figure that was used in a piece I read a while back. Seems a bit much when counted UK wide, the 200K figure but there you are. I’m sure that we alone are not alone in contributing to an event that the odd fitba match at Hampden apart we will be far removed from.

  • kensei

    Do corporation public accounts break down revenue per region? That might be one way to attempt to get a clearer picture of what corporation tax per region should be, at least for plcs.

    And Mick, I reckon it is even worse than simply

    “That said, tight fiscal control over government tax and spend is likely to make more room for private investment and is a job of work which needs to be done regardless of the future political destiny of NI.”

    The current fiscal package is almost certainly the best deal we are going to get, ever. We have a little peace bonus on top of the already generous Barnett settlement. While I’d the British Government won’t drop us to English or even Scottish levels immediately, I’d guess the trend will be downward in real terms for the foreseeable future. We need to simultaneously get to a point where we can cope with decreases in later spending rounds,a nd try to invest in infrastructure much like the Republic is doing. I’d also argue that is more important if you are interested in a United Ireland.

    The other thing that falls out of this – any serious conservative should be viewing a body that spends but does not raise taxation as a complete aberration. The Assembly really gets little benefit from pursuing a policy that reduces spending, because any money will go to London and then they will decide the next block grant. The incentives are only to spend, merely in what fashion.

  • kensei

    “I’d also argue that is more important if you are interested in a United Ireland.”

    That’s a little unclear. Should be

    “I’d also argue that is more important to do these things if you are interested in a United Ireland.

  • Dewi

    http://news.bbc.co.uk/1/hi/wales/7101264.stm

    Even the Druids are contributing to the blasted Olympics….

  • Aquifer

    Fiscally and financially the Union is a dead embrace. The public sector is overdominant in the economy, because it is designed and funded from a much stronger and productive english economy. If it were designed for local needs and locally funded, it would be smaller and leaner. The salaries and wages are too large, not in absolute terms, but in relation to local private sector wage levels. Then there is the entitlement culture here. I am loyal or I am from an oppressed background, so deserve a state salary, or repeated compensation. The orangies had dossy jobs, now its our turn. Sounds fair, but as states downsize competitively, its an economic disaster. No need to feel beholden to the English though. They get plenty of profits servicing this market.

    How to get out of this? Privatise a lot of government functions, invest in education and training for both locals and immigrants, drive house prices down by building more to restore this region’s former competitive advantage. Build fast transport links to the boomtime republic. Invest in new culture to compete for attention with sectarian division. Privilege youth. Tax property, which is the reality of inherited privilege.

    Decisions too big for our tired gangmasters.

  • Phil

    I think that dewi is spot on, there is no transparency in any of this. Prince Eoghan quoted something that I said on another thread regarding the perceived opinion by the Tory press in England that Scotland is a subsidy junkie. The problem with making statements like that is how do they know? Alex Salmond is quite right to point out to those who challenge him about how much Scotland recieves from the block grant given to her by the UK government that if he had his way, Scotland would spend what she earns and wouldn’t need the block grant, the Barnett formula or anything else from the UK government. The truth is, none of us know who subsidises who because it is all veiled in sea of beurocracy at the UK treasury.

    There are real grievences caused both in England and in Scotland because all of our taxes go into the same black hole and these grievences (percieved or otherwise) will continue until England, Scotland, Wales and Northern Ireland gain fiscal independence from the UK. Where that would leave the UK government is another matter, as to do this would mean a considerable increase in the powers of the administrations in Edinburgh, Cardiff and Belfast and would also mean that an English parliament and executive would need to be created, but if there is a will to retain what will increasingly be seen as an historical curiosity, then the UK may survive as an overall federal-type of government for any remaining reserved matters. Personally, I think (and hope) that it will die a natural death in time, just as the Empire did half a century ago, but time will tell on that one.

  • Comrade Stalin

    kensei:

    Do corporation public accounts break down revenue per region? That might be one way to attempt to get a clearer picture of what corporation tax per region should be, at least for plcs.

    Corporation tax is not broken down by region as far as I know. But even if it is (yes Mick, I do seem to have unintentionally repeated your point, my fault for posting early in the morning) it is still likely to be distorted because the geographical location where the tax is levied and paid is not necessarily the location where the profits which are being taxed were earned.

  • Comrade Stalin

    If people want to be able to count properly exactly what VAT and corporation tax is raised in different parts of the UK to have a regional tax system, this means dividing the UK up into independent tax regions with their own Revenue&Customs;authorities to assess and measure all of the taxes within that region independently. Companies would then be required to set up subsidiaries within each region where they want to do business.

    Essentially it amounts to further undermining the union.

  • Suilven

    ‘If people want to be able to count properly exactly what VAT and corporation tax is raised in different parts of the UK to have a regional tax system, this means dividing the UK up into independent tax regions with their own Revenue&Customs;authorities to assess and measure all of the taxes within that region independently. Companies would then be required to set up subsidiaries within each region where they want to do business.

    Essentially it amounts to further undermining the union.’

    May be a price worth paying if it removes the poison injected into the system by the existing uncertainty. Too many vested political and corporate interests to make it likely though.

  • Comrade Stalin

    It’s all very interesting. I never expected the undermining of the UK to start in England, as appears to be the case. Poor old Gordon, launching into his leadership with a distinctly pro-unity position right when people across the country are saying they’ve had enough.

  • Dan

    Be careful what you wish for.

    If you are not sure what the information will tell you, it may heighten complaints of the South of England.

    Yes at the moment some of the retail sector of Northern Ireland is counted against the national HQ in London and when we get in to these sort of discussions that has to be estimated.

    BUT
    However you add up the figures NI spends more in the public sector, than the mainland and contributes less to the overall tax base.

    There are all sorts of understandable and historic reasons but decades of higher unemployment in NI and higher wages and employment in London.

    You either take the view as we have historically that all parts of the UNITED Kingdom get the same access to Health, education etc or you take the view we are becoming a federal state and for domestic legislation we are 4 linked states which manage their own income and expenditure with all contributing to truly national issues like defence.

    The second is the direction the Anglo-Scottish argument is going.

    How long before the Tory press realise that all the anomalies they are flagging up with Scotland apply to NI as well.

    Why should an English Taxpayer subsidise Grammar Schools in NI but he is not allowed to have them in Kent? Why should he subsidise small local hospitals in NI when they are being closed and centralised in Sussex?

    As one of the earlier poster said the present settlement is the most generous that will ever happen and will get less generous over time the only issue is timing, any debate around we are entitled to more needs to be accepted as over. If you want better services they need to be better but more efficient or paid for by locally raised taxes, Rates??

  • Tally

    posted by me”What is this saying? Scotland is better funded because the PM is scottish, (and alaistair darling is scottish”

    Early Day Motion 266 CONDUCT OF THE PRIME MINISTER AND THE SCOTTISH CLAIM OF RIGHT14.11.2007

    Davies, Philip
    That this House recognises that the Prime Minister is a signatory to the Scottish Claim of Right in which he declared and pledged that in all his actions and deliberations the interests of the Scottish people `shall be paramount’; believes that by declaring that the interests of the Scottish people should come first he has committed himself to discriminating against the people of England, Wales and Northern Ireland; considers this to be incompatible with being the Prime Minister of the United Kingdom of Great Britain and Northern Ireland in which office the interests of all UK people should be equal; and calls on him publicly to disassociate himself from and withdraw from the Scottish Claim of Right.

    Say no more

  • Dan

    Tally yes some of them really believe it, Westminster is now in the grip of a scottish plot whereby 500 English MP’s have been mysteriously hypnotised to do whatever the 55 Labour MP’s say!!

    If the ongoing criticism succeeds we will never again have anything other than an English MP as PM and the rest of us should resume our role of accepting whatever the English decide.

  • Phil

    Dan, Tally,

    I suggest you read the Scottish Claim of Right guys. In what way does putting the interests of the Scottish people above all others reconcile with being prime minister of the UK? The Claim of Right was a very worthy thing for Mr Brown to sign, but he no longer serves just the people of his constituancy and he has shown no interest in serving the Scottish people in their own national parliament either. By his own choice he is part of the government of the UK and as such he is supposed to serve us all. If he still believes in the sovereign right of the Scottish people to choose how they wish to be governed then he should extend the same courtesy to the people of England, the people of Wales and the people of Northern Ireland too. If he doesn’t, then he indeed should disassociate himself from the Scottish Claim of Right and face the consequences of how his constituants may react to that.