Westminster is in a terrible muddle over devolving corporation tax. The right hand doesn’t know what the left is doing. The UK government gives nominal support to lower corporation tax for Northern Ireland but slaps it down for Scotland. Naturally Alex Salmond was among the first to point out the illogicality of that position and grabbed it for the SNP’s advantage. Lib Dem Bizz Secretary Vince Cable hadn’t heard of the Scotland Bill, it seems. After finding the arguments in favour of a lower rate for Scotland “irresistible” for Scotland, he was forced into an embarrassing climbdown, not realising it was against government policy. Secretary of State Owen Paterson is a long standing champion of a lower rate for NI but washes his hands of it when it comes to lobbying the sceptical Treasury.
If ever evidence was ever needed for Whitehall to abandon its casualness towards devolution and adopt a joined up approach, this is it. And what about the vast majority of the UK population in the English regions who are left out of the supposed benefits? The UK is adopting tax competition between regions in a fit of absence of mind.
What are the real arguments in favour for NI? The first seems to be that so little corporation tax is lifted anyway they may as well take a punt on reducing it. The damage to the block grant would be minimal.
Next comes the cause of integrating – or at least harmonising – the northern economy with the south’s – what used to be described as opening a northern branch office of the Celtic tiger. Sadly out of date or premature, depending on your perspective.
The NI Select Committee produced scarcely a single figure in support of it. They rightly bemoaned the fact that no one knows the size of the NI corporation tax take. So how can a cost benefit analysis be made until this is known? They worry about brass plating, the practice of moving company HQs to tax havens to avoid higher tax rates. The obvious way to avoid this is to grant tax concessions to companies on the size of their payrolls.
Estimates of the impact of a 12.5 % rate on the size of the block grant vary wildly. The figure of £200 million a year has been bandied about. But now I see that Sammy Wilson is quoting a dramatically higher figure. No wonder he’s mister push-me-pull-you on the issue as he squares up to the (surely unimpressed) Treasury.
Finance minister Sammy Wilson warned there were still tough negotiations to be held with the Treasury and said the proposed cost of taking on the powers because of a reduced block grant from Westminster were “totally unreasonable”.
He calculated the cost proposed at present would be equivalent to the spending cuts made to Stormont departments over the next four years.
“There is no point in us taking on something if the cost is so great that it outweighs any benefits, or it puts immense, immediate pressure on public spending in Northern Ireland.”
According to Mr Wilson, £4bn has been lost to Northern Ireland’s block grant over the period from 2011-2015 because of last autumn’s spending review at Westminster.
So the cutback in the block grant might range from £200m to £1 billion a year – a tidy sum at either end.
Who knows how long it would take for NI business to make up the shortfall by wealth creation. Certainly a long time in the present investment climate. In Alan Trench’s blog post is a link to Robin Wilson’s case against at this stage. NI doesn’t have the skills base to amortise the concession. And why should we trust such a small business community to deliver? We need to hear a lot more from them than the usual exhortation.
What next? The UK government needs to get its act together on the principle before Northern Ireland can go it alone. You can be sure of one thing. The politics of Scottish bid with independence not far in the background, will complicate the final decision for Northern Ireland.