Simon’s Consensus

AudioBoomStormontThis morning I was taking part in a debate on Radio Ulster – with a lady from NIPSA who sounded like she’d memorized most of Che Guevara’s best quotes . Although my contribution was cut a bit short because Simon Hamilton, the Finance Minister, was asked to give his opinion on possible public sector strikes in the New Year.  More interestingly, though, he was also asked whether the Executive would support reduced corporation tax (CT) if, as expected, the Chancellor devolves the power to set CT rates here. His answer was obfuscation.

He implied that there was a consensus view (across the main parties in Stormont) that CT should be reduced to a level similar to the rate in the Republic. However, that is highly misleading, of course, because there is clearly no consensus that the rate should be reduced if the price of a reduction is a reduction in block grant equivalent to the reduction in tax-take following the reduction (if you get my reductionist drift). This is a requirement given the EU rules on state aid following the so-called Azores judgement.

I’m not even entirely convinced that Hamilton himself would be of the view that a block grant reduction should be the consequence of a CT rate cut. I attended a lecture he gave during the Summer at Queen’s University where he made clear his view that high public spending Nordic countries were the models he aspired to.

Consensus clearly isn’t consensus if only one part of the consensus is consented. In fact there is no consensus at all. Sinn fein won’t give an inch on the introduction of welfare reform here (hence the current round of Executive cuts, rather than ‘Tory cuts’).  Similarly just about nobody will agree on a £200-300m set of budget cuts following the reduction of CT.

I’d imagine that Scotland would also decide against a block grant reduction in return for the extension of CT devolution to Scotland.

Block grants, in short, produce dependency. Therefore Simon Hamilton’s morning pronouncements that devolution of CT might allow the Executive to “rebalance” the NI economy away from public sector dependency are, clearly, poppycock.

  • Belfast Barman(ager)
  • Old Mortality

    There is absolutely no prospect of the Assembly as it is presently constituted accepting the fiscal consequences of a corporation tax reduction so the Treasury might as well not bother and avoid stirring up the SNP.

  • chrisjones2

    I agree. It bwould require a ecision.We dont do decisions as they have consequences and blame can be attahed

  • Dan

    Yes, the NIPSA woman was tedious…and thick.

  • Ian James Parsley

    That would be my view, yes! I’m genuinely amazed they’re going to do it – I thought it was politically impossible. Actually, I think it is, but the London-based set haven’t worked it out yet…!

  • Ian James Parsley

    It’s worth noting that, although we like to blame the Azores Judgement (and it does confirm the position), in fact UK convention itself dictates that there would be a loss in public spending for a reduction in tax, going back to a Chancellor statement in 1938 (the same one which set the ball rolling for “parity” which causes the welfare “fines”).

    Essentially, the convention is that no part of the UK should benefit from choosing to spend more on welfare or from choosing to implement lower taxes. Indeed, it’s already questionable if we should really get away with our lower household taxes.

  • Ian James Parsley

    Of course, tax rates in Nordic countries (particularly Sweden) aren’t much higher now than they are in the UK.

    Their public services are more efficient by and large because they’re more efficient, cunningly…

  • Ian James Parsley

    (By the way I’ve just heard her – “Public sector workers are all at absolute capacity” – each and every one apparently.)

  • Comrade Stalin

    I think London will vote it through but attach a price tag to it. I cannot picture SF voting a few £100m of cuts through the assembly in order to get it.

  • Ian James Parsley

    The consensus on Twitter (ahem, among senior economists, commentators and media figures to be precise) seems to be that it will be devolved on profits made from production carried out within Northern Ireland.

    That’s interesting, and provides some essential detail to what the proposal really is.

  • D99

    Yes, but was there ever any prospect of a corporation tax cut?

    If we want to be competitive, we need a “game changer”, a “silver bullet”, something to revitalise our economy.

    If we too want to be part of the “economic miracle”, we must cut the rate of income tax levied on company profits.

    If we want to attract foreign direct investment, we must reduce our current 24% rate to match the more appealing 12.5% tax rate of the Republic.

    So runs the argument that has been made by many of our representives over the past couple of years.

    But Was it all just an excuse to do nothing. An excuse to wait around for Cameron to give our political representatives a power that they can’t afford to use.

    Despite the constant anti-tax propaganda, there is no consensus on the proposal to cut the rate of corporation tax – not even within the DUP. Mainly because cutting CT comes with a high price tag and highly uncertain outcomes.

    Back when he was Finance Minister, Sammy Wilson revealed that in return for the cut, the Treasury was demanding an initial £300-£450 million deduction from NI’s block grant, rising to £700m per annum within 10 years.

    And Wilson acknowledged that cutting corporation would be a huge gamble:

    “This is a risk, as we are taking the hit on the block grant first and, hopefully, the jobs then come. However, there is a degree of uncertainty to that.”

    As a decision from Cameron approaches, the constant drumbeat that tax breaks for businesses will spur growth and create jobs Is starting to ring even more disturbingly hollow.

  • Zeno3

    “Block grants, in short, produce dependency.”

    Do you think London should keep all of the Tax raised in the UK or distribute fair shares to the other economic regions?

  • Zeno3

    “However, there is a degree of uncertainty to that.”

    As someone involved in risk analysis I’d say throwing money at businesses in the vague hope that they create jobs is a risk that no one in their right mind should consider.

  • D99

    Yes, shareholders are quite likely to pocket the extra profit rather than create additional employment.

    But as with the banks before the financial crisis, politicians would really be gambling with other people’s money and the public would be the ones exposed to the risk. Once again, there is the problem of ‘moral hazard’ – it would take at least 10 years to find out that a cut in corporation tax has failed and most politicians will have moved on by then.

  • Zeno3

    I don’t think this has anything to do with boosting the economy or creating jobs.
    At the minimum cost projected of £300 million we could just employ 15,000 assistant nurses , Teachers, Police Officers etc and pay them all 20k each. Since those are not highly paid jobs the employees would be spending almost all of their wages every month in the local economy. That would boost the economy.
    For £600 million we could create 30,000 Jobs and bear in mind we only have around 65,000 people unemployed.

  • Comrade Stalin

    It’s the only way it could possibly work, but it will be interesting to see how exactly they will define “production within Northern Ireland”. For example will final assembly count as production ?

  • D99

    Sounds very logical. Move toward full employment. All those people no longer claiming benefit, spending most of their income in the local economy, paying their income tax, improving social services, reducing the welfare bill, providing meaningful work …

    Problem is, it doesn’t fit with the fashionable free market theory about the need to cut the public sector, freeze wages and reduce the size of the State. And it doesn’t really create much of an opportunity for some people to make huge profits. Indeed full employment might even push the average level of wages up and reduce inequality and we couldn’t risk that happening. Next thing someone might suggest a wealth tax and then where would we be.

  • Makhno

    Maybe she sounds tedious as she’s repeating the point with which nobody wanted to engage – namely the structured inequality within our society. I don’t think she sounded thick, though those who decry decent terms and conditions in unionised workplaces, while ‘surrendering’ such rights in the private sector strike me as rather devoid of critique, shall we say.

  • Zeno3

    Cutting Corporation Tax to create Jobs.
    Instead of giving already profitable businesses £300 million and hoping that they create Jobs, why don’t we give these companies £20k for each new job they create?
    That way we would get 15,000 Jobs for our £300 million.

  • Framer

    NIPSA woman said she was “speaking in a personal capacity” which is a bit of a give away as to her politics: Tr…yist.

  • Michael Eden

    Reducing Corporation Tax equals a tax cut for the big rich multi national
    companies. The working class will have to pay for it – surprise, surprise.
    They get shafted once again.

  • barnshee

    “the point with which nobody wanted to engage – namely the structured inequality within our society”

    After nearly 70 Years (-at least two generations?) of the “welfare”state where society has fed,housed educated and cured the sick the points with which nobody wants to engage – are the REASONS for ” the structured inequality within our society” and the unpalatable actions need to redress “structural inequality”

  • Makhno

    The welfare state attempted to take the edge off the worst ravages of capitalism. When you look at our health and educational outcomes, to take but two, would you say that the WS has ‘cured’ these issues as presenting problems in our society? To me, it has clearly not done this, not surprising especially given the last 30 year’s broad social policy.
    How has the welfare state of itself, contributed to the starkly differing life expectancies within a 4 mile bus trip in Belfast? How does the model of free provision of itself contribute to our ‘hot house’ success – high passes in exams, yet disgraceful literacy/numeracy figures and less people getting ‘middle’ grades.
    What would you propose as a preferable system, Barnshee?