Representation with others Taxation – Fiscal Powers for NI?

In the talks to restore power sharing, much focus has been placed on the need to reform the petition of concern (“PoC”). In the wake of financial incompetence and questions over the entire structure of the Stormont apparatus, the PoC was invoked over 100 times from 2011-15 to simply block legislative and procedural progress at the assembly. There was even an invocation of the PoC to avoid ministerial scrutiny, something unheard of in any other modern democracy.

The PoC has stymied any progress in governance here, it is a tool completely ideologically consistent with the ant-modernist principles of the DUP and in line with the Saint Andrew’s reforms in 2007 which teased them in the door. But what of the other fundamental and less spoken of aspect of governance here which by its absence has drawn closely two parties of nearly completely opposite ideologies – fiscal responsibility?

The UK has for its 300-year history, with 200 years of direct administration in Ireland, been a centralised state with Whitehall exercising the kind of authority which was only seen in imperial China in the Middle Ages – hence the origin of the phrase ‘mandarin.’ Therefore, it was only reasonable that this is how the treasury operated, all monies collected by a central revenue body to be spent by the exchequer. Unlike federal systems, we have such mechanisms as the ‘Barnett formula’ which is literally a mathematical formula which calculates a per capita spend for our ‘region’ once the budget has been agreed by Westminster.

At an Irish times event Sam McBride discussed the RHI scandal and what amounted to a sort of ‘faux politics’ in Northern Ireland because of the in-built incentive to spend as much as possible with what monies the treasury had decided to dole out. Therefore, as noted below by McBride in his ‘free money’ chapter of “Burned,” there is an automatic moral hazard in how out public bodies and representatives approach taxpayers’ money;

There was and is an inherent difficulty in public spending in Northern Ireland, which made RHI more likely. Being so heavily dependent on the exchequer, stormont politicians are invariably spending other people’s money. Their voters know that much of it is not really their cash, and therefore tax and spend arguments are not a feature of political life.

This is the interpretation of our political class, with a DUP spad saying without any sense of irony that this was ‘to the economic benefit of NI.’ McBride makes the case that this is merely ulster nationalism which closely allied with the Irish republican ideology of Sinn Fein when the devolved administration actually functioned (or at least at surface level).

But he asks a pointed question of whether this actually is to the ‘economic advantage of NI.’ As researchers in Canada have delved into the figures, supported by the Irish Senate report, NI’s fiscal deficit to the UK wide ‘pot’ isn’t as high as treasury calculations would make it seem. Indeed it is a hotly disputed topic, with many pointing to it being the Achilles heel of any Irish unity argument, an austerity weary ROI would hardly be furtive to receiving extra fiscal burdens of what some may see as a fiscally failed state (in some degree the NI pot has relied on the UK since the 1930s, therefore for near the entire existence of NI it has been fiscally dependent on the UK treasury).

Scotland was recently given what some may see as a fig leaf in receiving, for the first time in the history of the 300 year old union, limited tax raising powers for their Parliament. They now control 10% of the 20% basic rate which they can vary and half of VAT income being distributed to them. HMRC have reacted by merely creating a ‘for Scotland press 5’ option as they still account centrally, but the development should be of interest to all on this side of the Irish sea. In any united Ireland scenario, this place would need to have a culture of fiscal responsibility which evidence would point to it being absent of in the present time. Even in a unitary scenario where Dublin ruled directly, it would still depend on local agencies and arm’s length bodies who would be staffed with a culture of the ‘old ways.’

It is an inherent interest to all nationalists and unionists that NI should have some form of tax raising powers. The proposal to devolve corporation tax was a positive development, although it was to the horror of Labour who have for years argued that this would lead to a race to the bottom of tax rates. However this is patently not the case, some in Brussels argue for tax harmonisation to defeat the avoidance schemes operated by large corporates in ROI and Luxembourg, they are missing the fundamental point that this is but one reason in a long list of reasons that these places are popular for FDI. Further it has not led to any great impetus for highly taxed European states to competitively slash tax rates.

To avoid the inevitable allergy of responsibility our political class suffer from here, we could set out agreed taxation rates in the programme for government (by convention) and then legislate as normal in our budget bill. It would give all the parties the opportunity to exercise political judgement on serious policy issues (especially for competing demands) and avoid future financial scandal. AME programmes should have an element where the NI government should have to raise a percentage of the total bill via a levy of some kind, thereby creating an incentive to lower the overall cost of these programmes over their lifespan (RHI was costed for over 20 years).

There is no smoking gun in politics, indeed there is no smoking tax policy in politics. But tweaking around the edges of the PoC in an assembly which barely legislated and barely innovated is not the answer. We need an injection of wholesale fiscal responsibility which would allow us to align with ROI in FDI competition, perhaps making up for this with higher rates elsewhere to tackle failing public services and potentially even inject some inflation into the NI economy to raise salaries.

I feel that devolution’s inevitable next step in becoming a full-fledged style of governance here is to take on more fiscal responsibility if it is to survive beyond infancy. The new administration should take these first steps on its own terms, the recommendations of the RHI report when it is finally published will create the impetus for the secretary of state to force through such changes. It would be better for all Northern Ireland if for once we took the initiative to request a suite of revenue raising powers including (but not limited to) a similar deal to that received by Scotland on VAT and income tax, corporation tax and air passenger duty. How can a house stand if its finances are not in order?

Photo by Skitterphoto is licensed under CC0