Wednesday, 23 March 2011

Government responsive on Corporation Tax issue.

The chancellor of the exchequer is still in the House of Commons defending his budget statement.  One of the eye catching measures announced by George Osborne this afternoon is an additional 1% cut in corporation tax, aimed at stimulating growth, on top of the 1% which was already planned.  In order to signal that Britain is ’open for business’ the rate will also fall in the succeeding three years, reaching 23% in 2014.

Appropriately enough, just before the budget debate, Owen Paterson announced that the consultation paper on devolving corporation tax raising powers to Northern Ireland will be published tomorrow.  It’s argued that we are peculiarly disadvantaged when it comes to attracting international investment, because our near neighbours in the Irish Republic enjoy a CT rate of just 12.5%.

The Secretary of State has long championed the idea that the Stormont Assembly should be allowed to cut taxes in order to make Northern Ireland a more competitive destination for business.  The initiative is very much the Conservatives’ “baby”, with local parties blowing hot and cold on the issue.

Our current crop of politicians may yet decide to reject an opportunity to stimulate the economy.  In the short term, tax receipts are likely to fall and Sammy Wilson has put on record his scepticism about making up the shortfall.  Any decision to devolve the tax could also spark controversy in other UK regions.

No-one can deny that Paterson and the government have gone the extra mile in an attempt to help Northern Ireland help itself.  There are powerful arguments around the rights and wrongs of varying taxes within a single state, however, if CT is devolved, it’s an impressive response to the unique demands of our economy and a show of political pragmatism.

Business spelt out the unique problems facing Northern Ireland and it looks like the government has listened.  We'll soon see whether local politicians want to be handed responsibilities and opportunities or whether they just want to be nannied.


thedissenter said...

How special are we really, compared to Scotland or Wales. Do they also not complete? Are they better off on employment stats or inward investment success? What about the NE of England? And then there is the issue of a huge public sector, twice the size of the South's that makes NI enormously unbalanced and hugely uncompetitive. What are the measures being put in place to change that. What is that sound of silence?

Glyn Chambers said...

A disappointing last paragraph, Owen. The problem is that you could say those things about any of the set of policy areas reserved to Westminster. Does Stormont want to take control of income tax or does it want to be nannied? Does it want control of immigration or does it want to be nannied? Foreign policy or nanny etc?

What we really need is to work out what the constitutional structure of the UK should be in the long run rather than engaging in additional piecemeal devolution to satisfy a real or perceived need in a particular region.

Additionally, as you note, this will just have a domino effect. The Committee on the implementation of Calman at the Scottish Parliament has already stated that "the Committee’s view is that if a scheme to vary corporation tax were to be available in some of the devolved countries of the UK as a tool of the UK Government’s regional economic policy, it should be available as an option for a Scottish Government to use also."

These are not SNP words, but those of a cross-party committee.

Whilst it would be good for UK corporation tax to be as low as possible, I'm not sure I want it to be done by the "beggar thy neighbour" approach that hands nationalists another 'win' in the process.

Chekov said...

Glyn - that's where a legitimate debate around CT should take place, but do you think that will be the focus? I have reservations along those lines, but the point I'm making is that you'll hear very little as regards a thoughtful debate on constitutional niceties and a lot about £200m less in the NI Budget. That's where the nannying comes in.

Glyn Chambers said...

Yes, I take that point.

Whilst I am against this in any form for the reasons stated above, if it did happen, it would be best that the power to set corporation tax was not devolved but rather that the Executive agreed with the UK Government to reduce it by X% (with spending correspondingly reduced) and Parliament then approved it.

That would ensure that the cut happens whilst also not actually devolving the power to do so. It could be said that Westminster was taking this action for particular reasons and to assess the effects of such a tax cut for potential use elsewhere. As the power to set future rates would not be devolved, there would be less (though, no doubt, still some) nationalist harping about it elsewhere.

What I really fear will happen is the exact reverse of that. Namely, the power to set corporation tax will be devolved, but then Stormont will contrive to fail to agree on making the actual tax cut (witness local government reform). We then end up with another nationalist 'win' and no beneficial cut in corporate taxation.

Given past events, you would hardly say my fear is implausible, now would you?

Anonymous said...

Very plausible, Glyn.

Throw in enterprise zones across England, and what is going to happen is the precise reverse of what we in NI claimed at the last Election - NI will be given the powers, but it will be parts of GB which pick them up and run with them!

Anonymous said...

"The initiative is very much the Conservatives’ “baby”,"

Today's News Letter interview with SoS begins

"He readily admits that it wasn't his idea"

Seymour Major said...

"He readily admits that it wasn't his idea"

I first heard the idea bandied about some 8 years ago, when I attended a breakfast seminar run by a firm of accountants. I cant remember their name but it would have been one of the top two or 3 firms in Northern Ireland which also has branches in the South.

The firm involved claimed that they had lobbied Tony Blair's administration. The idea was rejected by the Labour Government on the basis that if they did that, they would have to do the same for Scotland and Wales.

I dont know exactly how or why it became official conservative policy but I and other local conservatives did lobby senior conservatives to adopt the policy some considerable time before it became official.

Chekov said...

It's the Conservatives who have pushed the idea. They picked it up and ran with it politically.