Category Archives: N Ireland corporation tax devolution

An ‘English rate of income tax’: six questions in search of an answer

In a speech on Friday launching the Conservative Party’s ‘English manifesto’, David Cameron apparently proposed an ‘English rate of income tax’, on which voting in Parliament would be limited to English (or non-Scottish) MPs.  (There’s also Telegraph coverage here and BBC News coverage here.)  There’s not much detail about this – Cameron’s speech isn’t available on the Conservative Party website, nor is the ‘English’ manifesto.   But from what we can tell of it, this proposal raises a lot of questions.

The first question is whether this is a move beyond the Conservatives’ manifesto commitment for a veto for English MPs (or English, Welsh and Northern Ireland) MPs on non-Scottish income tax decisions, after the Smith Commission proposals are enacted.  This proposal caused quite a stir  when it was first announced, back in December 2014, and raises the hackles of Labour and other parties (and see also here), but it’s not actually new.  This may just be a rhetorical shift, using heightened language to get news coverage for an old story, but if so it has been publicised in remarkably insensitive terms: what the Conservatives are proposing is not an ‘English rate of income tax’, but relates to Wales and Northern Ireland as well. This may be an attempt to curry favour with English voters, but England is not the only part of the UK it affects.

The second question is what this proposal relates to: the Scottish rate of income tax which is due to come into effect in April 2016, and on which a decision will need to be taken this autumn, or the Smith Commission proposals? The latter probably won’t come into effect until April 2018 at the earliest, so this will not be something that could be put in place for England very quickly, or would need to be.  If the former, it implies very quick action indeed – and it’s hard to see a rationale for excluding Scottish MPs from voting when only the Scotland Act 2012 powers are in effect.

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An emerging fiscal debate in Northern Ireland

It has been quite easy to miss from Great Britain, but over the last few months there have been the beginnings of a serious debate about devolution finance in Northern Ireland.  Until now, this debate has been largely absent there, with the (major) exception of the debate about devolving corporation tax.

I’ve argued before that the corporation tax debate has been rather an unreal one, rooted in a serious absence of basic information and misapprehensions about both the benefits and problems of tax devolution (see HERE and HERE).  With the UK Government’s decision in March 2013 to put the issue on hold at least until after the Scottish independence referendum, that debate has at least paused. There still seems to be a belief there, however, that corporation tax devolution is not only viable and practicable but some sort of holy grail for the invigoration of the Northern Ireland economy.  (A separate part of the Northern Ireland debate has led to devolution of air passenger duty for long-haul flights, set at a lower level for 2012-13 and passing APD to Stormont’s control from the start of 2013.  In practice, there’s only one such flight – a daily one from Belfast International to Newark, New Jersey, in the US.)

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The UK reshuffle and the territorial offices

The UK Government’s ministerial reshuffle may lead to further tensions within the Westminster Coalition, but it has been one of pretty limited change, as far as the territorial offices are concerned.  Full details of all the new ministers can be found on the No 10 website, here.

There has been no change at the Scotland Office at all, with Michael Moore and David Mundell remaining in place.  Lord Wallace does so too, as Advocate General for Scotland.  The opportunity of putting a more ‘campaigning’ politician in charge has not been taken, even with the independence referendum looming, and although the heavy legislative work of getting what is now the Scotland Act 2012 drafted and onto the statute book is now done.  The only major item of legislative business on the immediate agenda is the section 30 order regarding the referendum (which Severin Carrell suggests here is close to agreement between the two governments).

The Wales Office has seen the departure of Cheryl Gillan as Secretary of State, and the promotion of David Jones, the former junior minister, to replace her.  That follows a determined lobbying campaign from Welsh Conservative MPs for the new Secretary of State to have a Welsh seat, and suggests minimal change in the UK Government’s approach.  Jones has already emphasised his desire for a ‘very good business-like relationship’ with the Welsh Government.  The interesting shifts of role and personnel are at the junior level.  Stephen Crabb has been promoted within the Whip’s office (though he was never the ‘Welsh whip’), and also made parliamentary under-secretary of state.  Baroness (Jenny) Randerson, former AM and Welsh Lib Dem Minister, has also become an (unpaid) parliamentary under-secretary, for which the Lib Dems are said to have fought hard.  Given her company among colleagues who have been regarded as ‘devo-sceptics’ (though they now emphasise their support for devolution), it’s interesting that she emphasises that she is a ‘committed devolutionist’ in the Welsh Lib Dem press notice announcing her appointment.

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Corporation tax devolution for Northern Ireland: does anyone care how much corporation tax is generated there?

UK Government responses to Parliamentary Select Committee reports aren’t often particularly interesting documents.  They usually involve the Government welcoming those parts of its policy that are endorsed by the committee and side-stepping or pooh-poohing criticisms.  Few reach quite the level of disdain that the Treasury reached for the report of the Lords Barnett Formula Committee, but a warm and broad welcome is a rare experience.

Even by those not-very-high standards, the UK Government’s response to the Commons Northern Ireland Affairs Committee’s report on Corporation Tax in Northern Ireland is interesting.  The Committee’s report was published in May 2011 and is available here.  (My post discussing the report is HERE, and my evidence to the Committee is HERE).  It gave a pretty warm welcome to the proposed devolution of corporation tax, which has attracted widespread support in Northern Ireland.  The UK Government’s position has remained rather ambivalent.  In its response to the ‘Rebalancing the Northern Ireland Economy’ consultation in March 2011 (available here), it said it had taken no final decision.  A joint ministerial working group started work in December 2011, to try to resolve the practical issues devolution might present, and implying that a decision in principle had in fact been made.  There has still been no clear statement of what UK Government policy is on corporation tax devolution, however.

The Government response to the NIAC report, published on Monday and available here, clarifies that there still is no clear policy.  The UK Government emphasises at the outset, ‘No decision has yet been made on whether to devolve corporation tax.  A decision will be taken following the conclusion of work developed by the joint ministerial working group, which is expected in summer next year.’  Overall, the UK Government is much less warm about the advantages of devolving corporation tax than NIAC was, stressing the complexity of the issue.  The UK Government is clearly happy to accept that Northern Ireland is a special case and to distinguish arguments for devolving corporation tax there but not in Scotland, though it is also concerned to maintain the single UK economy.  In that sense, its position could be seen as a step back from the go-ahead that was implicit in the formation of the ministerial working party.

The economic effects of devolving corporation tax are one side of the equation, and there remains considerable debate about its value.  Even at best, however, those effects will take some time to materialise.  The other side of the equation – which will have a much more immediate and direct  impact – is its effect on the block grant, however.  To calculate the cut in the block grant, two things are needed: the amount of revenue actually generated by the tax, ideally over several years so there’s some evidence for how it varies in different economic conditions, and a decision about the methodology for deciding how the cut will be adjusted in subsequent years.  The latter is a tricky issue, and it remains a major omission from the UK Government’s Scotland bill.  There’s a very good analysis of this in chapter 5 of the Holtham Commission’s final report; in essence, either the cut can be indexed to changes in the devolved or the relevant UK tax base, or assessed as a nominal amount and then uprated proportionately or by an inflation deflator.  Whichever approach is taken, the starting point has to be the current revenues from the tax in question.

However, in the case of corporation tax in Northern Ireland, we have no real information at all.  Worse, not only does the Government admit its ignorance about how much corporation tax might be attributable to Northern Ireland, it adds that ‘while this would be needed for a devolved system, the administrative burden [ascertaining this] would create would not be justifiable unless the Government were committed to devolution’.

This is circular reasoning taken to an absurd limit.  That information is exactly what is needed for policy-makers to be able to understand the impact of devolving corporation tax.  A sensible decision can only be taken when the amount of tax generated in Northern Ireland is known and the likely impact on the block grant can be assessed.  To proceed with work on devolving the tax without making that the first priority shows a fatal lack of seriousness, either by those who advocate devolution – who are inviting Northern Ireland to buy a pig in a poke – or those who may be opposed, who are ensuring that the effects of fiscal decentralisation cannot be understood.

We have quite a serious problem in the UK in understanding how our system of financing works; we simply lack many of the most basic data we need to make informed decisions.  (For an earlier discussion of this, see HERE.)  This is one of the points where that turns from being an academic problem into a sharply practical one (and it’s an issue I highlighted in my evidence to the Committee).  For the debate about devolving the tax to have reached this stage without any serious effort to obtain the most fundamental piece of information that is needed shows how dysfunctional that discussion has been.  The gap needs to be filled fast, or the idea of devolving corporation tax abandoned.  Groping around blindfolded in the dark as a decision looms is no way to make policy of this significance.

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Devolving corporation tax in Northern Ireland: the Commons Northern Ireland Affairs Committee reports

The Commons Northern Ireland Affairs Committee has had an inquiry underway for some time into the possible devolution of corporation tax in Northern Ireland.  The Committee’s inquiry has been underway since last summer, following its inclusion though in the Conservative Party’s manifesto for the 2010 election and the Coalition’s Programme for Government.  There seems to be strong support for it from the Ulster Unionists, the Northern Ireland business community, the Economic Research Institute of Northern Ireland (who started pushing the idea some years ago), and Sinn Fein and the SDLP (both of whom support the idea as it would enable a greater degree of economic harmonisation between the north and the Republic).  But perhaps its strongest advocate has been Owen Paterson, the UK Secretary of State.  (I discussed the inquiry, and my own memorandum of evidence to it, in an earlier post HERE.)  Contrary voices include a number of figures broadly on the political left, including the Green Party, Richard Murphy of the Tax Research UK blog (see posts here), and Robin Wilson (see his Belfast Telegraph article here).

The Treasury launched a formal consultation on the issue in the March budget, when it published its paper on Rebalancing the Northern Ireland Economy (available here).  That is still open – it closes on 24 June.

The Committee’s report was published on Tuesday.  The press notice is available here, and the report itself is here.

The Committee has, perhaps surprisingly, come out broadly in support of the idea of devolving corporation tax there.  It has been persuaded that this would confer a significant economic benefit, in ‘years not decades’, on the north, and describes the arguments for devolution as ‘convincing’.

The report notes plenty of risks and potential downsides to the idea of doing this.  The Committee acknowledges the problems of ‘brass-plating’, possible tax evasion, and the need to ensure that there are adequate staff to administer a new system.  Most of the problems it Continue reading

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Corporation tax in Northern Ireland: evidence to the Commons Northern Ireland Affairs Committee

It’s easy for those of us in Britain to overlook the debates in Northern Ireland about devolving corporation tax.  This was a commitment set out by the Coalition in its Programme for Government, and a paper about it has been prepared by the Treasury, is under discussion between the devolved government and the Secretary of State, and is due for publication as part of the UK Budget in March (see also account of what’s apparently in the paper here).  As is obvious from the debates about it in Scotland, it’s highly problematic in many respects, and was considered for HM Treasury in a review by Sir David Varney in 2007 (available here).  Although Varney rejected the arguments for devolution of corporation tax, they continue to attract support from a wide range of parties and other actors in Northern Ireland, including Owen Paterson, the Secretary of State (indeed, he appears to be one of its strongest advocates).

The Commons Northern Ireland Affairs Committee has been carrying out an inquiry into the issue as well, and in the course of that has heard oral evidence from Professor Rosa Greaves of the Law School at Glasgow University about the implications of the EU jurisprudence about devolved corporation tax as a form of ‘state aid’.  Rosa’s evidence (available here) explained Continue reading

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The UK spending review and devolution policy

The UK Government’s Spending Review has much in it relating to devolution (and I’ll say something more about it shortly).   There has of course been huge argument about whether devolved governments have been short-changed or not, particularly from Northern Ireland, despite the UK Government’s claim that ‘the Barnett formula will be applied in the usual way’.  One issue that has been overlooked so far are the revised commitments made about devolution finance, though.

The Coalition’s Programme for Government made three significant commitments on devolution finance.  For Scotland, there was implementation of the recommendations of the Calman Commission.  For Northern Ireland, there was a commitment to produce a paper examining mechanisms for changing the corporation tax rate there.  For Wales, there was the puzzling and widely-criticised commitment to ‘establish a process similar to the Calman Commission for the Welsh Assembly’, assuming a Yes vote in the referendum on primary legislative powers and stabilisation of the public finances.

In the Spending Review, George Osborne finessed two of these commitments.  He said nothing about the Calman Commission, on which work is apparently proceeding (most recently discussed HERE).  However, the commitment for Northern Ireland has changed to a commitment to produce ‘a consultation paper on rebalancing the Northern Ireland economy later this year’.  (This appears not in Osborne’s speech, but in the press notice for Northern Ireland available here.)  That suggests that the paper will look at a wider range of issues than merely the corporation tax rate, and also that the principle of a different corporation tax rate there has lost the appeal it had when the PfG was drafted in May.

The commitment for Wales is more intriguing.  In his speech (available here), Osborne said:

In Wales, we will consider with the Assembly Government the proposals in the final Holtham report, consistent with the Calman work being taken forward in Scotland.

That indicates that the idea of yet another commission has been dropped, that change is no longer conditional on a particular outcome from March’s referendum, but that any changes for Wales will need to be consistent with the Calman proposals for Scotland.  Thus, for example, allowing the National Assembly some control over the progressivity of tax rates in Wales will be contingent on that being done for Scotland, where it was deliberately left in Westminster’s hands.  While it’s promising that the UK Government has moved away from its foolish earlier pledge, the idea that Wales might get a version of Calman as implemented, or nothing, is only half a step forward.

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