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Stormont tax review foreshadows Scottish debate

19 - 12 - 2007
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Tom Griffin (London, The Green Ribbon): Sir David Varney published his long-awaited review of tax policy in Northern Ireland this week. As most observers expected, Varney rejected the case for a corporation tax cut to match levels in the Republic.

What was more surprising was that that was all he did. His original remit was to consider ‘how current and future tax policy, including the tax changes announced in the Budget 2007, can support the sustainable growth of businesses and long-term investment in Northern Ireland.'

In the event, he concentrated almost exclusively on refuting the case for a corporation tax cut put forward by the Economic Research Institute of Northern Ireland, saying:

Such a policy would run the risk of encouraging profit shifting from the rest of the UK to Northern Ireland...to counter this - and only in part - HM Revenue & Customs would have to impose substantial administrative burdens. There could also be a strong reaction from other economies and regions, which, if realised in their own policy changes, would further accentuate the revenue costs for the UK. The UK is successful in attracting cross-border investment, the benefits of which flow back to the Exchequer in tax revenue. The devolved countries share in that success through the ‘Barnett' formula, which distributes resources so that the funding can be put to best use by those closest to the policy

Rather than attempt to address the wider aspects of his remit, Varney announced a second review, which will report ahead of a US investment conference in May. Northern Ireland Finance Minister Peter Robinson said he was disappointed with Varney's conclusions: "All of the main Northern Ireland parties, along with business interests, presented a strong case to Sir David on the need to grant Northern Ireland a dispensation on corporation tax. However, we have always urged caution about the potential outcome of the Review."

"We will continue to argue the case for a reduction in corporation tax," he added. "The issue will not go away." First Minister Ian Paisley suggested the review's implications for Scotland had been decisive: "I believe that the prime minister is afraid of Scotland, because Scotland has been the backbone of the labour movement and now the bowl is broken... for the first time Labour is no longer in charge of affairs in Scotland."

Ironically, Labour moved only last month to address the issue of tax powers for the Scottish Parliament, by proposing a Scottish Constitutional Commission. Announcing the plan, Scottish Labour Leader Wendy Alexander said:

I believe it is for the Commission to consider the proper balance between devolved, reserved and assigned taxes if the accountability of the Parliament is to be strengthened and relative need still respected. We should approach this with an open mind but there are constraints here. Some suggest VAT for example but EU rules appear to preclude VAT variation within a state. So it could not be a candidate for devolution, although could be considered for partial assignation. Likewise the issue of Corporation tax variation within a state also raises issues of compliance with EU rules [the Azores judgement] as well as potentially distorted transfer pricing

Varney provides one crumb of comfort for supporters of fiscal devolution, in that he dismisses the EU's Azores ruling as an obstacle. "A move to a differential corporation tax rate for Northern Ireland would be possible in principle," he states. "However, it would involve legislative changes and legal issues would affect the design of such a scheme. Also, the fiscal consequences of such a move would have to be borne immediately by the Northern Ireland Assembly." That suggests that it would also be legally possible to devolve corporation tax to Holyrood. By the same token, Varney's conclusions may well be an indication of how the Treasury responds to such an idea.

 

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Alex Buchan (not verified) said:

Fri, 2007-12-21 08:32

Gareth

The point is that the Scottish Parliament won't be given financial responsibility, because that opens too many thorny questions. It will be given assigned revenues from limited areas like VAT, but with no ability to alter these.

The whole exercise is designed to make things more opaque so as to defuse the political threat of English grievance.

Gus Abraham (not verified) said:

Wed, 2007-12-19 16:49

Tom the cats out of the bag, people wont put up with anything but actual soveregign independence.

All else is mouthwash.

http://www.sundayherald.com/news/heraldnews/display.var.1907907.0.0.php

Reading this headline you might think that if 40% support independence 60% are against?

Look again.

Its 44% of people who do not want Scotland to pull out of the UK, which is 6% down from August.

Dougthedug (not verified) said:

Thu, 2007-12-20 00:30

Probably for the first time ever I would agree with Iain Paisley and share his view that Scotland is the problem for Labour. If Northern Ireland is given the power to reduce corporation tax then it will be very difficult to refuse the same to Scotland and Labour do not want to give Alex Salmond a chance of any more political or economic success.

I also wouldn't take much notice of what Ms. Alexander says as her days are numbered in Scotland. This is despite the best efforts of the Labour media and the Lib-Dems to try and bury the story of illegal donations to Ms. Alexander's leadership campaign in a manufactured uproar about the SNP and a planning application by Donald trump to build housing, a hotel and a golf course in Aberdeenshire.

These are links to two articles relating to Nicol Stephen and Ms. Alexander in the Herald though the comments are a better indication of public opinion in Scotland than the stories.

Ministers ‘may have broken the law’ over Trump golf bid

http://www.theherald.co.uk/politics/news/display.var.1908386.0.ministers_may_have_broken_the_law_over_trump_golf_bid.php

Alexander inquiry result next year

http://www.theherald.co.uk/politics/news/display.var.1914215.0.Alexander_inquiry_result_next_year.php

As an aside, she's not, "Scottish Labour Leader", as there is no Scottish Labour party. What she is is the leader of the Labour MSP's in the Scottish Parliament. She also holds a seat on the Scottish Executive Committee. Brown's patronage is her only source of authority in the Labour party outwith the MSP's in Holyrood.

Unless Gordon Brown comes up with a proposal on devolving taxes to Scotland or Wales or NI then it's not going to happen.

O’Conall Street » Blog Archive » (not verified) said:

Wed, 2007-12-19 16:35

[...] through its weakness, has given fuel to the campaign, united the Island of Ireland and left the Scots thinking this is one they might want in on [...]

Alex Buchan (not verified) said:

Wed, 2007-12-19 17:57

Gareth

In the same speech Wendy Alexander is reported as offering a needs assessment that would usher in the replacement of the Barnett Formula by a mixed system of very limited tax raising powers and a reduced block grant. See the BBC’s' Scottish political editor's assessment.

http://www.bbc.co.uk/blogs/thereporters/briantaylor/

On Dec 6th he wrote this about Wendy Alexander's speech:

"Further, she offered a vigorous nod in the direction of those in England who complain that Scotland is over-funded.

Naturally, she did this subtly, stressing the requirement to be “fair to all parts of the UK.” But she was promising a needs assessment, presumably instigated by the Treasury."

Tom Griffin (not verified) said:

Wed, 2007-12-19 18:43

Gus,

I suppose the point is that the SNP need to win over 2 per cent of that 44 per cent (and to get a referendum bill through Holyrood.)

The situation is obviously fluid and the alternative on offer from the unionist parties will clearly be a factor.

If the constitutional commission can't come up with more than Varney, it will certainly strengthen the SNP's hand.

Gareth,

Brian Taylor seems to think that the Constitutional Commission will lead to a needs assessment.

http://tinyurl.com/2nl76z

Interestingly, that is something that Peter Robinson is also calling for.

Keith McBurney (not verified) said:

Wed, 2007-12-19 20:08

Fiscal Autonomy: Devolution, Federation or Independence Tom? YouTube 29 Aug 07 titled

'Wendy Alexander's Spouse for Independence'

"Professor Brian Ashcroft, policy director of the pro-Union economic think-tank, the Fraser of Allander Institute, was filmed arguing that Scotland would be more prosperous as a separate country than having full tax-raising powers as part of the Union...."

http://www.blinkx.com/burl?blinkxreferrer=resultTitle&v=aV2Q45g2mV2eVxvB0OpNfw

Gareth Young (Brighton) (not verified) said:

Wed, 2007-12-19 17:11

Hard to see how they would allow differential rates when they won't even reconsider the Barnett Formula.

At the moment it's all hands on deck, stiff upper lip, chin up, chest out, best of British, ship shape and Bristol fashion.... Move along now, nothing to see here. Devolution? Never heard of it old chap...We're all British here don't you know.

It's always the people in the halls of power that are last to see change. They're labouring under the illusion that they can somehow control events instead of being swept along by them.

Gareth (Brighton) (not verified) said:

Wed, 2007-12-19 23:05

I'd agree with Brian Taylor, I don't see how it would be possible to argue for more devolved powers without the Scottish Parliament assuming financial responsibility for them.

The way that Salmond has been behaving you can see how this is becoming a more attractive option for unionists.

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