Belfast Telegraph

Search is on to find the cuts to boost areas of need

By John Simpson

Does Stormont have the best balance of devolved powers and revenue raising to suit local circumstances? If there was no block grant from Westminster and, instead, Stormont was allocated all the taxes and national insurance collected in Northern Ireland and allowed to use that revenue to decide what Government services to pay for, it would give Stormont a budget of about £15bn.

This would leave a deficit of nearly £9bn if Stormont retained the current level of services costing over £24bn.

Freedom to use only the locally collected revenue to pay for all local services would be dramatically unacceptable, meaning more than the equivalent of halving welfare spending and halving spending on the health service.

If Stormont was offered a formula which would produce greater revenue, then lower taxation, higher spending, better infrastructure and improved social welfare spending would each be attractive. Realistically, spending must match the available funding.

The current Treasury rules on the Barnett formula allow Northern Ireland, on comparable public services as in Great Britain, to spend 24% more per person than the UK average: this is £2,098 per person per annum on top of the UK average of £8,800.

The proponents of a more generous financial outcome have considerable difficulty in arguing that Northern Ireland is being short-changed. Even allowing for some examples of greater deprivation, any plea for a more generous Barnett formula would meet a sceptical response.

There are proportionately more households on low incomes and/or depending on welfare support, but those households already obtain the same public sector support as elsewhere in the UK and also have available better support in lower rents, lower domestic rates and no separate water charges.

The challenge of the opportunity to reconsider the remit and financing of devolution is how to respond when a region such as Scotland or Northern Ireland wants to diverge from parity of services and parity of taxation. If Scotland wants to avoid reduced social security spending, seen as part of the measures introduced in England, there are two big problems.

Firstly, this departure from parity with English citizens would need to be financed and (under the Barnett principles) the cost would fall elsewhere on the Scottish budget. The same logic applies to Northern Ireland.

Secondly, because there is a UK-wide computer system to operate social security, any variation would be more expensive to deliver. That extra cost, here, budgeted at £87m this year, is being imposed by the Treasury. Regardless of the undoubted merits of a parity system, variations in eligibility for social security are complex and raise questions about social fairness in application.

Northern Ireland has already submitted a bid for a move to devo-max. Will authority for corporation tax rate setting be devolved? The Treasury has constrained the possible answer. If authority is given, the trade-off is that the cost must be met in Northern Ireland. A possible net £240m cut will be made in the funds from the Treasury to Northern Ireland.

Standing back from the immediate budgetary problems, in what areas should Northern Ireland seek devo-max flexibility? Alternatively, is there a case to seek more flexible tax raising powers by varying income tax rates, Vat, national insurance or fuel duties?

The case for greater devolved flexibility needs to examine the possible benefits of selected lower rates of taxation to generate helpful economic stimuli. Air passenger duty is a possible but expensive (in terms of value for money) candidate. Vat rate changes are too complicated and poor value for money.

In logic to allow other developments, there might be a case for higher fuel duties or higher rates on income tax. However, public reaction might be hostile.

In short, Northern Ireland is faced with an unavoidable major search to make existing public services more efficient so that money can be reallocated. No extra Treasury generosity is likely.

Belfast Telegraph