Belfast Telegraph

Timely chance for political parties to debate the benefits of devolution

BY JOHN SIMPSON

The Northern Ireland administration has direct responsibility for setting only a small part of the taxes that residents must pay. The bill for domestic and regional rates collects £700m. However, that compares with total public sector spending, including social security, of over £19bn.

Stormont administrations have discretion mainly on how the (so-called) block grant is spent -- not on whether there would be merit in raising more or less in taxation.

There is a deceptive attraction in asking the UK Government to allow Northern Ireland to have greater fiscal flexibility. That discretion does not necessarily make budgeting to live on the block grant (as amended) easier or more attractive. Lower rates of income tax might be an attractive idea but what spending would be cut to match the lower amount of tax available.

Within the last three years, political parties have campaigned for the devolution from Westminster of authority to determine the rate of company taxation.

A firm decision by the UK Government to devolve responsibility for company taxation awaits formal reconsideration next autumn, after the referendum on Scottish independence.

At this stage there is still some uncertainty about the practical aspects of devolution of corporation tax. Will Northern Ireland be allowed only to set the taxation rate or will this devolution also bring permission to vary all aspects of company taxation, including deductible allowances for spending on research and development, training and other possible meritorious expenses?

The simpler the change, altering only the main tax rate, the less expensive will be its administration and negotiations with the Treasury affecting the block grant may be more straightforward.

Interestingly, until recently, the budgetary authorities in Edinburgh and Cardiff have said little about an interest in devolving company taxation.

Scotland, partly as a consequence of the prospective referendum, has now taken a more active interest and Alex Salmond envisages a much lower tax rate in Scotland.

Scotland and Wales, through separate special commissions, have been offered advice on gaining greater fiscal flexibility by varying the impact of income tax.

The form of possible devolution has been debated either as flexibility to vary the standard income tax rate or to treat the current income tax bill as being divisible between Westminster and either Edinburgh or Cardiff. The underpinning principle is that their block grant from Westminster would not be varied to offset reduced tax revenue or to take any extra revenue from tax increases which might be used to increase spending on public services.

More recently, there has been consideration of the devolution of other suitable forms of taxation.

There is an interest in land and property taxes, in the form of stamp duty.

Should Northern Ireland also seek to have authority over income tax and/or property taxes?

NI21 made this a headline issue at its conference two weeks ago. Sinn Fein quickly added that that party had earlier also bid for this increase in devolution authority.

The ambition to make the devolved Northern Ireland administration more accountable and more strongly motivated to influence economic, social and environmental progress is commendable.

The real test for strengthened devolution powers must be how would the changed authority be used?

To be persuasive, as with corporation tax, flexibility to vary income tax or stamp duty needs to be presented with linked plausible ideas. Should Northern Ireland propose to collect more income tax to pay for ideas such as avoiding the (so-called) bedroom tax or avoiding higher rents for social housing?

Electoral considerations will constrain the attraction of more progressive policies. Maintaining parity of taxation and spending with Great Britain is an easier answer, provided that the temptation to break parity when spending cuts loom large is avoided.

Now would be a useful opportunity to set up a politically representative group to review the merits of wider devolution of fiscal decision making and its consequences.

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