Belfast Telegraph

Wednesday 23 July 2014

DebateNI home of Northern Ireland politics

Welfare row and the credibility gap over devolution of tax

Although we got a concession on the bedroom tax, it's still a concession we have to pay £43.7m annually out of our own pockets for

The Stormont Executive was meant to meet today to agree the current monitoring round, which deals with adjustments to public spending. It won't happen.

This has been put off until Tuesday morning as the politicians wrestle with the fact that they will be introducing a string of cuts to cover our failure to introduce welfare reform, or agree a way to pay for it.

The bill for the rest of this year and the end of last will be £113m, and it will rise steadily for several years more.

The cost will be crippling. It could be the issue that finishes the Executive and brings us back to the era of stop-go devolution, which the DUP boasted had ended with the St Andrews Agreement.

Everyone knows the arguments on welfare reform. It is being introduced in England under the banner of making work pay by eliminating poverty traps, where individuals can end up losing money by taking up a low-paid job.

There is a strong case for streamlining the system, but it is clear that the current reforms will result in overall cuts in benefits spending.

Whether we introduce it or not, the amount we get from London in the block grant to cover welfare spending will be the same. So, if we keep the old system, we have to find the money to do so.

So far, Sinn Fein and the SDLP have dug in their heels on this issue in the hope of shaking concessions out of London.

A certain amount has been achieved in negotiation; for instance, we got an opt-out on the infamous 'bedroom tax', but we have to pay for even these "concessions" out of our own resources – a tidy £43.7m a year being the estimate.

The more concessions, the deeper we will have to cut into other budgets, like health or education. If we simply don't balance the books the legal fall-back is that the permanent secretary of the Department of Finance will step in and top-slice budgets across the board.

That could precipitate a collapse of the Executive and, even if it didn't, it would be a mark of failure for our political leadership.

If the parties are unable to agree a way through welfare reform it undermines every pledge they have made and every item in the Programme for Government.

The budget will be slowly bled to pay the welfare bill. Later, up to 1,400 local Civil Service jobs administering the new system in Britain could be transferred to England.

Earlier this week we had to end our present system of subsidising inward investment under EU rules. That is why there was such a rush of job announcements as Invest Northern Ireland struggled to get them under the wire before the clampdown.

The only alternative being proposed is the devolution of corporation tax.

David Cameron will give us a decision on that in October and, if he gives us the go-ahead, we can start reducing the business tax to attract overseas investors, as the Republic has done.

The first thing we will get, though, is a bill. Under EU rules we have to take the hit for subsidising business from our own budget.

Last year I was told it will cost about £25m a year for every percentage point we cut tax, and £400m would be the annual bill for matching the Republic's rate.

If the Executive can't balance the books on welfare reform, it will lack credibility in asking for corporation tax to be devolved to it.

In fact, it will lack credibility full stop.

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