Belfast Telegraph

Home News Politics

Osborne's offer with a catch... will Stormont measure up, and if it does, how will we benefit?

Political Correspondent Noel McAdam examines 16 key questions thrown up by yesterday’s corporation tax pledge

Chancellor George Osborne has dangled the carrot of corporation tax before Stormont's Executive - but it came with a stick.

In an unread section of his speech to the House of Commons yesterday, he made it clear he was talking about the Executive putting its budget on a "sustainable footing for the future".

The Executive parties must now demonstrate they can manage the financial implications of the move, which effectively means agreeing a further round of spending cuts within the next few weeks.

The Chancellor told the House of Commons: "Today I announce that we recognise the strongly held arguments for devolving corporation tax-setting powers to Northern Ireland.

"The Treasury believes it can be implemented provided the Northern Ireland Executive can show that it is able to manage the financial implications. The current talks will see if that's the case.

"And if it is, the government will introduce legislation in this Parliament."

Here are some of the key questions that arise from yesterday's ground-breaking announcement:

Q: So is the Stormont Executive being given the power to cut the rate of corporation tax or not?

A: It is - but not just yet. George Osborne's announcement yesterday was more limited than many anticipated.

Q: What strings has he attached to his pproval?

A: Mr Osborne tied the issue in with the ongoing multi-party talks at Stormont, the outcome of which he said will show whether Northern Ireland ministers can manage the "financial implications".

Q: What did the Chancellor mean by that?

A: In the short term, that Stormont ministers sort out their overall budget for next year and presumably pay back the £100m loan he gave the Executive in October.

Q: And does proving they can manage the implications also include a deal over welfare reform?

A: Probably, although any deal on the issue - which has seen the DUP and Sinn Fein at loggerheads for the last two years - could simply amount to the warring parties agreeing how to take the issue forward.Discussions on the devolution of welfare to Scotland are also likely to come into the mix.

Q: So is this agreement with strings attached what the Stormont Executive expected to be announced?

A: It falls a little way short, but overall it amounts to a qualified 'Yes'. Ministers here will no doubt have anticipated that the British Government will want to use any leverage they can to ensure that at least the negotations on the budget here are successful.

Q: But does it not fall short of gaining the powers lock, stock and barrel?

A: No. The Chancellor promised that if the talks demonstrate the Executive can manage the implications, he will introduce legislation in this parliamentary term - that is, before the election next May.

Q: So what is likely to happen next?

A: If the inter-party talks here meet the Chancellor and Prime Minister David Cameron's conditions, the Government will move to bring in the necessary powers.

Q: Does it not feel as if this long-running issue could drag on for a while yet?

A: Possibly, but George Osborne has firmly put the ball in the power-sharing administration's court, and there is some degree of optimism that the five Executive parties - the DUP, Sinn Fein, the Ulster Unionists, SDLP and Alliance - will ultimately be able to agree the budget.

Q: But when are we likely to see some real action?

A: Some sources suggest that the earliest date when corporation tax devolution could acutally come into effect would be some time in 2017.

Q: Why would it take that long?

A: Even if the necessary Westminister legislation for the transfer of powers is passed this side of the General Election in May, the Assembly then has to begin the passage of its own legislation to make it law here. But, even more significantly, the Executive still has to formally decide whether or not to accept the tax powers the Treasury has indicated it is willing to confer on them.

Q: Why wouldn't they accept the offer?

A: The power to reduce the level of corporation tax from 20 % to 12.5% comes with strings attached, in particular cuts to the annual grant we get from Westminster. These cuts will be on top of reductions already being implemented.

Q: And how much of a cut is that likely to mean?

A: Definite figures on the reduction in money we get every year from Westminster are somewhat elusive, but figures produced by the Treasury suggest the corporation tax handover and a subsequent cut of 1.5% in the tax rate would mean Westminster grant reductions of £110m in year one, £235m in year two, £265m in years three and four, and £270m in year five. The Department of Finance and Personnel here has estimated that the reduction in the Westminster grant could be as much as £400m by year five.

Q: So if we are going to lose so much of our annual subsidy from Westerminster, why is corporation tax thought to be such a great idea?

A: All the Executive parties are agreed that control over corporation tax is a potential game-changer, because reducing the rate of tax that large companies have to pay means that Northern Ireland will become a more attractive place to set up shop. And that means the creation of more well-paid jobs which will help to build a stronger private sector and boost the economy. Reducing the rate of corporation tax here would also create a more level playing field with the Republic, which has managed to attract many large firms over the years thanks to its much lower rate of corporation tax than the UK.

Q: Why has all this been taking so long? Hasn't there been talk about restructuring our corporation tax for years?

A: Thirty years, some would say, but since 2011 the issue has become bogged down in technical negotiations between Stormont's finance department and HM Treasury in an attempt to minimise the potential impact on our Westminster sudsiby.

Q: How did the independence referendum in Scotland affect our chances?

A: The uncertainty over the Scottish vote effectively put the handover on ice until the outcome was known. Last year Deputy Prime Minister Nick Clegg revealed there was opposition in Westminster to devolving corporation tax to Northern Ireland because it might interfere with the campaign against independence. Now the handover has been approved, there are already rumblings in Scotland about grabbing the same powers.

Q: Are Peter Robinson and Martin McGuinness wrong then when they have claimed to have won their case with the Government?

A: No. Both David Cameron and Nick Clegg have admitted that Northern Ireland has a powerful case because of the damaging discrepancy between corporation tax rates north and south of the border.

Belfast Telegraph


From Belfast Telegraph