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Esmond Birnie

How Stormont could raise money to fund public services

Esmond Birnie



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Northern Ireland's 90 MLAs returned to work after a three-year break.

Northern Ireland's 90 MLAs returned to work after a three-year break.

PA

Tuition fees

Tuition fees

Car parking

Car parking

Rates

Rates

Road charges

Road charges

Public transport

Public transport

Northern Ireland's 90 MLAs returned to work after a three-year break.

Practically the only tax the Assembly currently controls which could be used to raise more revenue is the Regional Rate.

That raised about £640m in 2019/20, or about 5% of the total recurrent and capital spend across the Northern Ireland departments.

The case for greater fiscal powers includes the use of tax changes (cuts) to promote certain economic sectors and the possibility that linking decisions about spending to ones about taxing would improve accountability and the quality of decision-making.

There are risks too - the tax policy of a regional assembly might show undue preference to local vested interests, though it is not unheard of for national governments to fall into such a trap.

Tax cutting agendas will tend to be most popular with politicians and their electors, but of course what we are currently thinking about is the possibility of revenue increases.

The options may be wider than first impressions suggest.

Westminster can legislate to give the Executive more tax powers. It already has with respect to long haul air passenger duty and corporation tax, although significantly these concerned an actual and prospective tax reduction.

The Assembly does have competence to introduce "new taxes" - those which do not exist in GB.

The really big ticket item would be domestic water charges. It is worth remembering that farms and businesses have long paid such charges.

There would be two benefits from these. First, the revenues which were raised directly and, second, NI Water would acquire the power to borrow to meet further resource needs.

It is likely that NI funding would benefit to the tune of £200m. In 2018/19 the subsidy to cover the absence of charges was £278m.

Political decisions would have to be made about the rate at which households were charged and the extent of exemptions on the grounds of low income as a method of equality-proofing this policy.

There follows a reasonably long list of measures each of which could raise a smaller amount - perhaps several tens of millions - but in combination could be significant:

  • Reverse the provision of "free" prescriptions. In England a prescription costs £9 but it is certain that exemptions would limit revenue raised. One estimate is £20m. There are pros and cons to this policy suggestion. The advantages might be more in terms of changing behaviour (greater self-responsibility about health) than in terms of money saved.
  • End free public transport for 60-64-year-olds. This would not raise much money but should people who are still in employment be subsidised by the taxpayer?
  • Charge for public sector car park spaces - promoting more equity between the two sectors of the economy?
  • Partially close the tuition fee gap between universities in Northern Ireland and England - £4,300 compared to £9,300.
  • Road charging: After all, if you go to the Republic you will pay a couple of euros on the M50 etc.
  • Rates. There are many reliefs to non-domestic rates but are all of these still defensible? To a much greater extent than hitherto rates could be increased at above the rate of inflation.

For sure, these are not easy choices but real politics is about priority setting and trade-offs. There is a sense of déjà vu.

The historian Patrick Buckland records how at the foundation of the state of Northern Ireland a team of officials had to go to the Treasury in London to try to negotiate a more generous financial deal.

With hindsight it would have been better if Stormont had been given wider fiscal powers - that would have been true back in 1921 and again at the time of the 1998 Agreement.

In 2009 the head of the ERINI think-tank Victor Hewitt tried to persuade the Assembly to assume greater fiscal self-responsibility and got a very dusty response. Perhaps this time will be different.

Dr Esmond Birnie is an economist at Ulster University

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