Posted on Saturday 22 January 2011 byUlster Business
By John Simpson
Northern Ireland now has a Government with very extensive devolved powers. The range of responsibilities is much wider than has been devolved to either Scotland or Wales.
During the early part of 2011 the Northern Ireland Executive will be asked to decide whether the devolution of company taxation is an attractive enhancement of the economic instruments available to the regional Government.
The main reserved areas of economic policy, still retained at Westminster, will be most decisions on personal taxation (including capital gains taxation and inheritance taxes). Westminster also retains authority on the amount of capital which the Northern Ireland budget is permitted to borrow under the RRI (reform and reinvestment initiative) arrangements.
Despite the often uncritical support for devolution of the administration of corporation tax, there are merits and demerits to consider. The attraction is the gain of discretionary freedom to set corporation tax at rates, or with baseline conditions, which give an extra inducement to attract more foreign direct investment (FDI). The assessment of the gains from these extra incentives must be set against the costs in terms of the reduced revenue for the local budget as Corporation Tax comes out of the Barnett formula allocations.
This debate on further devolution of powers of taxation will be a critical focus for much of 2011. The debate will add to the agenda which the political parties must tackle in the next four months as they prepare for a general election for the NI Assembly.
The probability is that there will be a sufficient degree of cross-party support for the Assembly to vote in favour of the devolution of corporation tax to the NI Government. The Secretary of State, taking his stance as a UK Minister, will argue that such a step is part of the agenda to grow the economy and make Northern Ireland an enterprise zone.
As the local political parties prepare for the electoral test in the first days of May (alongside elections for local councils and also alongside a UK referendum on the possible change in voting methods for Westminster elections), there will be considerable interest in the way in which each party assesses how to set vote winning policies. Logically, since the elections will be for an Assembly where constitutional arrangements are already agreed, the tensions might be expected to focus on social, environmental and economic policies and the balance of emphasis between these areas.
Will logic apply? Normal expectations would be that the usual effort to demonstrate community support for generic unionist or nationalist loyalties will take centre stage. That has the effect of putting serious social, environmental and economic questions into a secondary role. T'was ever thus, more's the pity!
The political parties have, generally by agreement, built a local administration that is functioning with less revenue resources that would be available if public finances were managed as in Scotland or other parts of England. Local domestic rates, when compared with the equivalents in GB, are on average well below any estimate of comparable levels. Paying for water and sewerage services out of existing revenues means that over £200m less is available for other services (as well as putting capital investment for water into the Government investment budget rather than using commercial funding). 70% industrial de-rating is a discretionary local decision which has no comparators in GB.
Northern Ireland households are better off by over £500m, compared to English regions, and the impact is that the Executive must try to maintain public services at UK levels with about 5% less revenue to do it.
A critical question going into an election is whether the political parties want to maintain or change their social, environmental or economic policies. There is an oft repeated ambition that ‘the economy is the priority'. That statement, as interpreted by its advocates, justifies the range of policies which have avoided increasing taxes or charges on households.
On a more specific set of policies to accelerate the development of the economy, Northern Ireland should have stronger incentives to attract external (or internal) investment along with a targeted investment strategy and a planning regime that was much more expeditious and more cognisant of economic forces (along with the other planning dimensions). In addition, there would be clear ambitions for up-skilling today's labour force and people about to reach working age.
These economic policies also need to reconcile with the efforts of the authorities in the Republic of Ireland as well as in Scotland. Neither of these dimensions should be side-lined as if they are ‘partisan' politics.
If there is the objective to ‘grow the economy' and make it internationally competitive, then the questions for the political parties as they prepare manifestos might be put in the form of policy ideas. Which parties are prepared to specify steps to enhance the following proposals?
1. A new public sector investment strategy should prioritise key infrastructure.
2. Public sector investment should include suitably assessed PPP projects
3. Planning policy statements and guidelines (PPS) should take more account of economic criteria (but not exclusively)
4. Education and skills planning should include more ambitious curricula plans for higher and further education
5. Surplus public sector assets should be identified and redeployed or sold.
6. All public sector departments and agencies should be assessed by external experts to identify methods of improving performance and value for money.
7. Part of the revenue foregone in lower domestic rates should be recovered.
8. Water finances should be developed to separate water services from direct government operations.
9. Urban regeneration plans and budgets should be designed to more strongly leverage economic development.
In a political debate of right Vs left wing ideas, these proposals would be unexceptional and would be refined to meet specific circumstances. In Northern Ireland, the right Vs left spectrum is rarely an explicit factor.
Are any of the parties prepared to set an agenda to make a major effort to enhance the development of the economy?
Alternatively, are the ambiguities of recent years which avoid clear statements of explicit choice to remain in place?
There are critical ways in which the economy can, and needs to be, strengthened. Whilst extra leverage through corporation tax may be used to generate stronger investment incentives a big danger is that the possible change in corporation tax will be seen as an alternative to a range of complementary actions.
The Assembly elections will test the strength of political motivation to lift the economy. The easy, comfortable, options will leave Northern Ireland as the region with lowest productivity and lowest living standards. Is this really what the electorate want? Is there a serious will to do better?