The Green Ribbon

Report: Brown to scrap Barnett Formula

Scotland on Sunday reports that Gordon Brown is set to tear up the Barnett Formula that allocates spending between the different parts of the UK:

the Treasury has consistently resisted demands for the explosive move. Former Prime Minister Tony Blair last month said the distorted handouts were a small price to pay "to keep the UK together", and Brown has so far maintained the united front against the "English backlash".

But now Treasury officials have admitted that a shake-up is on the cards - and Scotland is unlikely to emerge from a review with its privileged position intact. The formula could be disturbed by Treasury attempts to find an efficient solution to the problem of ensuring the neediest areas in the UK got the money they deserve. (Scotland on Sunday)

If this report is correct then the decline in fiscal solidarity within the UK identified by the Scottish Council of Development and Industry will have emerged with a vengeance.

Abolishing the Barnett formula may mollify English opinion, although it won't solve the West Lothian problem,  the thorniest aspect of the 'English question.'

However, it will undermine the social contract that underlies Brown's vision of Britishness. At the moment, the UK's fiscal regime is optimised for the benefit of the south-east of England. Less competitive regions are subsidised by income transfers.

If those income transfers are reduced, the case for places like Scotland and Northern Ireland to go for fiscal autonomy will be correspondingly strengthened, both in terms of the economic calculation and of the legal case under EU law.

Accountants back NI corporation tax cut

It seems that Ireland's accountants have not been deterred by reports that Sir David Varney is opposed to a corporation tax cut for the North.

Tax advisors on both sides of the border have rejected suggestions that bringing Northern Ireland’s corporation tax rate in line with the Republic’s would lead to widescale tax avoidance by British companies.

Accountants have challenged ‘‘technical arguments’’ against lowering the North’s tax rate in a letter to David Varney, who is undertaking a review of future tax policy in the North on behalf of new British prime minister Gordon Brown. (Sunday Business Post)

The full submission is available on the ICAI website, and a very impressive document it is:

Wales joining the Celtic consensus?

The Welsh Budget Minister today announced a review of tax and public funding for the Assembly:

The funding review announcement came during a debate on a Lib Dem motion calling for an independent commission to investigate issues relating to the funding and financial powers of the assembly government.

Ms Hutt responded to the call by saying: "We've concluded that the time has now come to put in place such an independent commission and I think the commission which we intend to appoint will not only review assembly funding and finance.

"But it will go further than that. It will also consider tax-varying powers including corporation tax... and importantly, borrowing powers.

"It's well-known that for the past two terms we didn't advocate such a commission. The time has now come for this to take place."

Ms Hutt also said that they could not establish a commission "with a pre-determined agenda which is why the independent review is so important".  (BBC News)

This may be a holding exercise, but it looks more likely that whichever coalition emerges in Cardiff will join Scotland and Northern Ireland in seeking more fiscal powers.

Varney rules out corporation tax cut for Northern Ireland

It's the one policy almost every major party in Ireland is agreed on, including those that won the recent general election in the south, and the assembly elections in the north, but that it seems is not a consideration for the British Treasury.

Plans by Northern Ireland's new power-sharing executive to stimulate foreign investment by cutting corporation tax have been dashed.

In meetings with local politicians and business leaders last week Sir David Varney, a former head of the UK Inland Revenue appointed by Gordon Brown to consider changes in the province's tax policy, poured cold water on the idea.

Demands that business tax rates be dropped to 12.5 per cent to allow the province to compete with the Irish Republic would encourage transfer pricing, he said.

Transfer pricing is the practice whereby profits of UK-based foreign multinationals are channelled through a Northern Ireland office without actually bringing any additional economic activity to the province.

Sir David, who was accompanied by three officials from the UK Treasury, "absolutely dismissed the idea", said one of those present at the meeting. "He discussed a very wide agenda, but it was clear corporation tax was not part of that agenda at all." (Financial Times)

This, of course, is what almost every observer expected. One result may be to make the Stormont Executive look more favorably on Alex Salmond's requests for co-operation.

Stormont and Holyrood: Brown's taxing problems

Yesterday's happy events at Stormont could have a sting in the tail for Gordon Brown. The business commmunity is already pushing the new Northern Ireland Executive for concessions on corporation tax.

The IBEC-CBI Joint Business Council, the voice of business on the island of Ireland, today (Tuesday 8 May 2007) welcomed the formation of a new devolved Northern Ireland administration. This is a particularly significant development for the Joint Business Council, which over the last 15 years has promoted the cause of business co-operation on this island.

CBI NI President Declan Billington said: “At his recent meeting with the Taoiseach the First Minister Dr Paisley emphasised the need for economic co-operation that is to our mutual benefit and he singled out the need for action on corporation tax. From a business perspective, reform in this area is vital if the North is to achieve rates of economic growth comparable with the South.” (IBEC)

Bertie Ahern on the Northern Ireland tax issue

There was an interesting exchange in the Dáil yesterday, that shed some light on the attitude of the major party leaders in the Republic towards the campaign for a corporation tax cut in the North:

Enda Kenny: What progress has been made in equalising the corporation tax rate? Some 68% of the economy in Northern Ireland is driven by public administration. With a limited number of exporting companies, it needs serious attention if it is to grow in comparison to the growth rates in the Republic during the past ten years. The Taoiseach realises that one cannot have an imbalance between the Twenty-six Counties and the Six Counties during the next decade. Are there discussions on the matter or is Chancellor Brown making progress? It is difficult, as others may want investment in different parts of the British Isles.

Scotland 'needs new fiscal arrangements'

Today's Scotsman reports an extremely interesting speech by Shonaig MacPherson, the Chairman of the Scottish Council of Development and Industry (SCDI), which perhaps highlights some of the centrifugal forces I wrote about yesterday.

Scotland, she said "cannot adopt the ostrich position [we need to] start preparing for new fiscal arrangements in the face of new pressures from English nationalism".

She added: "Soon we may not have the luxury of time. It has been said that it would do Scots good to learn that public money does not grow on English trees. It may well be that English nationalism, not Scottish nationalism, will be the dynamic of constitutional change." (Scotsman)

Brown offers NI tax review

Gordon Brown has today announced a review of the tax differential between Northern Ireland and the Republic, as part of the financial package in support of a re-established Northern Ireland Executive.

Business leaders in the North have campaigned for several years for a cut in corporation tax to match the 12.5 per cent rate in the South. One leading figure in the campaign, Bombardier Shorts chairman Sir George Quigley, dismissed the impact of the 2 per cent corporation tax cut announced by Brown in yesterday's budget:

"The problem is that he is benchmarking the UK against major world economies, as he is entitled to do, but our challenge is to make Northern Ireland competitive against our immediate neighbour, the Republic.

"The reduction of the gap from 17.5% to 15.5% between north and south is neither here nor there in terms of attracting foreign direct investment to Northern Ireland."  (Belfast Telegraph)

NI elections: Economy comes to the fore

Voters in Northern Ireland go to the polls on Wednesday to elect the Assembly which will hopefully produce a power-sharing executive.

One positive sign for the outcome is that there has been a new focus on economic and social issues in the campaign:

Power-sharing is inevitable and, for the first time, the parties are being forced to consider the economic problems in the North. The peace process can only become a political success story if the economic problems which beset the North, and which have been ignored for decades, are addressed. (Sunday Business Post)

Amsterdam, London, New York, Shanghai?

Did events in China set of this week's sell off in global stock markets?  I'm not competent to judge, but I am reminded of a comment by the great French historian Fernand Braudel, which perhaps clarifies what is at stake in the debate.

Braudel's remarks concern the 1773 financial crisis, which contemporaries believed started in Amsterdam.

I believe that, on the contrary,  Amsterdam  was no longer the centre or epicentre of Europe. This had already shifted to London. Can one suggest that a highly-convenient rule might operate in this context, to wit, that any city which is becoming or has become the centre of a world-economy, is the first place in which the seismic movements of the system show themselves, and subsequently the first to be truly cured of them? If so, it would shed a new light on Black Thursday in Wall Street in 1929, which I am inclined to see as marking the beginning of New York's leadership of the world. (The Perspective of the World, p272)

Braudel's highly convenient rule, formulated in the late 1970s, might also shed some interesting light  on the Asian Crisis of 1997, which becomes, on those terms, the best evidence that the centre of the world economy is returning to Asia.