Brown meeting: no tax deal for Northern Ireland

Predictably, there was no deal on corporation tax at Gordon Brown’s meeting with the Northern Ireland parties yesterday:

The political parties had also been seeking cuts in corporation tax
to bring Northern Ireland into line with the south, at least for 10
years. The cut would mean corporation tax would fall from 30% to 12.5%.
Ian Paisley’s Democratic Unionists want to see it cut to 10% in
Northern Ireland while Sinn Féin wants an all-island rate of 17%, a
position supported by Bertie Ahern, the Irish prime minister. (That reads as if Ahern supports raising the Republic’s rate, which he doesn’t. TG)

Mr
Brown argues it would be illegal under EU law for one part of the UK to
have a different level of corporation tax to another. If he agreed that
Northern Ireland could be classified as a special division of the UK
economy, Scottish Nationalists would demand the same for Scotland. (Guardian)

The DUP, Sinn Fein, the SDLP and the UUP have all reiterated their position on corporation tax in the past couple of days.

There was general dismay among the parties at the apparent refusal to reduce corporation tax levels.

British
sources made clear they are resisting a precedent of cutting taxes for
one region of the UK in order to help establish a local competitive
edge.

The DUP was particularly critical of the proposals,
insisting the unionist electorate’s support for the St Andrews
Agreement "could not be bought" and neither would they be satisfied
with what was on offer. (The Irish Times)

The Treasury press release from the meeting makes no mention of the issue (Hat-tip Slugger). However, comments by Peter Hain suggest the matter may not be entirely closed:

There is a problem in that our legal advice tells us
that under the Azores ruling, it is illegal under EU rules for a member
state to allow one region to adjust its level of corporation tax while
maintaining another level in the rest of the country.

In other words, you can reduce the level of corporation
tax for everybody in the UK or nobody at all. Sinn Fein and the DUP
have challenged that – we are getting our Treasury experts on to it." (BBC)

Previous posts

29 March: Northern Ireland’s changing terms of trade
17 April: UUP backs SNP on tax
15 October: Will Brown give Northern Ireland a Corporation Tax cut?
24 October: More on the Northern Ireland corporation tax debate
27 October: All-island economy study launched
30 October: Observer: Brown to block Northern Ireland tax cut

Related Posts elsewhere

28 September: Does Azorean ruling close door on Corporation tax cut? – Slugger O’Toole
12 October: St Andrews Watch – Best of Both Worlds

Posted

November 2, 2006

Britain, Economics, Ireland, Scotland

TomGriffin

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2 responses to “Brown meeting: no tax deal for Northern Ireland”

Toque

November 6, 2006

I think that it would be illegal anyway:
BRUSSELS, Sept 6 (Reuters) – Portugal cannot permit the legislative body of the Azores islands to cut income and corporate tax rates below those on the mainland, the European Union’s highest court held on Wednesday.
“The court finds that the Portuguese government has not proved that the adoption of the measures at issue was necessary for the functioning and effectiveness of the general tax system,” the European Court of Justice said in its ruling.
“Consequently, the court dismisses the action brought by Portugal.”
The ruling was being closely watched for implications by Britain and Spain, which both intervened on the side of Portugal in the case.
Portugal had permitted the regional assembly of the remote, mid-Atlantic chain of nine volcanic islands to set their own income and corporate tax rates well below those of the mainland, with cuts of as much as 30 percent in corporate income tax.
Portugal argued that the tax cuts were a matter of sovereignty and motivated by the geographical isolation, difficult climate and economic dependence of the Azores on dairy farming, fishing and tourism.
The European Commission ruled in December 2002 that the tax cut was prohibited state aid — the provision of government money to a region to give it a leg-up.
The Commission, the executive arm of the European Union, said this was so-called “operating aid” in that it was continuing, rather than being one-time aid to help an industry or region get ahead.
The Commission decided that the reductions were not justified by their contribution to regional development, holding “their level is not proportional to the handicaps they are intended to alleviate”.
Britain has argued that if the Commission position were upheld it might endanger London’s arrangement with Scotland, where parliament has the power to vary the basic British income tax rate.
Spain has said the decision could affect the special powers on tax granted to its northern Basque Country and Navarre regions, as stipulated in the Spanish constitution.
An adviser to the court, the advocate general, had previously sided with the Commission.
In October 2005, Advocate General Leendert Geelhoed of the Netherlands said the purpose of the tax reductions was to compensate for disadvantages of doing business in the Azores.
He said that did “not constitute a valid justification based on the nature and economy of the Portuguese tax system”.
“The Portuguese Republic has not shown (or attempted to show) that the Azores receive no countervailing funding from state finances to compensate for the lower tax revenue,” he wrote.

Reply
Tom Griffin

November 6, 2006

It seems that the Azores ruling does allow for regional variations if the cost is borne by the local Government.
I don’t think that would be a runner in Northern Ireland, but it might not deter the Scots.

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Brown meeting: no tax deal for Northern Ireland

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