Varney’s tax offer: a poisoned chalice?

Colm Heatley has a useful round-up of the outlook at Stormont in the next few months. In particular, he has a scoop on the Varney review:

Sir David Varney, the man appointed by British prime
minister Gordon Brown to head an economic review into the North, will
next month make his findings public. What Varney says will go a long
way to shaping the work and the nature of the Assembly.

The key
question for Varney, at least in the eyes of politicians and
businesspeople in the North, is the rate of corporation tax. Varney has
already ruled out a 12.5 per cent rate, which would have brought the
North in line with the Republic, but sources close to him say he is
poised to recommend a ‘halfway house’ option.

According to the
sources, Varney is considering an option which would allow businesses
registered in the Republic to move some of their operations to the
North and have corporation tax levied at the 12.5 per cent rate.

money would go into the Republic’s coffers, while income tax paid by
the company’s employees would go to the British exchequer. (Sunday Business Post)

The proposal for a 12.5 rate would improve the North’s competitive position as against both Britain and the Republic. Varney’s alternative looks as if it’s designed to allow the North to take jobs and business from the Republic but leave it’s position as against Britain unchanged.

The message is crystal clear. Not for the first time, the British Government is quite happy to allow Ireland to make a substantial new commitment to building up the North’s economy, but it’s not interested in reciprocating.

So will the Irish Government go for it? It has shown a genuine seriousness about the cause of an all-Ireland economy, but this may be a step too far. In the wake of the Shannon episode, there is now much more sensitivity about inter-regional competition on the island of Ireland.

It will be interesting to learn more about these proposals. What would happen to Southern businesses that already have operations in the North? What would the implications be for other businesses?

The big question, however, remains the one I have been banging on about for the past few weeks. How can Gordon Brown justify these limited proposals when the Labour Party is moving towards accepting fiscal devolution for Scotland?







5 responses to “Varney’s tax offer: a poisoned chalice?”

  1. DougtheDug avatar

    “The big question, however, remains the one I have been banging on about for the past few weeks. How can Gordon Brown justify these limited proposals when the Labour Party is moving towards accepting fiscal devolution for Scotland.”
    The big question is, “What does fiscal devolution in Scotland mean?”
    Since Westminster has ruled out North Sea oil revenues coming under control of Holyrood it doesn’t mean fiscal autonomy, it means control of some taxes and some revenues.
    “Some” can vary anywhere between 0% to somewhere well below 100% of all tax revenues since North Sea oil has been ruled out.
    Fiscal devolution is as yet a vague concept from the Labour party, no details on what taxes are to be controlled or gathered in Holyrood and no details on what percentage of these revenues will be spent in Scotland. Just the feelgood phrase and no promises of even implementing it, far less the detail.
    The Government has ruled out control of corporation tax in NI with perhaps more of an eye on what will be permitted in Scotland rather than what will benefit NI. If Northern Ireland gets control of corporation tax levels it will be very difficult to deny it to Scotland and with it give more fiscal freedom of manoeuvre to Alex Salmond and the SNP.
    I think you’ve got the cart before the horse. Northern Ireland is a weathervane on what’s going to be devolved, or more precisely, not devolved in Scotland rather than Scotland being the yardstick in the process of fiscal devolution. Whatever fiscal devolution means beyond the current buzz phrase.

  2. DougtheDug avatar

    Dammit, it lost my name on the post again. It seems to happen because I preview the post.

  3. Tom Griffin avatar

    H Doug, Sorry about that. I have edited your name in.
    I agree that fiscal devolution is a vague concept at the moment, but it is significant that Wendy Alexander is prepared to concede the principle. Obviously, she has to be pushed to clarify what it means in practice.
    I think Scotland ultimately will be the yardstick because the Scottish electorate have greater leverage at Westminster.
    We shall see however. It may be that London Labour will rein in Alexander, but I think they will pay a political price if they do.

  4. DougtheDug avatar

    “It may be that London Labour will rein in Alexander…”
    To be correct, Wendy Alexander is London Labour, as there is no separate Scottish Labour party, branch or association.
    The only changes and policies that will get implemented are those that will be approved by Gordon Brown. Wendy has no authority over the Labour party in Scotland apart from over the MSP’s in Holyrood. All her talk is just talk without Gordon Brown to actually take it forward. No fiscal devolution unless GB wants it.
    “Obviously, she has to be pushed to clarify what it (fiscal devolution) means in practice.”
    Wendy can’t define fiscal devolution as she has no authority to do that or authority to start the process of defining it. She will have to wait till Gordon Brown decides to look at it.
    But I think the process of reining-in has already started. She may have no authority but she does have a tendency to push the boundaries of what is acceptable to promote within the Labour Party.
    This is a quote from:
    “The Sunday Herald also understands the Scottish Labour leader-elect is considering a proposal to have a Labour MP as her deputy rather than an MSP.”
    The poster, “Doonhamer, Dumfries on 12:47am”, on that article probably got it right, Wendy’s going to be given a watcher.
    Going back to the corporation tax, maybe the Government was not prepared to have regional variations in corporation tax across the UK but the fact they were willing to look at it suggests that they might have been.
    It’s interesting to speculate what the outcome would have been if Gordon Brown still controlled Holyrood.

  5. Tom Griffin avatar

    I think if Labour were still the dominant party, Brown would avoid conceding more powers for fear of a backlash in England. As it is, they have to do something to regain the initiative from the SNP.

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