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

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)

Ian Paisley and Martin McGuinness called for the North’s corporation tax rate to be cut to 12.5 per cent, matching the Republic, at a meeting with Brown on Monday.

The row with the Treasury over financial support has helped forge
cross-party consensus at Stormont. Mr Brown, however, is opposed to
cuts in corporation tax for the province, anticipating that other areas
of Britain would immediately demand similar preferential treatment. (Guardian)

The Prime Minister-in-waiting could well face similar demands in Scotland if some kind of accommodation can be reached between the SNP and the Liberal Democrats, who are committed to fiscal autonomy.

It appears that Brown is trying to head off this possibility by dangling a future Westminster coalition in front of Ming Campbell, in the hope of stitching up a deal that would see the Scottish Lib Dems form another executive with Labour. One problem for this scenario is that Labour and the Lib Dems don’t have a Holyrood majority between them. For that reason, an SNP led executive remains the most likely outcome.

In any case, even a Labour administration would want to match any concessions given to Stormont, as Jack McConnell has said in the past.

The inspiration for this whole tax-cutting agenda is of course, the Irish low tax regime, which is currently something of an issue in the Republic’s general election. Fianna Fail has pledged to veto any attempt to impose EU-wide tax harmonisation. (Less has been said about the other threat to the golden goose, further cuts in the UK-wide corporation tax rate.)

Interestingly Sinn Fein seems to have shifted its corporation tax policy. As recently as a few weeks ago, when I interviewed the North’s new Regional Development Minister Conor Murphy, the party was still advocating an all-Ireland rate of 17.5 per cent, which would have meant an increase in the South.

That idea now seems to have been dropped. This looks like a decision made with one eye on getting Sinn Fein into the running as a potential coalition partner after the next election, but It will also strengthen the political consensus arround the issue in the north.

This newfound harmony in Belfast could ironically lead to some discord at Westminster.



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