Why Corporation Tax will not be reduced in NI

Debates on the subject of Corporation Tax in NI are highly frustrating, largely because they focus on opinion of what should happen, as opposed to analysis of what, practically, is likely to.

The likelihood is that Corporation Tax will not be reduced in NI – whatever the political and economic benefits. This is because it is not politicially feasible.

There are three prime political reasons that it will not happen.

Firstly, there is no public demand for a corporation tax reduction, not least because the campaign for it was deeply flawed. Campaigns, such as Grow NI and others, have failed to move the debate beyond the business sector. Since the whole issue is how small the business sector is, that by definition leaves the vast bulk of the population disinterested. It is the classic case of how not to run a campaign – it has focused on stating something seen as self-evident only to those who see it as self-evident, and thus leaving the majority of the population at best on the sidelines and at worst outright opposed. The “Yes to AV” was a classic example of this; Grow NI and others are a second classic example. None of those who made the case really understood who they had to make it to (well beyond business), what aspects of it they had to prioritise (jobs, not profit), and so on (failing to adapt to economic changes in the Republic of Ireland, or to political changes in Scotland). Thus the Lucid Talk poll showed the population opposed to reducing public spending in return for corporation tax reduction by almost 2:1.

Secondly, and linked to the above, the NI Executive was always lukewarm on the idea. Although nominally in favour, the public sector voter was always worth more than the private sector one (since the public sector voter outnumbers the private sector voter economically by 3:1, and probably even more among the actual voting population). Ministers had to play a good game (particularly in private) about reducing corporation tax because they did not wish to seem unwilling to grow the economy when it came to bloc grant negotiations, but they were never really serious about it – hence Sammy Wilson’s carefully placed public statements and of course Sinn Fein’s nods to the Left. Throw in the glow disappearing from the Republic of Ireland’s economy (upon whose strength most of the argument was based), and top-level political backing slowly ebbed away.

Thirdly, the UK Government could not deliver it – particularly once it was given the excuse of a population against and an Executive lukewarm. There were legal obstacles, but these could have been overcome. However, the political obstacles were nigh impossible, not least once the SNP came to power in Edinburgh. The nail in the coffin was Alex Salmond’s call for a 20% rate in an “independent Scotland”; confirming his desire to enter the argument. From that moment (in truth, from the moment of the SNP majority), the game was up – at least insofar as devolution of corporation tax powers to NI alone was concerned.

So now we are watching a delicate dance of political disengagement, which consists of the UK Government gradually moving up the price (remember when it was a quarter of a billion; note it’s now half a billion) and the NI Executive gradually moving down the scale of stated willingness to pay it. The UK Government will gently blame Stormont for being lukewarm on the whole idea; Stormont will gently blame the UK Government for setting the price “too high”. Actually, neither could have delivered – the UK Government would have had to devolve the same powers to Scotland and Wales; Stormont could not have got away, politically, with paying the price whatever it was (frankly even half a billion is a small proportion, around 3%, of the NI Executive’s budget, so a few hundred million up or down was never really financially decisive, just politically).

For campaigners of whatever background, this all points to no reduction, and plans should be based on that reality.

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