Archive for January 10th, 2008
10th January 2008
United Irishmen
The Varney Review on Taxation in Northern Ireland has done what once would have been unthinkable and united Unionists and Nationalists in opposition to an unsympathetic London Government. The forthcoming Assembly Commission on Funding and Finance may end up doing the same in the reverse, with the Treasury disagreeing with a Devolved Administration’s analysis.
This time it was the other way round. Gordon Brown agreed to look at the issue of lower corporation tax for northern Ireland as part of an economic package to lure DUP and Sinn Fein back to the negotiating table. No wonder they feel a little bit aggrieved now the report has concluded that “a clear and unambiguous case for a 12.5% rate of corporation tax cannot be made”
He who pays the piper, of course, gets to pick the piper. It hardly came as as a surprise that a report commissioned by the Treasury and prepared by Sir David Varney, the former Executive Chairman of the HMRC and now an advisor to Gordon Brown, came to the conclusion that the Prime Minister had been right all along about regional rates of corporation tax.
It’s interesting to note, however (and here I’m indebted to Eurfyl ap Gwilym for his analysis) that the main conclusion is couched in such tentative terms. To say there is no “unambiguous case” for a cut in corporation tax is hardly surprising given economists rarely agree on anything unambiguously.
The report’s central charge that cutting corporation tax is no ’silver bullet’ for the northern Irish economy is something of a ’straw man’ of an argument as nobody would argue that fiscal incentives by themselves - even in the case of the Republic of Ireland where they have been most notably successful - will work unless they are part of package measures. But, boy, can they help. Just walk around the Temple Bar district of Dublin today and see the difference that tax breaks made there during the 1980s.
It has to be said that the main conclusion of the report sits uncomfortably with Gordon Brown’s statement in his last Budget as Chancellor that “the reduction in the main rate of corporation tax will build on the established principle that low tax rates reduce economic inefficiencies”. ”British tax cuts good, Celtic tax cuts bad” is perhaps predictable from Gordon ‘John Bull’ Brown.