Tax-Varying Powers

Private Members’ Business – in the Northern Ireland Assembly at 4:30 am on 10th September 2007.

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Photo of Francie Molloy Francie Molloy Sinn Féin 4:30 am, 10th September 2007

The Business Committee has agreed to allow up to one hour and 30 minutes for the debate. The proposer of the motion will have 10 minutes to propose and 10 minutes for the winding-up speech. All other Members who wish to speak will have five minutes.

Photo of Jennifer McCann Jennifer McCann Sinn Féin

I beg to move

“That this Assembly supports the transfer of tax varying powers to the Executive, along with the establishment of an Executive borrowing facility.”

It was heartening during the previous debate to hear the consensus for a strong economy and particularly to hear the comments of the Minister of Enterprise, Trade and Investment.

This debate is also important and it will not end after the vote is taken on the motion — it is too important. How we fund our policies will be at the heart of many of the key matters that Members will discuss in the coming days and weeks.

The budgeting of the Programme for Government and the setting of funding priorities will be the first tests of how we, as local politicians, can make a difference in education, health, housing and the economy. There are further key issues such as water charges, the review of rating, the Varney Review, industrial derating, and the use of public finance for public investment, all of which will depend on our ability to utilise the available financial resources.

The debate on our level of fiscal freedom will be at the heart of all those issues. The demand for tax-varying powers and an Executive borrowing facility are important. We should have the confidence to take responsibility for those matters.

The economic performance of the North of Ireland has been and continues to be poor in comparison to the rest of Ireland, and Britain. It is not just political instability, deep societal divisions and over 30 years of conflict that have caused that situation — there are deep patterns of discrimination and disadvantage, which have resulted in a lack of economic development. The local economy is imbalanced in the relative contributions of the public and private sectors to economic activity. Inward investment is sluggish, and the growth of indigenous business is low. Employment is concentrated in the service sector with low-paid, low-skilled and low-security jobs. Those facts highlight the scale of the problem.

Public spending is responsible for 63% of our gross domestic product. Economic output is approximately 20% below the British average, and has also fallen behind the Twenty-six Counties. As was borne out during the previous debate, the low employment figure of less than 5% conceals the fact that levels of economic inactivity are far higher. The number of people on incapacity benefit is 74% higher than the British average, and the fact that university graduates are leaving in droves is contributing to a skills deficit.

Clearly, therefore, the tools with which to make a difference are needed.

The case for differential tax treatment in the North of Ireland rests on the fact that existing policy measures are inadequate. Although there is no doubt that the lowering of corporation tax is important to the economy, and a level playing field on the island of Ireland would go a long way towards attracting and sustaining foreign direct investment (FDI), more must be done to deliver investment in people, skills and infrastructure. The bottom line is that local politicians are those who should drive forward the agenda for change, and not British Treasury Ministers.

It should be noted that the debate is not solely about income tax. The Assembly must cast the net wider than that. It must be bold in its approach and consider such incentives as targeted tax reliefs for rural businesses, the manufacturing sector and small and medium enterprises (SMEs). Many hold the view that tax-varying powers could also help to offset investment problems that are created by industrial derating. Initiatives such as plastic-bag tax or other green levies could be considered, some of which — the plastic-bag tax, in particular — have been successful in the South. The Assembly could also examine taxes on inheritance, real estate, gambling and vehicles.

A crucial aspect of strengthening enterprise is the nurturing of new businesses. Part of that should involve lightening the financial burden on those businesses during their start-up period through a system of tax relief for new businesses on the basis of a compulsory, agreed and accountable action plan, particularly for those who locate in New TSN areas.

My party is not alone in seeking much greater fiscal freedom. I do not believe that it is alone in wanting the Executive to have tax-varying powers. It also wants the Executive to be able to develop a borrowing facility. Such fiscal freedoms can unlock the Assembly’s potential to set its own funding priorities. They would also be an essential component in the development of a radical plan of action to tackle deprivation and to ensure the long-term economic development that is needed. Without them, the Assembly will be set to fail. There will be huge funding gaps across the public spending programme. It will be forced to rely to a greater degree on private finance to develop investment in essential infrastructure.

The Assembly will face many tough choices and difficulties in the time ahead unless it moves to develop greater fiscal freedom and strengthen the local economy. I, therefore, ask Members to support the motion.

Photo of Peter Weir Peter Weir DUP

I find myself in agreement with one small point that the proposer of the motion has put forward, which is that there is growing consensus that Northern Ireland must have a stronger economy. Indeed, it is for the very reason that my party supports the ideal of a strong economy in Northern Ireland that it will not support the motion that has been put forward by the Members in the opposite Benches. My party regards the motion to be ill-judged, ill-conceived and, indeed, with consequences that I suspect the Members opposite have not considered.

I was somewhat struck by the picture that was painted by the Member — one with which many of us would have a great deal of sympathy — of trying to create a low-tax economy. I am aware that the party sitting opposite is somewhat chameleon-like when it comes to its tax policy. Not long ago, in the Republic of Ireland, its call was to raise corporation tax; then it was to reduce it. By the sound of the nice picture that was painted by the proposer of the motion — that of a thriving low-tax economy — one can detect a nascent conversion to Thatcherite principles from across the Chamber. However, I wonder how deep that commitment is.

Unless the power to vary tax levels will be used as some sort of macho tool that the Assembly can say it has, regardless of whether it actually wants to use it, it can be used only in either of two ways. The Scottish Parliament has shown reluctance to use tax-varying powers. Despite the number of years that it has been in place and the opportunity to vary the rate of income tax by three pence from its outset, the Scottish Parliament has steered clear of from those powers.

One of two scenarios can take place with tax variation, either of which the Member who moved the motion seems to have hinted at as being an option, even though she has not said so explicitly. One scenario is that we use tax-varying powers to reduce income tax and reduce the levels of taxation in the country. Obviously, a reduction in the level of income tax could help to stimulate the economy. However, any tax cuts would then be directly related to the block grant.

If we were to reduce our levels of taxation to stimulate the economy in a wider context, and therefore have a reduced block grant, can Sinn Féin Members tell me which programmes they would intend to cut as a result of that tax reduction? Will they list, for example, which hospitals they would intend to close, or which programmes they would intend to axe, to allow for that tax cut?

Alternatively, and this is the second scenario, tax can be varied upwards. That is where the fear lies. We have already witnessed in the Chamber the danger of some parties getting involved in a spending spree. My colleague Sammy Wilson accused the SDLP of spending the Northern Ireland block grant — through its motions — two or three times over in the space of a fortnight. Inevitably, pressure would be applied to bump up the rate of taxation. Again, the effect on our economy would be to drive Northern Ireland into a much-higher-tax location, thus making it less attractive to business. Therefore, the opportunities on that basis are somewhat ill judged.

There is a further implication. If we were to have a level of tax-varying powers above and beyond that that we have already — to do with the regional rate — pressure would come from Her Majesty’s Treasury if, at any stage, we sought funding for a special project or any form of additional investment. If we were not taxing to the highest possible rate that we could, HM Treasury would simply ask why it should give the Executive extra money, whenever we could raise tax by 2p, 3p or 4p in the pound, or whatever our tax-varying powers happened to be.

We might even be faced with a situation in which HM Treasury said that it would cut our block grant, in real terms, because the Assembly had the opportunity to increase taxes if it wanted to maintain current programmes. That is why I believe that the Member’s motion is particularly ill judged.

I also believe that we have made a very separate and specific case. The Department of Finance and Personnel and its Committee have done a great deal of detailed work in making a case for a specific cut in corporation tax. We should stay focused on the tax relief or tax credits that may result from a cut in corporation tax. If we widen the debate to take in the nonsense of a wider tax variation, we will lose focus. We will lose the opportunity to make that strong case for a reduction in corporation tax. I oppose the motion.

Photo of Roy Beggs Roy Beggs UUP

I, too, oppose the motion. I oppose some of the comments and suggestions that the Sinn Féin Member made in moving the motion. Sinn Féin seems to be saying that a publicly controlled economy with more taxation could do things better than the private sector could do. I fear that that would not be the case. The Sinn Féin Member said near the tail end of her speech that, unless more funding were received, there would be gaps in its expenditure plans. Clearly, Sinn Féin is not talking about tax variation but about tax increases.

As far as I am concerned, one of the key roles of Members in Committee is to scrutinise each departmental budget. We must make best use of our existing funding, and we must do that first. Here we are, on the first day of the new session, and what is happening? A motion has been tabled that asks for more money. That is ridiculous. Our eye is off the ball. We should be concentrating on what we are doing with our existing money. We should be concentrating on getting the best value from that before demanding more money from individuals or from the private sector.

In an Assembly debate on 15 May 2007, Mitchel McLaughlin — one of the Members in whose name the motion stands — called for tax-varying powers and for the introduction of a system of progressive direct taxation. What is progressive direct taxation? I can think only that he meant income tax or business taxes. It would be helpful if Sinn Féin Members could explain what they meant when they advocated such a system in an earlier debate.

Some politicians appear to believe that they can solve our economic problems by imposing additional taxes on workers and businesses and by increasing public expenditure. They seem to believe that, somehow, civil servants can help to solve the problems.

For Northern Ireland to progress economically, we must carefully consider what effects any changes we make may have on the real world and the real economy in which people have to earn a living and sell products. We must ensure that we encourage sustainable jobs that are not reliant on state funding.

I recently met an employer who explained that even the proposed rises in industrial rates would be likely to result in a reduction in his R&D and marketing budget. That would call into question his ability to make future investment in his plant and therefore place a question mark over future long-terms jobs in the real economy. We must be very careful about what we do.

Tax-varying powers would also mean administrative costs for the Department for Social Development. Our benefits system would have to be modified somehow. New training would have to be provided so that staff in the jobs and benefits offices could know how any proposed new income tax would affect somebody starting or leaving work. Such training would bring costs, too. Furthermore, HM Revenue and Customs would have to change its system and develop a system specific to Northern Ireland, and I suspect that we would have to bear the cost of any such changes. This motion is a nonsense. Can our fragile private sector absorb those costs? Local employers would be faced with additional administrative costs with the introduction of a new local tax. This proposal would mean additional burdens for existing employers.

A recent Scottish briefing paper indicated that, for someone earning £15,000, a 1p increase in income tax would cost about £91 per year, while a 5p increase would cost about £495. For a family with two salaries of £15,000, a 1p increase would cost about £182, while a 5p increase would cost about £910. The proposers of the motion should be honest and say how this proposal would affect working families. Ultimately, it would be a tax on people who are working and own businesses.

We need to create more business opportunities and more real work opportunities for everyone so that we can survive the long-term changes that are occurring as the Barnett formula starts to converge the current expenditure levels in different regions in the United Kingdom. We must ensure that, whatever we do, we encourage real jobs in the private sector. We must not do anything that will threaten those jobs. New taxes will not create new sustainable jobs.

Thus, rather than debating this motion on our first day back after the summer recess, we should be considering what we can do to improve the current system. Sinn Féin appears to be out of touch with the economic realities of the real world. Let us get back down to work in the Assembly and spend the money that we currently have as best as we can. I oppose the motion.

Photo of Declan O'Loan Declan O'Loan Social Democratic and Labour Party 4:45 am, 10th September 2007

The SDLP has long believed that Northern Ireland needs tailored solutions to address its unique political, economic, geographic and social profile. That remains our stance as we work with colleagues to plot a way forward for our community after decades of conflict and underinvestment.

Without greater fiscal flexibility, we are limited in the steps that we can take to address difficulties such as the poor state of our infrastructure or the fact that our gross value added (GVA) remains 20% below the UK average. Sharing this island, as we do, with a successful economy and distinct tax regime clearly adds urgency to those issues that affect our competitiveness as a region. In recognition of such challenges, my party has for several years been calling for greater fiscal discretion for the Assembly. Moreover, SDLP leader, Mark Durkan, played a central role in negotiating the low-cost borrowing facility of the reinvestment and reform initiative (RRI), to which I will return.

To put this debate in context, the present finance agenda is loaded quite heavily. With ongoing consider­ation of the rates system, the independent review of water and sewerage, the comprehensive spending review, the Varney Review and a slowdown in public sector spending, this debate may be important, but securing additional powers may not be the most pressing item on the agenda.

Although I endorse the premise of the motion, I am, to a degree, surprised that it has been proposed. Why call for an Executive borrowing facility while opposing the use of the facility that we already have, and which is currently funding approximately £200 million a year of our infrastructure spending — a borrowing power that was introduced despite opposition from the proposer’s party? I should point out that the first and only use of the borrowing facility before suspension allowed us to build a world-class cancer centre without putting a penny on the rates. Does Sinn Féin still oppose that?

The other curious thing about the motion is that Sinn Féin repeatedly argued that we should not seek a borrowing power before we had secured a peace dividend, on the grounds that it would look as though we had given up on securing such additional funds. The question arises: has Sinn Féin given up on the peace dividend? The SDLP believes that to borrow at the preferential rates available to the Government can be part of a cost-effective strategy to stimulate our economy. Such benefits will more than make up for the cost of borrowing.

The suspension of the Assembly in 2002 meant that the terms under which the borrowing power is currently exercised are not to our satisfaction, so we must renegotiate those terms. We want investment to be paid for in a fair and affordable manner. We opposed the old rates system because it penalised those on low incomes. We have been equally clear that the direct rule conclusion to the rating review resulted in unaffordable and unjust rates for a significant number of people.

At its inception, the reform and reinvestment initiative was linked to the creation of the Strategic Investment Board, a body which we proposed to enable a radical new approach to long-term spending commitments so that they would be devised in a strategic manner, refined by expert financial input and agreed in partnership with leaders of civic society. It is surely no accident that the Southern Government have copied that model by establishing a centre of expertise within its National Development Finance Agency to build skills and capacity in the area of public procurement.

In considering the issue of tax-varying powers, my party and I obviously support the idea of greater capacity in the Assembly to tackle unique local circumstances. Consistent with our position on corporation tax, the SDLP has proposals to address competition issues arising from our land border with the South and to expand on existing co-operation on infrastructure.

Although I support the motion, I caution Members that, on such matters, the devil will be in the detail when it comes to negotiations with the British Govern­ment. Mr Brown is unlikely to agree to any change that will simply increase our income; he might, in fact, place further pressure on our Budget — a point that has already been made. Should it come to the point of negotiating such developments, our representatives would need to have their wits about them and be confident that any package that is agreed is genuinely to our advantage.

In summary, and in part, in an attempt to ensure that this House communicates with one voice — although I hear the utterances of other voices — I support the motion, in so far as it is competent, given our existing borrowing powers —

Photo of Francie Molloy Francie Molloy Sinn Féin

Your time is up, Mr O’Loan.

Photo of Stephen Farry Stephen Farry Alliance

I support the motion, and in so doing, it is important to stress at the outset that that is not an endorsement of the potential of the current Executive to use such powers wisely, but rather a recognition on the part of the opposition in the Chamber that the ability to deliver real change for the economy of Northern Ireland and its people depends on the Assembly having real fiscal powers. Without those powers, we have only a second-rate form of devolution.

Some Members have already mentioned corporation tax. If there is to be a reduction in corporation tax in Northern Ireland, we will have to have tax-varying powers; that is the way in which the Treasury would envisage that happening.

Photo of Stephen Farry Stephen Farry Alliance

No. I have a lot to get through. I will now move to the matter of the regional rate. Members have spoken about the need to avoid irresponsible tax rises, but the regional rate is already used as a form of taxation in Northern Ireland. It is no longer linked to any particular delivery of services, but is simply used by the Executive to balance the books. We have already seen 19% rates hikes in previous years; we will wait with interest to see what happens in the future.

Similarly, water charges are also looming as a means of balancing the books. Although the Assembly deferred water charges for one year, no feasible plans have been put forward to date for avoiding those charges in the future. Our budgets are locked into the assumption of water charges, and to avoid them we will have to divert money from elsewhere.

There are challenges for all of us.

We have to consider the regional convergence of Northern Ireland with the rest of the UK. At present, we are 80% of that average. The current draft regional economic strategy from the previous Administration, but not yet replaced by the current Administration, does not see any meaningful convergence of our economy with the UK average. Despite all the investment into Northern Ireland over recent years, the figures are not changing.

British Government policy may nominally be committed to regional convergence, but it is clear that successive British Governments have prioritised London and the south-east of England as the main driver of the overall UK economy. That area is viewed as something to be protected at all costs, and it seems that the Government are happier to keep the regions of the UK financially dependent, rather than give them the powers to make a real difference and to make their economies and their financial situations sustainable. Therefore, the real challenge of the Assembly is to stand up to that and demand the powers to make a real change.

Perhaps the real tragedy is that there are people inside and outside the Assembly who seem happy to accept and collude in the preservation of a conservative status quo that will not make any difference to our economy. In the last Assembly, when Alliance raised the issue of tax-varying powers, our calls were dismissed by those in office because of fears that the UK Treasury would use it as an opportunity to reassess the Barnett formula and cut the financial subvention from London. There are those who seem to think that the fact that we receive a subvention of £7 billion a year is a major achievement and something to be protected at all costs. In fact, it is a sign of the weakness of our situation, something that is unsustainable in the long term and something we must tackle rather than simply bank.

It is important to stress that giving this Assembly tax-varying powers is not tantamount to advocating or accepting an overall increase in the level of tax. It is about giving the Assembly the opportunity to do things differently and the assent to engage in effective policy changes, with the full range of options.

As a party, we have made the case to the Treasury, as the Executive and a number of Committees have done, for it to give the Assembly the powers to vary the rate of corporation tax.

Photo of Stephen Farry Stephen Farry Alliance

No. I have already said no.

Photo of David Burnside David Burnside UUP

Do you not understand —?

Photo of Stephen Farry Stephen Farry Alliance

Does the Member for South Antrim not understand the meaning of the word no?

Corporation tax is one of the major pieces of the jigsaw for trying to improve our economy, but it is not the only one. The private sector must be given the ability and the stimulus to develop and attract inward investment. This is not about imposing extra burdens on businesses or families; it is about trying to create the conditions in which we can become a more attractive location for business to operate in.

Alliance also believes that consideration should be given to replacing the regional rate with a local income tax. We are honest about that. The regional rate is not linked to providing local services; it is already, in effect, a Northern Ireland form of taxation that a large portion of the public sees as being unfair. Consideration must be given to finding a better way of doing things.

Alliance believes that much greater use should be made of environmental charges and taxes. The burden should be shifting away from taxes on income and property towards things that are bad in our society, such as damage to the environment. Tax-varying powers would allow the Assembly to be much more creative.

Photo of Simon Hamilton Simon Hamilton DUP

I am sure there are few topics discussed in the Chamber that fill working families and businesses with as much dread as this one, and what I have heard from the Benches opposite so far has not dispelled that fear. I have no doubt that someone somewhere in the Chamber has the ability to exercise the powers to vary and raise taxes responsibly.

Photo of Simon Hamilton Simon Hamilton DUP

I am certainly not looking opposite for it; that is for sure. The requisite fiscal responsibility seems to be sorely lacking.

Since its inception in May, the Assembly has called for everything from free personal care to free prescriptions to more investment in the rail network. Those are all worthy causes but, at the same time, Members have resisted increasing revenue streams, whether from business or from ratepayers. It is worth repeating that the Assembly needs a reality check and not more politics of the blank cheque. With the ability to vary tax, I fear — and there is clear evidence for this — that Members would not be able to resist the temptation to raise taxes to pay for each and every demand that is made of them.

Even if the Assembly were not so immature and some Members were not so fiscally irresponsible, the attitude to taxation of parties in the Chamber — particularly of the party proposing today’s motion — would render the proposal utterly unacceptable. No less than the Sinn Féin president let the cat out of the bag in an interview with the ‘News Letter’ in March 2007. He was asked:

“Your party opposes water charges — but can you categorically say you will abolish the tap tax? And if so, how will you replace the lost hundreds of millions of pounds of revenue.”

Mr Adams responded:

“Obviously, public services have to be paid for, but Sinn Fein is looking for tax varying powers for the Executive.”

Even someone with as rudimentary a grasp of taxation and economics as the Member for West Belfast can understand what that means: Sinn Féin intends to pay for services with tax increases.

Further evidence of Sinn Féin’s true intentions can clearly been seen when its support for tax-raising powers is viewed in tandem with its commitment to the harmonisation of tax rates on an all-island basis.

In recent times, Members have heard much about the South’s competitive corporation tax rate. However, it would be short-sighted to come to the conclusion on the basis of that alone that the Irish Republic is some sort of tax nirvana. A cursory glance at the Republic’s tax rates reveals that its top rate of income tax is higher than that in Northern Ireland, its VAT rate of 21% is 3·5% higher and, at 9%, its top rate of stamp duty is some 6% higher. The tax policy that Sinn Féin wants to foist on Northern Ireland is probably OK as long as people do not own a house, work or buy anything.

It seems to be simple and straightforward. Sinn Féin whispers sweet nothings about incentivising “this” and encouraging “that” through the tax system. However, the harsh reality for those who matter — taxpayers — is that should republicans be granted their wish, their pockets will be hit harder and harder. Given Sinn Féin’s socialist and Marxist persuasion — although sometimes their views bear more resemblance to Groucho Marx than Karl Marx — businesses and the hard-working middle classes will be hit the hardest.

Photo of Peter Weir Peter Weir DUP 5:00 am, 10th September 2007

The Member said that Sinn Féin’s policies would mean that people would be grand as long as they do not work, own a house or buy anything. In light of that, will the type of people who are attracted to Northern Ireland result in a society of hermits living in caves?

Photo of Simon Hamilton Simon Hamilton DUP

That is a good, well-made point. If Sinn Féin’s policy were implemented, the working class would evaporate because no one would work under those conditions.

I became involved in public life partly to assist business and to help those ordinary people in the Province who have been hardest hit over the years by the tax and rates regimes. For 35 years, Sinn Féin’s associates in the IRA subjected the people and businesses of Northern Ireland to a war. There is no way that my party or I will support Sinn Féin in subjecting those same people to a war on their pockets.

Some Members:

Hear, hear.

Photo of Adrian McQuillan Adrian McQuillan DUP

Other than Sinn Féin Members, few Members in the Chamber will not see the motion for what it is: a cheap, ill-considered stunt to grab a few quick headlines. However, it is important to expose the political and economic hypocrisy that Sinn Féin displays in suggesting the fundamental economic changes contained in the motion.

In political terms, I need hardly remind Members that Northern Ireland is, and will remain, an integral part of the United Kingdom, together with England, Scotland and Wales. Although significant powers have been devolved to those regions, they combine as one nation to consider legislation on fundamental issues of national interest such as defence, taxation and economic policy. As a sovereign nation, it is in our interest that those decisions are taken at Westminster. If Sinn Féin is genuinely interested in influencing Her Majesty’s Government on taxation, it should accept its electoral responsibilities to its constituents by taking its seats at Westminster and advancing the arguments in the proper place. The DUP always lobbies vigorously for the best interests of all classes and creeds in Northern Ireland. However, it does so from within the United Kingdom of which we are all citizens.

The general economic approach suggested in the motion, and the policies that were soundly rejected by the people of the Irish Republic in the recent general election, clearly demonstrate that Sinn Féin has abandoned its Marxist economic principles. It has now turned its attention to Northern Ireland to try to advance its tax-and-spend policies.

Such policies would inevitably lead to higher taxation of working people, increased borrowing, rising debt and loss of stability in our local economy. Equally worrying is the fact that Sinn Féin does not seem to have recognised the potential knock-on effect of tax-varying powers. Does the party truly believe that the block grant from Westminster would be unaffected? Can its members not see the potential impact on Northern Ireland if that level of support is lost?

From the outset, I said that such an approach was ill considered, and I have illustrated that in political and economic terms. What renders the motion more irresponsible is its timing. Just over three months into the life of the new Executive, Sinn Féin appears to have lost touch with reality, seeking more power rather than applying itself to facing the many challenging issues that are before the Assembly. I have no doubt that the people of Northern Ireland want to see Members considering and delivering on those issues before we begin to think about an extension of our powers. I share that view and oppose the motion.

Photo of David Burnside David Burnside UUP

Let us assume that the House votes in favour of the motion and that the Minister of Finance and Personnel believes that it a good idea and wishes to negotiate with Her Majesty’s Government to obtain total fiscal independence for this part of the United Kingdom. May I introduce a few words that most Members do not seem to realise exist in the English language: the first one being “recession”.

Imagine if there were a major recession in the United Kingdom following the transfer of fiscal powers to this local Assembly. All of the taxes will have been increased — for I have not heard one example of tax being decreased; all tax-varying powers are to be used to increase taxes — and Her Majesty’s Treasury will to come under great pressure because of the state of the national economy. There is a similar situation ongoing in the United States at the moment. Commentators are referring to it as the sub-prime crisis in the banking community. I do not understand it completely. However, if we were to have a major recession, with job losses — not at the level of 2% that exists currently in my constituency, but real recession that cuts deep into employment — what would Her Majesty’s Government do, if there were independent tax-raising and tax-varying powers in Northern Ireland? They would say, “Bye-bye boys”.

England would look towards Scotland, which already has tax-varying powers, and would increase its 2p variation on tax. England would also increase the tax variation that it would have given to Stormont and the Welsh Assembly.

People should realise that if this region of the United Kingdom is given tax-raising powers, and we move into a recession, we would have to pay for that. We do have to do that now because we are in a very beneficial position through being part of the United Kingdom and part of the national economy. Those who say we need more tax-varying independent powers need to grow up a wee bit. It would be a one-way street in which one would be asking for the tax-varying power that Scotland asked for and then asking for more. There would be increased tax powers and increased taxes for Northern Ireland.

I am talking in a pragmatic way, rather than on the principle of devolving and separating the United Kingdom into different tax areas. The Alliance MLA, Dr Farry, did not realise what he was saying in that there would be a Chancellor of the Exchequer here in Northern Ireland with total powers over capital taxation. If he had given way and allowed me to speak, that is what I would have told him that he was proposing. That would be a ludicrous position for us to be in.

The level of corporation tax is set by the national Government, and it will be very difficult to achieve a variation because Gordon Brown will set his face against it. However, we will wait and see the report of the independent review.

We are on dangerous ground. The Assembly is an administration that spends part of the national take for schools, hospitals, and for all the things that we need to do to serve and benefit our constituents. The last thing we need is a variation of tax-raising powers, and I am very concerned that the SDLP and the Alliance Party appear to be going into the Lobbies — if the House is divided — to support independent tax-raising powers for the Northern Ireland Assembly on the basis of an opinion.

We must move slowly in the Assembly and in the Executive and try to administer the block grant — the subsidy and support from our national Government — to improve the services that we provide to our people. This is a dangerous course to embark upon, and I hope that anyone here who is a unionist with a small “u” and who has any leaning towards being part of the United Kingdom will go into the Lobby tonight and oppose the transfer of tax-varying powers. It will do nothing to help the economy; it will do nothing to help the ordinary working man; and it will do nothing to help businesses in Northern Ireland. It will also weaken the United Kingdom, which is something that matters to me.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Innovation, Universities and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Education)

The general public would be totally dismayed if the motion was passed and, even worse, if the Government at Westminster decided to grant our wishes. The public have a sensible attitude towards politicians and money, and they want as few chances as possible for politicians to have anything to do with their wallets. I suspect that is even true of my colleague, the Minister of Finance and Personnel, who, during his brief time as Minister and during his time on Castlereagh Borough Council, gained a reputation for financial prudence that made Gordon Brown look profligate. Even with his reputation, the public would not want tax-raising powers to be transferred to the Executive.

It has been dressed in the term “tax varying powers”, but the promoter of the motion, Dr Farry from North Down, said that it is a chance to make real change, to transform the economy and to spend money on all the things that we need, such as infrastructure, health and education. Having listened to the speeches, this is not about varying tax rates; this is about finding a financial cosh to go out and mug the public with. That is why people would be dismayed if those powers were ever transferred to the Executive.

Mr O’Loan from North Antrim at least tried to get some variation on it. He said that if the Executive had those borrowing powers, we could get cancer units that cost nothing. I think that I am correct in saying that he was an economist, and economists know that there is no such thing as a free lunch. There is no such thing as a free cancer unit either. How did we borrow the money? How did we service that debt? We serviced it by raising the regional rate. It had to be serviced by taking money out of people’s pockets; it did not come out of the heavens and appear to us.

The point must be made that if the Executive had tax-varying powers, things would go in only one direction. The Member for North Down, Mr Weir, pointed out that, during earlier debates, I mentioned that we spent the block grant almost on a weekly basis. Members across the way proposed many things in the first six weeks of this Assembly, including more money for railways, dental care, refuges for battered people, personal care for the elderly, donations for the Irish who are about to get thrown out of the USA, and the appointment of a commissioner for older people. There is a whole list, and I am only a quarter of the way through it. If the Executive were given tax-varying powers, they would not have to make difficult choices — they would just spend the money.

Dr Farry supports the motion, because one member of his party alone could spend all the money in the block grant in a day. Mr McCarthy seems to treat this place as some kind of financial auction room. A Member makes a bid and then he makes a higher bid. Then the next week he is back to try to outbid the person who proposed good things for the public the previous week. His party, especially, would need to be watched if tax-varying powers were ever transferred to the Executive.

There are other reasons why tax-raising powers are not something that we should seek. First, it would be a one-way street. There would be more spending, and I do not know whether there would be any curtailment on people or examination of the real priorities and choices, because the Executive would have no choice; they would simply dip into the taxpayers’ pocket more often and take more money out.

Secondly, as Members heard in the last debate, Northern Ireland needs a competitive economy, but we cannot be a competitive economy if our system simply extracts more money. Members who are economists will know all about the Laffer curve — I will not bore the Chamber with it now; I used to bore people all afternoon with it in school. The Laffer curve shows that the more that is taken from people, the less effort they will make, and the end result is less revenue.

The other issue, and it was well pointed out by the Member for South Antrim, is that if we adopt tax-varying powers, we will give Gordon Brown, the Prime Minister, and Mr Darling — who would be no darling for Northern Ireland — the opportunity to tell us that we are on our own and if we want to raise tax, we can.

Photo of Basil McCrea Basil McCrea UUP 5:15 am, 10th September 2007

I do not normally have to speak after such an impassioned speech, and I will try to raise the temperature even further.

I listened with dismay to the arguments of the three parties on the opposite side of the Chamber. Their arguments were inconsistent, incoherent and incredible; they showed a fundamental misunderstanding of how economics works.

When some Members lecture us that the North of Ireland or Northern Ireland — whatever the title — does not work, they show that they do not understand that we are part of the United Kingdom. All the other regions — the north east, Scotland, Wales, the West Midlands, the south west — are in the same financial situation as we are because we operate as part of a much bigger economic whole. Being part of the economic combine that is the United Kingdom gives us the resources of the fourth largest economy in the world. Due to that we can spend £2 for every £1 that is paid in tax. That is why we have our £7 billion.

Photo of Basil McCrea Basil McCrea UUP

I will give way, Alex, to show that I can argue with the best, unlike Dr Farry who will not give way.

Photo of Alex Maskey Alex Maskey Sinn Féin

I thank the Member for giving way. Wearing another hat on the issue of industrial derating, the Member wants to vary the take that would be expected of the manufacturing sector. That is a tax- or rate-varying power of the kind that we are looking for.

Photo of Basil McCrea Basil McCrea UUP

I am glad that Alex mentioned that, because as the twig is bent so grows the tree. Our economy is built on what happened in the past 30 to 40 years. Removing industrial derating now would ruin our manufacturing, and it would be the fault of the Assembly.

Members cannot have it both ways on corporation tax; they cannot cherry-pick and ask for corporation tax to be lowered but still expect £7 billion to pay for disability living allowance, social benefits, housing and all the rest.

This is an exercise in efficiency; we need to do more with less. The former Chancellor of the Exchequer and current Prime Minister, Gordon Brown, said that productivity is the key to all economic success, which means doing more with less. Before telling the people of Northern Ireland that we would like more money, we must demonstrate that we can spend wisely what we are already being given.

If people are taxed more, they will leave. Nobody seems to understand that — it is the Laffer curve that Sammy Wilson mentioned, and it applies to industrial derating as well. If too much tax is put on people, they will go elsewhere. The Northern Ireland economy needs more people, more skills and more entrepreneurs. That will build our economy; that is what the Assembly has to sort out.

Perhaps some of the more educated Members will correct me, but I recall that income tax was introduced as a temporary measure to fund the Napoleonic war. The trouble with tax is that, once raised, it never comes down. [Laughter.]

The issue is that the big battle about funding social programmes, which is why we are all here, has been fought and won. There is now little difference between the Tories and new Labour. Why? Because the economic question has been resolved: a free market with a social conscience is needed to make sure that there are no excesses. That is the issue.

If Members send out a message that the Assembly will raise taxes, this place will last about six weeks. The people did not put us here to put our hands in their pockets: they elected us to manage their resources as best we can. Northern Ireland has a lot of resources, and we must manage them properly. I am fundamentally opposed to the motion.

Photo of Peter Robinson Peter Robinson DUP

Thank you, Mr Deputy Speaker, for the opportunity to respond to the debate. I do not agree with the proposer of the motion, but it is nonetheless useful that the Assembly takes the opportunity to debate such matters. However, I hope that the matter ends here, and that the proposer is merely taking the opportunity to debate the issue and does not push the motion to a vote.

I agree with the proposer that it is necessary to have the tools to do something different and that we need to invest in skills and infrastructure and in the other drivers of our economy. However, I question her suggestion on tax-varying or — as most Members have now defined them — tax-raising powers for Northern Ireland.

I have listened to the debate with great interest, and I think that it would be useful to correct some of the misconceptions and misunderstandings on what is a critical issue for the Executive. I will also set out the nature of our relationship, as a devolved institution within the United Kingdom, with the national Government and Parliament.

I will explain briefly how the Executive derive their funding resources, which are presented in the budgetary process that the Assembly approves. I also want to highlight how the fiscal framework applies to Northern Ireland and what discretion is available to the Executive on issues such as borrowing. The bulk of the public expenditure available to the Executive is provided through the operation of the Barnett formula by which Northern Ireland gets a population-based share of expenditure allocations that Treasury makes to aspects of the work of certain Whitehall Departments. The Barnett mechanism presently accounts for approximately 92% of the resources allocated in the Northern Ireland budget. The remaining resources distributed by the Executive are generated through taxes and charges such as rates and water charges.

Members should also be aware that the Executive have a borrowing power agreed with Treasury — the reinvestment and reform Initiative (RRI) — which allows them to borrow from the National Loans Fund. It allows us to draw down additional capital resources of up to £200 million a year. We have to pay interest on that borrowing, but it is at a more favourable rate than those available in commercial markets.

I confirm what the Member for East Antrim Roy Beggs said about having to pay the interest as well as the loan. Services for the loan have to come from somewhere, and, in this case, the borrowing has to come from the regional rate. This borrowing power must be employed prudently to ensure that we do not commit to future legacy costs that could be an excessive burden on future generations.

With regard to tax-varying powers, the Assembly has powers, unfettered by Westminster, to increase the level of our regional rate. Members will be aware that on 15 May 2007, I announced a further review of the new domestic rating system that was introduced by direct rule Ministers in April of this year. The terms of reference for the review — agreed by the Executive — reflected my intention to examine a range of options for change. The consultation exercise sought views on what improvements could be made to the existing system in time for next year’s rates bill and any possible alternatives to the rating system. One of the issues included in that second strand is the feasibility of tax-varying powers.

In advance of the Executive taking time to consider the outcome of the consultation process, it is premature to be calling for tax-varying powers for Northern Ireland. If the motion were supported, it would under­mine the objective open consultation and consideration that the Executive endorsed.

As for generating financial resources through water charges, the Executive await the report of the independent water review panel, which is due shortly. The Executive will then discuss the report’s implications further, before the Assembly takes a final decision. As I have indicated, it is wrong to say that Northern Ireland does not have tax-varying powers — in certain areas, we do. Rates and water revenues are already policy instruments that are at the disposal of the Executive. We are also, generally, able to introduce other taxes as long as they do not replicate existing UK-wide taxes. However, I suspect that the motion seeks income-tax-varying powers.

Much of the debate has been about new measures that should be made available to the Executive. However, room for debate in that area is severely constrained by the financial framework set by HM Treasury. Members will be aware of the efforts that we have exerted over recent months to secure a concession from HM Treasury on corporation tax. While we await the outcome of the Varney Review, I ask Members not to underestimate how jealously HM Treasury guards its ownership of fiscal policy. Perhaps, even more significantly, we should not assume that Northern Ireland would benefit from tax-varying powers.

Some commentators have also referred to the use of external bonds to finance public investment in Northern Ireland. That is not materially different to using the reinvestment and reform facility, except that the interest rates that would be applied are likely to be higher. More importantly, the Treasury rules would still score those bonds as Government debt — so we would not be any better off. The only way in which Northern Ireland would benefit from some form of bonds would be if the assets that they funded were off the Government books. However, that would leave those assets to be formally owned by the private sector. Politically, that has not proved to be an over-attractive option to date.

The tax-varying facility available to the Scottish Executive has also been highlighted as a tax-raising power that the Northern Ireland Executive should seek. The fact that Scotland has never sought to avail of that facility indicates that it does not see that measure as a panacea for its problems. Even if such a power were to be made available through legislative change, it would pose difficult choices.

I am not clear what the true intention behind the call for tax-varying powers is, or whether there is any agreement on it. As I see it, broadly speaking, there are four alternatives. The Member for North Down Peter Weir mentioned two of them.

First, if the purpose for having tax-varying powers is to increase tax, Members must recognise that. Increasing direct taxation would further undermine the region’s competitiveness. At a time when we are making economic growth a key priority for the Assembly, it would be wrong to increase the burden on the workforce.

During discussions before I came to the Chamber, I had decided not to mention the details of the Laffer curve, because I was sure that no one would mention it in the Assembly, but it seems to be the centre of our debate. [Laughter.]

However, we must take into account the fact that, in the most narrow terms, if one were to increase the tax on anyone in the workforce in Northern Ireland, the automatic response would be that they would seek an increase in wages to make up for the loss that they have borne in taxation. One needs only to look at the repercussive effects of that, particularly in the public sector, and the reduction there would, therefore, be in spend and resources.

Secondly, however, if the purpose is to reduce taxation, it would almost certainly have to be self-financed by the Executive, if my reading of the recent Azores case is correct. It would also be, at best, unlikely, in circumstances where there is a fiscal deficit of around £7 billion a year, that the UK Government would pay for extra tax cuts for Northern Ireland alone. I regard higher taxes in Northern Ireland than in other parts of the United Kingdom as politically unacceptable, and lower taxes, when we already have a £7 billion fiscal deficit each year, as unrealistic.

Thirdly, we may wish to have tax-varying powers without ever actually deciding to use them. That is not a cost-free option either.

The Administration in Scotland pay approximately £8 million a year to keep the necessary systems in place to allow the option to be used. However, it will cost them about £10 million to activate those systems, and that is money that could be spent on front-line services.

The fourth option is for a local Executive to use the tax-varying powers to replace the regional rate. I suspect that that is the main thrust of the Alliance Party’s argument. However, the impact of increasing income tax and reducing property taxes would be the expectation that those who are in work will pay for those who are not. Although we may not always approve of the details of UK-wide fiscal policy, Northern Ireland benefits enormously from being part of the United Kingdom.

Dr Farry suggested that the availability of tax-varying powers is the step change that is needed to change the economy of Northern Ireland. The amount of money that comes in — or the way that it comes in — is not the issue. A property tax or an income tax could bring in exactly the same amount of money: whatever level the income tax was increased to could be matched by an increase in the rates. The only difference that the motion would make would be to who pays the tax. Any property tax would be paid by those who own residences in Northern Ireland. Those who have no property, or no job — either because they cannot, or will not, find one — would not have to pay under the replacement system that the Alliance Party is offering.

However, the stimulus to the growth of our economy is not based so much on the way that the money brought in is allocated in Northern Ireland; productivity is the key, as Mr McCrea the Member for Lagan Valley indicated. That is the step change that is needed to increase our GVA. I am happy to say that we now have a better GVA than Wales, with the result that we are no longer the worst part of the United Kingdom in that respect.

Members should consider carefully the implications of agreeing the motion. The superficial attraction of tax-varying powers does not stand up to detailed scrutiny. Members should not underestimate the dangers of opening up such matters with the Treasury. I might find myself at odds with Mr Wilson, my colleague from East Antrim, who thinks that the Treasury would be very difficult if we were to approach it with such a proposal. I suspect that the Treasury would say, “Yes, go on ahead; we would be happy for you to have those powers”, and wash its hands as a result. However, I hope that the Assembly will not test the Exchequer and the Government on that issue.

We are operating within a complex public expenditure framework, and unfavourable consequences are often associated with what might seem a simplistic policy action. As well as my concerns about the principle behind tax-varying powers, I do not believe that the timing is right. It is prudent to await the outcome of certain exercises, such as the rating review, before considering a motion as complex as this. If the motion is pushed to the vote — and I hope that it will not be — I will oppose it for those reasons. I urge Members to do the same.

Photo of Francie Molloy Francie Molloy Sinn Féin 5:30 am, 10th September 2007

The Question is — [Interruption.]

I am sorry; Mr McLaughlin should have his right of reply. [Laughter.]

I call Mr McLaughlin to make his winding-up speech on the motion. I am quite sure that Willie Hay would not have done that.

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin

In winding up the debate, I speak in my capacity as economic spokesperson for Sinn Féin, despite my being a member of the Committee for Finance and Personnel.

In her earlier remarks, my colleague Ms McCann detailed the argument for greater economic autonomy for the Executive. I welcome and acknowledge the fact that some Members who contributed to the debate have demonstrated a commitment to put the old politics — the politics of the past — behind them. Those politics meant that whichever party sponsored a proposal was of greater priority than the issue itself, with the effect of predetermining either support for, or opposition to, a motion.

Perhaps that indicates that some in the Assembly are emerging from the travails of a deep-seated conflict and are developing a more mature and pragmatic approach — a form of politics based on a democratically grounded, inclusive process that acknowledges the need to seek and find agreement in the wider interests of the community. There are others who have yet to embark on that process.

I call on Members to vote on the motion based on its merits and for the benefits that it would deliver to all sections of our people. That will be the politics of the present and the future; the politics of change that reflects that which Members are collectively achieving.

Last week, many people in Ireland voted in the People of the Year awards. They recognised the leader­ship that was necessary to achieve the restoration of the Assembly and to re-establish the primacy of politics over conflict and division. At times, that leadership was difficult. It was constantly challenged and criticised by those who lacked courage or vision or who simply were deeply troubled because they did not understand. Painful decisions had to be made, and long-standing friendships were put at risk. I congratulate the First Minister and the Deputy First Minister, who were nominated on behalf of all Members, for their achieve­ments, along with Bertie Ahern and Tony Blair, in bringing the process to this point.

Photo of David Burnside David Burnside UUP

On a point of order, Mr Deputy Speaker. Will there be a ruling that Members speak somewhere within the parameters of the motion?

Photo of Francie Molloy Francie Molloy Sinn Féin

That is not a point of order.

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin

A little patience will show the connection that I wish to make.

In the context of my earlier comments, Sinn Féin recognises the pressure and pain involved, and appreciates and applauds the resolve shown across the Chamber that has made progress possible and secured advances that have benefited the entire community. From conversations and contacts that I have had with people from all walks of life — business, social, political and academic — all are agreed that the biggest barrier to building a sustainable economy in the North is the fact that fiscal policy, taxation and public expenditure are all determined in London. All are agreed that that must change, and Members have an unmistakable mandate from the electorate to deliver that agenda.

Photo of Roy Beggs Roy Beggs UUP

Will the Member give way?

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin

No, I have a lot to say and I have lost time already.

All are agreed that the situation must change, and we have an unmistakable mandate from the electorate to deliver that agenda for change. An economic policy that is designed and administered by Whitehall will always be delivered for the benefit of the island of Britain, invariably with inadequate consideration of the special needs of the North. Although inherently unjust, that is perfectly understandable. That is the status quo. Our needs will always be peripheral and coincidental to those of Britain — an afterthought, for want of a better expression. Simply put, that is why the status quo must change if Members are to successfully plot a trajectory of economic recovery for the North.

Not only are we excluded from the economic advances in the rest of Ireland because we are locked into the one-size-fits-all approach of the British Treasury, but Members must work within the parameters of the inadequate and unfair Barnett formula, which has already been referred to, and a privatisation agenda that has been imposed by politicians who will never be held accountable to the electorate in the North.

In their engagements with Gordon Brown, the British Treasury and, latterly, with the Varney Review, all parties — including Sinn Féin, to correct some of the misrepresentation from across the Floor — argued for a more competitive level of corporation tax. It does no service to anyone to completely and wilfully misrepresent the positions of the respective parties. We are all in this together.

In any event, Executive Ministers will require a more realistic mechanism to calculate the block grant that will effectively take those factors into account and ensure the allocation of funding on the basis of need and a fairer distribution of resources. I particularly welcome today’s comments from Ian Paisley, who made it clear that the Executive would have to seek additional resources to address the issue of poverty and its underlying causes. Hear, hear.

In debates in the Programme for Government Committee, set up in the Hain Assembly, and in the Preparation for Government Committee, all parties clearly and consistently supported the introduction of tax-varying powers in order to grow the regional economy; develop and target tax incentives towards areas of high unemployment; encourage small businesses; and enable other specific sectors, such as the social economy sector.

Recent consensus reports from the Programme for Government process demonstrated that the parties shared a clear understanding of the imperative need to acquire the tools necessary to reinvigorate the private sector of the economy.

It is vital that the parties sustain that consensus as the Varney Review team prepares to report to the British Government. In that context, I welcome the presence of the Minister, and I would like to respond to his comments at the end of my speech.

A succession of unionist spokespersons — and I can see no distinction in the unionist position — appeared to argue that the North has a basket-case economy and that we dare not interfere with the subvention. It seems that we can only exist on the basis of —

Photo of Basil McCrea Basil McCrea UUP

Will the Member give way?

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin

No, I am sorry I will not.

It seems that we can only continue to exist and project into the future on the basis of that dependency.

Ultimately, we must consider whether we can make a better fist of government than direct rule Ministers, and that we can deal — as we will have to deal some time — with the underperforming economy in the North. Somebody must explain to me, as no one across the Floor has done so, how supporting an argument for reducing corporation tax to 12·5% is not an argument for tax variation. I accuse Members of responding to the authorship of the motion rather than to the issues that they are supposed to discuss.

In the course of many discussions, Sinn Féin also made clear its aspiration to see the introduction of an unrestricted borrowing facility to replace the RRI. That proposal was not supported, and Sinn Féin supports the democratic outcome of that discussion. In the event, all the parties, including Sinn Féin, supported a minimum of the separation of the RRI facility from the so-called convergence principle, under which the Treasury had introduced the water-charges policy.

I note that the SDLP spokesperson took credit for RRI, yet the SDLP must take responsibility for the fact that that measure and the strings and conditions that were attached was exploited to introduce water charges. Thankfully, the need for the separation of RRI from the convergence principle was successfully impressed upon the Treasury and Gordon Brown.

The Northern economy has always suffered from the disadvantage of peripherality. Most regions in Britain have enjoyed an economic head start over the North. The British Government’s statistics bear testimony to the failure of Whitehall policy over a period so extended as to be absolutely undeniable. The current policy simply does not work for the North. It will not, and cannot be made to, work.

In addition, intense competition between and within the regions on the island of Ireland is also an unavoidable reality — particularly when trying to attract inward investment. Sinn Féin would prefer that we were working towards harmonisation of tax regimes across the island and a level economic playing field. However, that is another day’s work.

In any event, Sinn Féin wants to see greater local autonomy over the setting of objectives and goals in expenditure and investment. These are only some of the issues that support the impetus for tax-varying powers to be given to the Assembly. Ultimately, it is up to us to decide how they are applied.

I ask the Assembly to support the motion. The point made by the Minister deserves a response, and Sinn Féin will not push the House towards a Division, although it supports the motion. Go raibh míle maith agat.

Question put and negatived.

Adjourned at 5.44 pm.