By Jason Bunting, Advocacy Manager at the Fairness Foundation Northern Ireland is falling behind on fiscal powers- and it’s holding back our progress. Over the past twenty-five years, Scotland and Wales have each gained significant new fiscal tools, and both now has a credible suite of levers at their disposal. English devolution is also accelerating, with the Chancellor’s recent Budget giving regional Mayors the power to introduce tourism levies- an admittedly modest charge that can nonetheless raise millions for local ... Read more...
By Jason Bunting, Advocacy Manager at the Fairness Foundation
Northern Ireland is falling behind on fiscal powers- and it’s holding back our progress.
Over the past twenty-five years, Scotland and Wales have each gained significant new fiscal tools, and both now has a credible suite of levers at their disposal. English devolution is also accelerating, with the Chancellor’s recent Budget giving regional Mayors the power to introduce tourism levies- an admittedly modest charge that can nonetheless raise millions for local priorities.
Yet while momentum grows in other nations and regions, Northern Ireland has been left behind, seeing far fewer powers devolved. Although the Executive controls £9 in every £10 spent in Northern Ireland, it raises only around 9% of that revenue. By comparison, Wales raises around 20% of its revenue while Scotland raises around 31%. land.
Meanwhile, the recent UK Budget announced £370m for Northern Ireland- yet only £19m of that arrives in this financial year. Against the scale of Stormont’s fiscal challenges, this amount is negligible. It’s little wonder, then, that Finance Minister John O’Dowd MLA concluded that: “if there’s one thing the Budget made clear to me, it was that the Executive, the Assembly and this society will have to take greater control of their taxes”.
There are, however, reasons to want fiscal powers that go well beyond raising short-term revenue to meet Stormont’s stretched finances.
The Better Lives Index recently found that Northern Ireland remains one of the toughest places to grow up and old in across the UK. Our productivity level remains 8th out of 12 UK regions, more than 12% below the average. We have a much higher proportional share of the most deprived areas in the UK than other nations or regions, and the highest levels of education deprivation across the UK, while the national income per head is approximately 25% lower than the UK average.
The research suggests that greater, and more effective, fiscal devolution can help to meet those challenges. Evidence shows that devolving fiscal levers improves government responsiveness, strengthens accountability and boosts efficiency. Local fiscal autonomy helps to connect a region’s priorities and its policies, and allows government to innovate more readily. As the Northern Ireland Fiscal Commission concluded in its final report, tax devolution “could increase electoral accountability, financial responsibility and policy autonomy”.
OECD research has even found that when properly designed, decentralisation has a positive impact on growth- and that doubling the sub-central share of tax or spending is linked to a 3% increase in GDP per capita. Increased growth, in turn, could help address Northern Ireland’s deep-rooted economic challenges.
While fiscal devolution will not solve everything, but it would give the government more tools to act, and force greater accountability about its choices. As a recent paper from the Heywood Fellowship suggested, when most levers are held centrally, “there can be a tendency by other levels of government to attribute all inaction to ‘lack of funding’”. More agency over fiscal matters can help counter this dynamic, particularly important in a society with “chronically low” levels of democratic wellbeing.
In short, fiscal devolution is a fairness issue- an argument set out in our new report at the Fairness Foundation, A Fair Share.
Translating that principle into practice requires examining the options available, which the Fiscal Commission has already done in depth. It made several recommendations, including improvements to data reliability; the (at least) partial devolution of income tax; and the devolution of the Apprenticeship Levy, Stamp Duty Land Tax, Air Passenger Duty and Landfill Tax, along with savings and dividend income.
Some of these proposals were explicitly endorsed by the Finance Minister on the floor of the Assembly as a “good starting base” for fiscal devolution, noting he has intensified engagement with the Treasury. Yet as the Commission also noted, the time between recommendations and actual tax in Scotland and Wales has ranged from 6-8 years. Such a process is likely to be even more protracted in Northern Ireland, given its record of instability and the need to build wider consensus- particularly in light of the DUP’s reticence about Northern Ireland’s capacity to take on further powers.
Northern Ireland, then, has no time to waste, if it is to seize the potential of fiscal devolution to build a fairer economy. There are several steps the Executive could take immediately, even in advance of Treasury agreement. It could:
- Consider how to build the “appropriate capability and capacity” to understand the consequences of policy changes on fiscal devolution, as recommended by the Commission.
- Cost the creation of the local revenue authority that would be needed to administer Stamp Duty Land Tax, Air Passenger Duty and Landfill Tax.
- Begin a full study into the devolution of excise duties.
These steps could help to build momentum and demonstrate the maturity and seriousness required of a government seeking additional fiscal powers. In addition, in our paper released today, we argue that – alongside or ahead of new powers- the UK Government should make better use of structures such as the recently created Council of Nations and Regions, which research suggests could become a useful forum for collaboration on exactly these issues.
In all, without bolder action from both the UK Government and the Executive, Northern Ireland risks falling further behind on fiscal devolution, and it will be the economy and the public that pay the price. A fairer economy here is possible, the question now is whether our leaders have the will to make it a reality.
