Fiscal Commission NI publishes Interim Report - "More fiscal devolution for Northern Ireland?"

The Independent Fiscal Commission for NI has today published its Interim Report.

The report sets out the context for additional fiscal devolution to Northern Ireland. It shows how, on a per capita basis, tax revenues in Northern Ireland are low, and public spending is high, relative to the rest of the UK. This rules out full fiscal autonomy.

But, the commission finds, there is a case to consider the additional devolution of some taxes further, including Income Tax, excise duties on alcohol, tobacco and petrol, and Air Passenger Duty. The commission will analyse options for devolving these taxes in more detail before providing recommendations in its final report next year.

Launching the report, Commission Chair Paul Johnson, said:

 “The NI Assembly already enjoys a high level of spending autonomy and controls most of the spending on public services here. However, other than rates on businesses and households, it has no substantive powers to vary taxes.  

“The aim of our report is to explore the case for additional powers over taxation. We have looked, in some detail, at over 20 different UK taxes in order to produce a list of the ones we felt might be good candidates for devolution to Northern Ireland, as well as those which are less of a priority at this time. While many taxes could in principle be devolved we think it important to prioritise and take one step at a time.

“The taxes which we will prioritise for more detailed consideration are: Income Tax, Fuel, Alcohol and Tobacco Duties, Stamp Duty Land Tax, Air Passenger Duty, the Apprenticeship Levy and Landfill Tax.

“Income tax is a big, easily understood tax, capable of raising substantial amounts of money and of being used to effect redistribution. We have seen it successfully devolved to Scotland and Wales, which also have powers over Stamp Duty Land Tax, and the Landfill tax. Neither Scotland nor Wales has power over excise duties, but the case for devolving excise duties to Northern Ireland is much stronger given the land border with the Republic of Ireland and the lack of a land border with the rest of the UK.

“Although we do think there is a case for devolving corporation tax, in our view, the issues are more complex both politically and technically than for other taxes. We therefore set out a roadmap of issues we see as needing to be resolved between the NI Executive and UK Government if this tax is to be pursued. We therefore do not include it on our list for further investigation.”

Mr Johnson said the Commission had carefully considered a number of wider issues including the economic context and the risks and rewards associated with the various taxes. He added:

“Fiscal devolution does bring the potential for rewards, for example being able to spur economic activity, make different choices, or raise more money. It could help local citizens, through their politicians, make those choices which suit them best. 

“However, with additional powers and the potential for additional reward, comes additional risk. If taxes are devolved to the NI Executive then their budget will, in part, be determined by how much revenue those taxes raise. This could well lead to a more volatile budget. If, for example, income tax is devolved and the income tax base grows more slowly in Northern Ireland than expected, or compared with the rest of the UK, then this could lead to a loss of revenue. There is a trade-off between the benefits of additional devolution and risk. It is important that these trade-offs are understood.

“Prior to publishing our final report, we will delve deeper into each of the taxes we have prioritised including implementation challenges, and how the block grant from Westminster the UK might be adjusted in such a way as to be fair to both Northern Ireland and the rest of the UK.

“Ultimately, however, the decision on whether any additional powers are actually devolved, and indeed exercised, must be for political representatives, both national and local, and the citizens they represent.”

Mr Johnson said the interim report provided the opportunity to stimulate further debate on these issues prior to the publication of the Commission’s final report next year.

He added: “This is a chance for people to help shape and inform local policy. We want to continue engaging with as wide a range of people as possible. Only through this engagement will a meaningful report with meaningful conclusions be completed, that will be of benefit to Northern Ireland.”