BELFAST BRIEFING:There are hopes that George Osborne will deliver some good news in tomorrow's budget
COULD NORTHERN Ireland’s big break, at least when it comes to a certain bothersome tax, be just around the corner? If the not so subtle recent hints by the North’s Secretary of State are anything to go by, “radical measures” are potentially in the pipeline.
Owen Paterson has appointed himself as the number one cheerleader for the transfer of “responsibility for corporation tax from the Treasury to Stormont”.
Paterson plans to launch a “major consultation” on corporation tax levels in the North – currently 28 per cent, falling to 24 per cent by 2014 but still comparing unfavourably to the 12.5 per cent in the Republic.
In the meantime, Northern Ireland can look forward tomorrow to what he has described as a “pro-growth” budget.
Tax rates of all descriptions are expected to be high up the agenda for chancellor George Osborne when he reveals his second budget. Everything from income tax rates to flight taxes and company taxes are likely to fall under the spotlight. But one thing is for sure – Osborne says he has no intention of raising taxes.
The chancellor is in a slightly better position than had been previously anticipated as he gears up for the 2011 budget. According to the Ernst Young Item Club, public sector net borrowing this year could be £8 billion less than the £148.5 billion predicted.
This means Osborne could have a multibillion-pound windfall to play around with in Northern Ireland and elsewhere.
But according to Martin Fleetwood, a tax expert with PricewaterhouseCoopers (PwC) in the North, taxpayers should not hold out any hopes of him easing their pain.
It has been established that employees’ national insurance contributions will rise by one percentage point to 12 per cent and there is little chance of a U-turn on VAT which went up to 20 per cent in January.
The chancellor has also indicated that he will raise personal tax allowances by £1,000 (€1,147) to £7,745 though he also plans to drop the threshold at which people start to pay the higher rate of 40 per cent to £42,475. He is also likely not to make any changes to the 50 per cent tax rate which high earners with salaries over £150,000 currently pay.
However, there may be some major breaks on the horizon for hard-pressed businesses, and for Northern Ireland in general. New fuel duty hikes that could have added 5 pence a litre to the price of petrol and which should have come into effect next month may be postponed.
Business car users might also be in line for another boost with the possibility of increases to the amount that employees can claim when using their own cars for business purposes.
Osborne could temporarily abandon plans to increase Air Passenger Duty in the UK which would be a major help for the North’s three airports and travellers.
The budget is expected to spark fresh debate on issues of crucial importance to people in Northern Ireland such as welfare benefits, pensions, child payments and unemployment initiatives.
But Fleetwood cautions that while there may be a rabbit, a hat and a surprise announcement, there is unlikely to be any cash thrown around, particularly in Northern Ireland’s direction.
“Local eyes will be watching to see if the chancellor offers any flexibility to the Executive on borrowing and additional capital expenditure,” he says.
One option is to simply “bank the bonus” from better than expected tax revenues in the hope of eliminating the UK’s deficit – still riding at 9.5 per cent of GDP – faster than expected.
But Osborne has promised that his budget will be “pro-growth, pro-enterprise and pro-aspiration”. There is a strong bet that the North will be designated as one of a number of new enterprise zones to be established across the UK. Osborne has said this will allow the UK government to “create bespoke incentives” which will be tailored to the needs and aims of each local economy.
The Northern Ireland Chamber of Commerce believes certain requirements would be necessary to ensure its success in the North. It says that to make enterprise zones attractive, they must be able to offer businesses special treatment so to speak.
The chamber says this could include anything from a fast-track planning process to relief on business rates, national insurance payments and lower corporation tax and VAT rates.
Regardless of whether the North is designated an enterprise zone or not, the business community will hope tomorrow’s budget will mean the end of some of the red tape which has cost it an estimated £2.4 billion in the past 12 years.
Whatever happens, it is unlikely the budget will have many in the North reaching for a drink to toast Osborne’s success. As a result of an “alcohol duty escalator” established in the UK budget rules, wine could go up by 13 pence a bottle, spirits by 51 pence and a pint of strong beer by 3 pence. Hardly a case of cheers, chancellor.
