The British government will pass Westminster legislation to give Northern Ireland powers over corporation tax before next May, but only if political parties in Belfast are able to agree nearly £2 billion worth of major spending cuts.
Speaking in the House of Commons, Chancellor of the Exchequer, George Osborne directly linked devolution of powers over business taxes to Stormont to a deal in the current round of inter-party talks underway there.
Under European Union rules, Northern Ireland will have to absorb any losses in corporation tax revenues itself if it gets powers over rates and then cuts them to match, or go near the 12.5 per cent rate in force in the Republic – a bill costed by some as running up to £400 million annually.
The change can be implemented “provided the Northern Ireland Executive can show that it is able to manage the financial implications”, Osborne told the commons, to the evident approval of Democratic Unionist MPs.
Rather than set a date for devolving powers, Osborne has essentially devolved the responsibility to Stormont for deciding whether the change can be made - even though his speech reflected the distance the treasury has travelled over the last six years.
A treasury paper published after Osborne's speech pointed out that prime minister David Cameron has made it clear that the British government is "well-disposed to this change, if the right conditions are met, in view of the cross-party support" that exists.
However, the paper pointedly went on to link corporation tax devolution not just to a Stormont agreement on funding it, but also to the need for NI parties to reach agreement on £1.5 billion worth of wider spending cuts between now and 2019.
Earlier this month, NI's Finance Minister, Simon Hamilton said £200 million will be cut from the North's block grant from the British treasury next year, but it will have fallen by £1.3 billion by 2019 – even without change in corporation tax rules.
So far, the NI Executive has faced minor penalties for not imposing Westminster-demanded welfare cuts, but that bill rises to £87 million this year and £114 million for 2015/16 and considerably more subsequently.
Responding, Chartered Accountants Ireland said devolution could offer “a real boost” to NI’s economy: “It was always the case that this move could not happen without political will. Now that a timetable has been set, we can all work to deliver the benefits.”
The proposal was once "vehemently opposed", said the CAI's Brian Keegan: "Now it is UK Government policy, even if subject to important caveats. Meeting those caveats is largely within the control of the Northern Ireland Executive. This constitutes enormous progress."
Welfare reforms
Saying that the Democratic Unionist Party has "no fear" of being financially responsible, DUP MP, Sammy Wilson sought confirmation from Mr Osborne that devolution of corporation requires a deal on welfare cuts.
Replying, the chancellor said he did “not want to go into too much of the detail”, adding: “Clearly one challenge that the NI Executive face is that they have not implemented some of the welfare reforms, which has led to a hole in their budget.
“There are not currently credible proposals on the table from all the parties--I use the term “all” in the collective sense. There is not yet collective agreement on how to address the challenges that the lack of welfare reform has created,” he declared.
Saying that NI has "an important couple of weeks ahead", Mr Osborne told SDLP MP, Margaret Ritchie that he hoped for "real progress" in the talks, which are expected to be joined by the prime minister and Taoiseach Enda Kenny late next week, if necessary.
