Stormont should be given some powers over setting income tax rate – report

By Jonathan McCambridge, PA

Stormont should be given partial control over setting the rates and bands of income tax in Northern Ireland, a commission has recommended.

In its final report, the Independent Fiscal Commission for Northern Ireland has also stated that there should be devolution of stamp duty land tax, landfill tax and air passenger duty to the devolved legislature.

The only revenue-raising power which has been previously used by the Executive is regional rates bills for householders and businesses.

While the administration secured the ability to set its own corporation tax rate in 2015, it has never used it to deviate from the UK-wide levy on business profits.

In its report, the commission has set out 23 recommendations which provide a framework for implementing enhanced fiscal devolution for Northern Ireland.

Chair Paul Johnson said: “As a commission, we have established that there is a strong case for devolving certain tax powers to Northern Ireland to go alongside the extensive powers the Executive currently has over public spending.

“Devolving additional powers would increase the accountability of the Executive to the people of Northern Ireland and provide additional tools to boost the economy, raise or reduce the taxes of local people and change behaviours.”

Mr Johnson acknowledged that the report was being launched at a time when Northern Ireland has no Executive in place, but said the recommendations would take time to consider and build consensus.

He added: “It is our hope that all the parties will take the opportunity to consider our report as they prepare for the resumption of devolved government.”

Mr Johnson said: “We recommend partial devolution of income tax under which the NI Assembly would have a degree of control over the rates, and potentially bands of income tax, but where administration would continue to be carried out by HMRC.

“Importantly, this would grant the NI Assembly the ability to raise revenues, reduce taxes or vary the progressivity of its tax system, without taking on the added complexity and the significant administrative and compliance burden that full devolution of the tax would bring.”

He added: “We also recommend the full devolution of stamp duty land tax, landfill tax and air passenger duty.

“We recommend that if these taxes are devolved, the Executive should establish a local revenue authority to administer them.

“This will increase the accountability of local politicians in respect of these taxes and provide for greater policy flexibility and innovation, while also building institutional capacity in Northern Ireland.”

The report also stated that there is value in the Executive completing the devolution of corporation tax.

Mr Johnson said: “This would need to be done in close cooperation with the UK Government, with an understanding over how additional powers would be used and an agreement over how any cut to the main rate of corporation tax would be paid for.”

The commission also considered the potential for the Executive to seek the devolution of excise duties.

Mr Johnson said: “Given the existence of the land border with the Republic, and their relevance to devolved health and transport policies, we consider that there would be value in the NI Executive seeking devolution of excise duties for fuel, alcohol and tobacco, but over the longer term.

“We identified complex administration and compliance issues and further detailed work is required to determine exactly how devolution of such duties could be operationalised and the relevant costs involved.”

He concluded: “There is no technical barrier to devolution of a number of other taxes over the longer term, but if Northern Ireland is to move towards more tax devolution it is our view that it should start with no more than one major tax, income tax, and some smaller taxes, and progress from there.

“While there are benefits to be had from fiscal devolution in terms of political accountability and tailoring local policies for local needs, increased fiscal devolution comes with risks.

“If revenues were to grow more slowly than in the rest of the UK then Northern Ireland could lose out. And it is possible to make policy mistakes.

“Ultimately, whether devolution happens or not remains a choice for politicians both in Northern Ireland and the UK, but it is our view that some tax devolution could be an important step towards a more accountable devolved government for the people of Northern Ireland.”

The commission was one of two fiscal bodies set up by Finance Minister Conor Murphy under the terms of the New Decade, New Approach agreement that restored powersharing at Stormont.

The other is the NI Fiscal Council, which will provide ongoing independent oversight of Stormont’s budgetary process.

(Finance Minister Conor Murphy)