Category Archives: Economy

Case to European Movement UK

I thought it worth sharing, exceptionally, the case I took to the UK Council of the European Movement earlier this month (a distinct version of this piece may appear elsewhere this week). It is predicated on two things – the constitutional and practical implications of the referendum result.

Constitutionally, it is important to reflect that the UK (incorporating in effect, for this purpose only, Gibraltar) is the member state of the European Union and that it voted by majority to leave the European Union. That is the preference (I am going to return to that word) of the people of the United Kingdom taken collectively and no one should attempt to ignore that fact. Nevertheless, it runs up against the constitutional reality that the vote was in four separate legal jurisdictions. Only one of them, England & Wales, voted to leave the European Union. The remaining three – Scotland, Northern Ireland and Gibraltar – have each clearly and freely expressed their preference both for remaining within the European Union by a greater margin that England & Wales voted to leave it; and for remaining within (or associated with) the United Kingdom at recent referendums in which both the turnout (at over 80%) and the margin of victory (at over 11 points) was greater than the Leave vote in England & Wales in each case. Thus, although no one should doubt the validity of the overall result, there is a constitutional reality that three out of four jurisdictions voted Remain to a greater degree than one voted Leave; in any true federation, this would be a problem (for example, Australia requires not just a majority of votes but also a majority of votes in a majority of states for a referendum to pass).

I have already recommended a solution to this – the Convention could be by random appointment, or a Royal Commission, or indeed even a Lords Committee.

Practically, there is another obvious problem. Again, the validity of the vote should not be denied – the motion “the United Kingdom should leave the European Union” was passed by majority of those voting, and the United Kingdom is the member state. The UK Government should re-negotiate its relationship with the other European Union member states (“EU27”) with regard to the preference expressed that it should leave the European Union. However, it is not only the constitutional implications of this (the defiance of the clearly and democratically expressed will of the people of Scotland, Northern Ireland and Gibraltar) which should be considered. There is also the straightforward practical implication that if the UK Government takes the referendum result as an absolute rather than as a preference, it will be entering into negotiations with one hand behind its back and will thus find it impossible to negotiate the best deal for the people of the United Kingdom in line with the views they expressed. Put simply, “invoking Article 50” invites the EU27 to sit on their hands for two years and wait for the UK to exit the EU with its economy in recession and without a single trade deal in operation to help it back on its feet – a route which would potentially appeal to the EU27 to warn others against taking the same course. It is thus simply impractical for the UK Government to invoke Article 50.

The solution here is to be frank about the context in which the referendum took place. Positions were adopted by leading campaigners on each side after the renegotiation of the UK’s membership, which concluded in March. That some Leave campaigners only opted for that side of the debate after the renegotiation is a clear indication that a different outcome may have resulted in them adopting a different position. Put another way, at least some of those campaigning for and voting Leave were doing so specifically to express opposition to the outcome of the renegotiation; had the outcome been different, they would have considered voting Remain. Their opposition to EU membership is thus not absolute; it is opposition to membership under the current conditions (i.e. those negotiated between December and February).

That leaves at least open the possibility that in negotiations with the EU27, the UK could achieve an outcome which is acceptable to enough Leave campaigners (in addition to the Remain side), but which maintains (or is even in return for) the UK’s “special” membership of the European Union. Simply by way of example, the new UK Prime Minister may wish to negotiate an arrangement, suggested by many Leave campaigners, that the UK maintains access to the Single Market but restricts free movement of labour so that EU nationals are only be allowed to come to the UK to visit for a limited period or to take up a pre-existing offer of work (or in certain other circumstances determined by Parliament). There is simply no chance of the EU27 allowing that in return for absolute Single Market access (EEA membership). However, presented with that choice alongside the option of keeping the UK within the European Union (thus reducing the prospect of other member states opting to leave), perhaps thus clarifying that absolute free movement of labour would apply only to the Schengen Zone (of which the UK has never been a member), it may at least offer the basis for negotiation. Why should the Prime Minister be denied all the cards available to negotiate an outcome which would be acceptable to many, quite possibly even a majority, of Leave voters?

In conclusion, I return therefore to the word preference. The preferences of the population – for maintenance of the constitutional integrity of the UK (and Gibraltar’s association with it), for membership of the EU, for membership of the Single Market, for greater control of the UK’s borders – all have to be balanced. It is important to reflect and record all preferences fairly and to attempt to implement them all to the greatest possible degree. However, it is ludicrous, both constitutionally and practically, to place one preference above all others simply because it is the one most recently expressed, particularly when it was expressed by the tightest margin.

How NI might make most of #Brexit

For all my desire to keep the UK in the EU, it is at best a long shot and the relationship will never again from my point of view be ideal.

So, if it comes to it, what should the NI Executive be looking for out of “Brexit”? Just a thought on how what I have termed a “Special Access Agreement” for Northern Ireland with the EU may yet be played to our advantage.

What might such an Agreement entail?

  1. Maintenance in Northern Ireland for devolved issues of the European Communities Act, maintaining EU law in Northern Ireland so that investors know that trading standards, employee rights and environmental regulations are the same here as they are in the EU;
  2. Negotiation with EU of a Special Customs Arrangement, meaning that goods and services travelling between Northern Ireland and the Republic of Ireland are not subject to customs – customs posts would be at the ports and would apply only to goods travelling between Great Britain (or perhaps England/Wales if Scotland wished to try to negotiate the same) and the Republic of Ireland;
  3. Negotiation with the UK of maintenance of separate vehicle registration – vehicles registered in Northern Ireland would have to carry Northern Ireland plates regardless of original registration, and likewise in Great Britain, enabling recognition of Northern Ireland vehicles within the Special Customs Area (for example, they would be treated as EU vehicles at ports travelling between France and Ireland);
  4. Negotiation with EU to maintain all reciprocal Health Agreements – EU citizens would be entitled to Health Care in Northern Ireland, and residents of Northern Ireland registered with a GP in Northern Ireland would be entitled to the reciprocal arrangement (with the added confidence given by maintenance of EU Law);
  5. Negotiation with Ireland that all “people of Northern Ireland” are entitled to Irish citizenship (and passport) and that this specifically includes qualification not just by birth but also by residence (of reasonable length) in Northern Ireland;
  6. Negotiation with the UK that all VAT raised additionally in Northern Ireland be kept in Northern Ireland (this is similar to arrangements which exist in Germany), designed to encourage Northern Ireland’s Executive to encourage business because it will be in its interest to do so;
  7. Negotiation with the UK that corporation tax and all taxes devolved to Scotland also be devolved to Northern Ireland enabling corporation tax potentially to be set at zero (noting that, if the UK rate is 15%, the cost of doing this will be lower than the cost of setting it at 12.5% when this was originally proposed in 2010);
  8. Negotiation with the UK that any leftover funds not spent by NI departments should remain available for spending in NI the following year, giving an additional lever to save funds to enable reduction of taxes to increase attractiveness to investors and maximise the new arrangements; and
  9. Negotiation with the EU that Northern Ireland universities and colleges be considered to all intents and purposes EU institutions (including for funding and student exchange).

Of course, this is quite a wish list and it may be that the NI Executive would have to agree to contribute a sum to structural funds in order to achieve it (as well as paying for any gap in corporation tax as per existing agreements; these in fact had more to do with existing UK convention than EU law). However, by agreeing to maintain EU law as far as it can, noting that its citizens are entitled to EU citizenship, and noting that the people of Northern Ireland voted to remain in the EU, there is a strong case to be made (with little disadvantage to the EU in showing good will and going along with it).

The essential point here is that Northern Ireland already is a special case by virtue of its people’s joint citizenship (as per the 1998 Agreement), the requirement to maintain certain laws by international treaty (such as the ECHR), and its geographical location with a land frontier to the Eurozone/EU. Such a “Special Access Agreement” would maintain the key advantages of EU membership, while also enabling the use of some fiscal tools which are not currently realistically available.

If it comes to it, let’s go for it!

EU funding advice in Northern Ireland

I was on BBC Good Morning Ulster on Wednesday to try, against all the odds, to explain what will now happen to EU funding in Northern Ireland. Fundamentally, this is a matter of risk analysis.

To explain, before moving on to funding, there are fundamentally two ways the UK could commence the process of leaving the EU; first, it could “invoke Article 50” giving itself two years to negotiate exit terms; second, it could withdraw by extracting itself from all EU treaties. The first is much simpler, but arguably puts the UK in an extraordinarily weak negotiating position, so it is unclear which (if ultimately either) will be attempted.

Firstly, whatever agency or department or organisation or group or business you are working with, you need to check what funding you receive from the EU. This seems obvious, but it may not be. For example, if you are receiving project funding from your local Council, you may perceive this to be “Council funding”, but in fact it may come via the Special EU Programmes Body (which you may regard as “cross-border funding”) which itself comes from the EU (and is thus actually what is commonly referred to as “European funding”).

Secondly, once you have established what is “European funding” and what is not, you need to carry out a risk analysis. The likeliest scenario is that the United Kingdom will leave the European Union but remain within the European Economic Area (EEA; often referred to as the “Norway Model”) in early 2019. But there is a wide range of scenarios to place on that risk assessment: three key ones would be a quick exit from the EU (possibly switching, at least in effect, to the EEA from the end of this year); a slow exit from both the EU and EEA; and no exit from the EU at all. All of those, even the last, may have an impact on the EU’s potential to fund projects within the UK.

Thirdly, if we take the likeliest scenario, any programme funding already agreed (even if it is not already drawn down) should generally be safe until the end of 2018; most programme funding runs to 2020, and it is probable but not certain that will be honoured. Membership of the EEA would mean the UK continues to contribute to EU funds but also has access to some of the programme funding, such as for business R&D or academic research. Capital investment from the European Investment Bank (EIB) is also possible in the EEA, but becomes more difficult; existing agreements (such as the underwriting of Ulster University’s move from Jordanstown to Cathedral Quarter) should be honoured, though again it is not certain. There remains a significant risk around any future applications for EU funding for projects, programmes or businesses in a member state which is negotiating withdrawal from the EU; certainly it should be assumed any of these will be unsuccessful once Article 50 is invoked or the UK starts extracting itself from EU treaties.

A very significant issue with membership of the EEA outside the EU is that the UK then falls outside EU Law for agriculture and farming, rendering maintenance of rural development programmes highly unlikely. Most relevantly, this would mean the UK falls outside the Common Agricultural Policy, with (in Northern Ireland) responsibility for agricultural subsidies passing to the Northern Ireland Executive. The vagaries of the Barnett Formula (assuming it remains in place) mean there would be a shortfall, so that maintenance of funding at current levels would mean taking tens of millions from other departments such as Health and Education.

Fourthly, there is a significant issue if the UK also leaves the EEA, which is no doubt the position UKIP will come to adopt (with the risk that this will force other parties to move in its direction). A clean “out is out” would mean all EU funding were lost, almost certainly immediately at the moment of exit (two years from invocation of Article 50, or whenever the UK extracts itself from all EU treaties, whichever is first).

The whole issue will require careful monitoring. While the betting is currently on an EEA deal, UKIP pressure may force the UK Government towards a more “out is out” position, although in that case it is possible that would result in electoral defeat by a pro-EU coalition. For now, the key is to ensure what is EU funding and what is not; and to assume funding is safe to 2018-20 but that any new attempts carry high risk. Farmers in particular must prepare for withdrawal of CAP money, with the potential for it to be replaced by a much less favourable Northern Ireland-specific system.

All of this does mean the third sector will have to move towards greater collaboration, and farmers will have to diversify. This is not necessarily bad news in the medium to long term – in every risk there is opportunity!

Should we dare to imagine another Europe?

The constitutional and economic sabotage the British people have brought upon themselves through last week’s referendum shows no real sign of abating. Rarely has a population inflicted upon itself such immediate suffering.

Nevertheless, we are where we are and it may do no harm to use our imagination now.

One of my frustrations about referendums is they offer a binary choice on issues which, very often, are more complex.


As we can see above, Europe is vastly more complex than just EU and non-EU!

It has always struck me that Europe is split more sensibly into groups, based on geographical and linguistic/cultural proximity. As can be seen above, many of these already exist – the Nordic Council, the Common Travel Area, the Baltic Assembly, Benelux, the Visegrád Group, Central Europe (CEFTA; the former Yugoslavia outside the EU plus Albania) and the Black Sea (BSEC above). There are even natural groupings among the remainder – German-speaking Europe, for example.

If we were to put all those together from scratch, would we be trying to group almost all of them into a single Union with its own parliament, bank and currency? I suspect not. Already Switzerland is in a markedly different position from Austria; and Norway from Denmark; despite the obvious geographical, cultural and linguistic similarities. Even within the European Union, we have Slovakia in the euro but Czech Republic not yet; Finland in the euro but Sweden probably never; Ireland in the euro but the UK formally opted out.

In fact, if we were trying to build single currencies into the equation, we would probably have single currencies for the different groups – a “Krone Zone”, a “Sterling Zone”, a “Balt zone”, a “Eurozone”, a “Zloty Zone” and so on. It is quite possible that those blocks would peg their currencies to each other and would even gradually merge; perhaps Benelux with German-speaking Europe, for example. Whether you would ever put Portugal and Latvia in the same currency is debatable, however.

We are not starting from scratch, but I do wonder if some non-euro EU member states will be tempted by the UK’s new post-EU status, which will probably (though who knows?!) be akin to Norway’s. At the same time Norway had a referendum to oppose EU membership in 1994 (coincidentally by 48:52!), Sweden passed its narrowly by the reverse margin. But would Norway’s and the UK’s (and for that matter, topically, Iceland’s) status not make more sense for Sweden, given it too has a not dissimilar intra-EU immigration profile and no intention of ever joining the euro? Then what about Poland and Hungary; might they too, as close allies of the UK in the EU, not also benefit from staying outside the euro and thus formally leaving the EU to join the new EEA satellite states? It is not crazy.

There are even states within the euro which may begin to feel they should be in another currency zone. Would Finland not be better sharing a currency with Sweden and/or other Nordics, having not had the tools to cope with the recent economic slowdown the way the rest of the Nordics did? And the oft-mentioned David McWilliams has long hinted that Ireland would be economically better off in the Sterling Zone, a view surely enhanced by the fact that instinctively economically liberal Ireland will find the EU top table colder without its British allies at it – unimaginable now but maybe not a decade or so hence. Should we then turn to whether Greece, Italy and other Southern European countries are really better off being unable to devalue their currency against Germany’s, once a core economic lever without which they have unquestionably suffered? It is at least worthy of consideration.

The question worth asking, in other words, is whether the UK’s imminent exit simply means the EU has become too large, not least because it was the UK itself which was prominent in arguing for a larger rather than a deeper Europe. There is at least an argument for the European Commission, Parliament and Central Bank to cover only the core Eurozone (in other words, the EU formally shrinks to cover only the Eurozone), with other parts of the EEA covered by the Nordic Council, the British-Irish Council, the Baltic Assembly or perhaps a Visegrád Council each with their own Commissions and Central Banks; these would then cooperate, perhaps via the European Council, to ensure the smooth and fair functioning of the European Single Market.

The crux of the issue is that the EU cannot possibly lose its second largest member and then proceed as if nothing has occurred, no matter how carelessly it happened. Clearly, there are a lot of people for whom the EU and its institutions are too distant, and it would be foolish to believe those people only live in England and Wales. Perhaps a more core Union, with other interrelated groups of countries forming a clear single market (and environmental alliance) in cooperation with it, would make for a more stable and relevant way to ensure European harmony into the 21st century?

Such things should at least now be considered, surely? And it would be wise for the UK to stay at the table while they are.

Disaster – for you and me

Oh dear. The people of the UK have just inflicted upon themselves the most astonishing act of economic and even constitutional sabotage.

Of course, it is a disaster for David Cameron, whose whole legacy will be this calamity.

It is a disaster for the pollsters, whose industry is now irreparably tarnished.

It is a disaster for the bookies, who took a pounding.

It is a disaster for the winners, who have no economic or political plan they can possibly hope to implement in practice.

But none of that really matters.

What matters is that it is a disaster for you and me (if you live in the UK or its territories). Already, your and my cost of living has soared in effect 10% – everything is suddenly 10% more expensive versus what you earn and hold in wealth; and your and my assets, if you are lucky enough to have them, have suddenly decreased in value similarly.

To be honest it doesn’t really affect me that much – I’ll have to watch what I spend on a couple of foreign trips later this year maybe, but I can probably work a little harder and make up most of any gap.

But if you are on low or fixed income, you won’t be so lucky. Suddenly everything is 10% more expensive, maybe more; and that includes the provision of public services and perhaps welfare upon which you may depend. You are, instantly, materially worse off. And yet if you are in that position, the chances are you voted for this to happen.

That is the disaster.

The UK will reach an arrangement with the EU – we can only hope that neither will be diminished too severely. The UK itself may manage to stay together, though it is hard to see how – it is clear that Scotland (and Northern Ireland to a point) voted decisively in one direction while England and Wales chose another. In the shorter term there will be a change in Prime Minister and Chancellor. But none of that really matters.

The fact that people on fixed incomes have been hoodwinked into doing something which will only make their lot worse is what really matters. Yet the reason they have done so is that they feel no one is listening – and still, no one is. Not the media. Not the new Prime Minister. Certainly not Nigel Farage.

That is the disaster.

Democracy relies on people participating and making informed choices. In this Internet age, with the raft of information available, the irony is people are no longer doing that. And, as ever, it is the worst off, on the low and fixed incomes, who will pay the price of populist rantings.

That is the disaster.

We live in interesting times. But, frankly, I’d rather not.


On Aviation, North-South may actually make sense

I mentioned last week in passing, on the subject of the importance of developing a Belfast-Dublin economic corridor tied to the rest of Europe, that collaboration rather than competition is generally the way forward, and noted airports as an example.

There is a notion, frequently implied in Northern Ireland but rather laughable in the Republic, that Belfast International Airport and Dublin Airport are somehow in competition. Viewed from a parochial point of view, there is a limited sense if you live in Belfast’s prosperous southern environs that this is so. However, in general, it is ridiculous.

Dublin Airport is now a vast, major, two-terminal intercontinental airport. In comparison, despite its recent successes around passenger numbers, Belfast International Airport is several divisions below. Dublin offers regular connections from slick new terminals to all kinds of other European hubs, as well as to many North American and even Middle Eastern destinations. Belfast International offers you a few tourist resorts. The fact is that Dublin Airport is the airport for the Dublin-Belfast corridor, located perfectly. Belfast International is a useful secondary option, primarily for quick domestic links. Belfast City, viewed from Dublin, is a glorified aerodrome.

It strikes me, thinking long term, that there are two realistic options. Either Northern Ireland can go on a quite incredibly expensive infrastructure overhaul, investing billions in its rail network (widening track at Central, turning on the entire system two hours earlier, buying new rolling stock), building a new interchange at Ballycraigy for a motorway from the M2 to the Airport and at Blaris for a motorway from the M1 to the Airport, and in effect moving the City Airport to become a second terminal at Aldergrove; or it can accept that Dublin is almost perfectly situated to be its international airport for almost all intents and purposes.

Leaving constitutional politics out of it, the latter may well be the better option. Think, then, about where that may lead.

Peculiarly, aviation is not a devolved issue, even though some aspects of Air Passenger Duty are. Meanwhile, Northern Ireland’s most important airport from an economic point of view is in a different jurisdiction anyway. How about, er, “taking back control”?

Instead of prolonging the fantasy that Belfast International Airport will ever be serious competition for Dublin, how about instead accepting the status quo may just work and going as follows:

  • bring all Airports in Northern Ireland and east coast of Ireland under a single Airports Authority;
  • establish a cross-border body (let’s call it “Aviation Ireland”) to agree aviation policy for the island of Ireland on a cross-border basis; and
  • make an arrangement, at time of transfer of aviation functions in Northern Ireland from the UK Government to Aviation Ireland, that Aviation Ireland will set Air Passenger Duty for the island of Ireland with no penalty to the Northern Ireland devolved budget.

How’s that for “North-South makes sense”? So much sense, no Minister that I am aware of has ever suggested it…

Scotland not so left-wing after all…

Last weekend saw another march in London against “austerity”.

This really is an appalling abuse of the word. Food rationing post-War was austerity. Perhaps the three-day week with limited electricity in the 1970s was austerity. An ever increasing gap between rising public spending and falling income tax at a time when public sector wage growth vastly outstrips inflation is, quite obviously, not austerity.

Facts, eh?

Marchers claimed they had public support for their cause. Yet in last year’s General Election right-of-centre parties or those in coalition with them received almost two thirds of the vote in England.

There are those facts again…

At least it was different in social democratic, left-leaning Scotland.

Or was it?

Scottish Labour recently adopted a courageous policy of adding 1p to Scottish income tax. If Scots are opposed to “Tory austerity”, they reason, they will not mind paying a small bit extra to avoid it. In any case, have Scots just not had a huge debate about taking on more powers and thus obviously, by logical extension, using them? And of course, 21p income tax with the much higher personal allowance still means less to pay than when Labour left office.

Such a courageous, honest and rational stance would no doubt see a swing towards Labour in a social democratic country keen to model itself on Scandinavia, of course.

Well, no.

All the evidence suggests that Labour’s new policy is courageous only in the “Yes, Minister” sense – unpopular, in other words.

A survey by the very man whose exit poll pointed towards the real result of last year’s UK General Election shows that the comfortable majority of Scots oppose putting taxes higher than in the rest of the UK. In line with this, the SNP (which proposes no income tax rises, although it would change the bands to see 40% payers paying slightly more) remains well out in front. In fact, far from gaining it ground, Scottish Labour’s new policy sees it in serious danger of being overtaken as the main opposition at Holyrood by the Scottish Conservatives (who oppose any income tax rises or band changes at all).

Scotland is perfectly normal in this regard. As ever, people want more money spent on the services which affect them, but are notably unwilling to put their hand up to contribute any more towards them.

“Get those tax evaders and welfare fraudsters instead!”

Funny, you never hear that line in Scandinavia. But then, whisper it quietly, Scotland isn’t like Scandinavia…

“Tax returns” and fearing for democracy

The fuss over tax returns makes me despair for democracy, and politicians publishing them is actually dangerous.

Of course, the reason politicians are often hypocritical is that so are the voters. We are hearing frankly ludicrous demands for six years’ worth of tax returns made by people who themselves would never dream of publishing theirs – indeed, often by anonymous trolls on Twitter!

The real problem with our democracy is that it is increasingly a closed shop – people get a job in a constituency office, become a Councillor, and move “up” from there. We end up with Ministers who have never run a business, never managed a charity, never worked in the public sector, never in fact had to manage a household budget on anything like the average salary.

What we need in our legislatures and governments are people who have created jobs, promoted charities, worked at the coal face, succeeded in academia, seen the public sector first hand and so on – professional people, who can provide valuable experience and knowledge to the policy-making process. Already, when seeking public office, they have to deal with risking careers, restricting family time and dealing with public ire with no guarantee of electoral success. Now, on top of that, we want them to reveal details of their private lives which none of the rest of us would even dream of revealing even to close friends and family? That is going to improve the quality of public debate, is it?

There is of course the issue here of public ignorance about taxation and public finance. Basics, like the difference between “tax avoidance” (which most of those agitating about it actually do themselves!) and “tax evasion” are missed. Moreover, the very point of an “offshore” investment is it does not appear on a UK tax return! Worse than that, however, is that a tax return actually tells us nothing about a person’s real interests. We learn nothing about what industries they may invest in, what property they may own, and even what charities they may support – all of which is potentially relevant to decision making as public office holders. That is why we have registers of interests!

Add to this the modern social media world where sanctimonious outrage is King and anyone engaging in the actual complexities of managing public finances, reforming a health system or assessing social housing stock is instantly dismissed. It is of course a lot easier and less time consuming to tweet #CameronResign to feel good about yourself, than actually to engage in the complexities of the issues and to influence real change in the public interest.

The only issue here is whether people making decisions in the public interest are being up front and honest. We can assess that on the public evidence – and not on private and irrelevant tax returns, which are already assessed by the tax authorities.

We have now spent days discussing tax returns – both a practical and political irrelevance – in a way which can only damage the chances of new blood entering the political system. Meanwhile decisions on Health, Housing and everything else that actually affects us have been made completely without scrutiny. What kind of farcical democracy are we creating for ourselves?

Steel issue shows limitations of sovereignty

The debate around the future of the UK steel industry has demonstrated just how ludicrously parochial political debate here has become. People lined up to argue over how losing hundreds of jobs in Port Talbot was the UK Government’s fault, the Welsh Government’s fault, the Remain side’s fault, the Leave side’s fault, the fault of any politician I don’t like…

It is just possible that it isn’t any politician’s fault.

The fact is, since the mid-’90s in particular, we have all literally bought into an economy based on cheap supply from the Far East.

We are not necessarily wrong. Upon retirement in 1997 my father bought an Internet-capable (US-built) PC for the modern equivalent of around £5,000. Its capabilities would be comfortably passed by a basic (Chinese-built) £100 mobile phone now.

So it goes on across a vast range of goods – phones made in China, vacuums made in Malaysia, electronics made in Indonesia, etc etc. In such countries, wages are much lower and workers’ rights much inferior (even basic welfare or pension provision is almost unknown).

But we don’t care, as long as we get the goods cheap and can spend the rest of our wages on leisure activities, fancy cars and holidays (perhaps to places like Dubai, largely built by migrant workers on pitiful salaries with no basic rights at all).

Let us be clear, any politician seeking to deny us this standard of living, even though it is in effect based on slave labour (just not our slave labour), would never attain office.

China and other countries have used this income to grow their economies and create a burgeoning middle class – which, just every few years, grows by a size equivalent to the entire population of the UK. One of the inevitable consequences was a construction boom in the Far East (most obviously in China), and then something of a bust, with a further consequence that China had an excess steel supply which it dumped cheaply on the world market.

So it is that Chinese economic decisions affected an Indian company to the extent that hundreds of jobs were put at risk in South Wales. This is globalisation, an inevitable consequence of the cheap supply economy into which we have all eagerly bought – not “politicians”, us!

Such also is the limitation, or indeed near irrelevance, of the concept of “sovereignty”. It was not a current Welsh Government or UK Cabinet Minister’s decisions which threatened the UK steel industry; it was a Chinese economic decision and an Indian company board’s reaction to it.

This is the ludicrous nonsense of “take back control”. This is a globalised world of quality European imports and cheap Far Eastern imports. We need to be part of a big team, not exposed on the sidelines.


Corporation Tax cut must make NI think again

I found last week’s UK Budget slightly scary. The speed at which the Chancellor is reducing growth forecasts, raising tax thresholds and cutting corporation tax hints more at “make it up as you go along” than “long-term economic plan”.

Much of it, quite by accident, was good news for Northern Ireland. The next Assembly gets another £220 million to spend over the term; a population which has few rich people but a lot of comfortable ones will gain from the rise in tax thresholds (a household of two senior public sector workers gains £1410); and the basic stability apparently on offer provides comfort to a region particularly hit by the Great Recession.

However, perhaps most striking from a Northern Ireland viewpoint was the Corporation Tax reduction, with the (UK Standard) rate set to reach 17% just two years after the NI Executive introduces a “Northern Ireland rate” of 12.5%.

A lot of the commentary around this issue is misleading. The application of a Northern Ireland rate is complex; specifically, it is not true to say that “corporation tax” in Northern Ireland can be reduced. Under the Act, the “Northern Ireland rate” must be applied for, and such applications may only be to “trading profits of SMEs whose costs and employee time are largely (75%) in Northern Ireland and to the profits of a large company attributable to a presence in Northern Ireland” (and limited other circumstances); and even then certain sectors are excluded. This means two important things – first, not all businesses qualify (so it is not quite fair to say that, if the “Northern Ireland rate” were set at 12.5%, its Corporation Tax regime would fully match the Republic of Ireland’s); and second, the implementation of any differential “Northern Ireland rate” would attract a significant administrative cost (regardless of how different the rate was from the UK Standard rate).

So, although the reduction from the Northern Ireland grant (i.e. from public spending here on devolved issues such as health and education) would be reduced by each percentage point that the difference between the “UK Standard rate” and the “Northern Ireland rate” were reduced, the administrative cost (which must also be borne exclusively by Northern Ireland) would remain the same.

This then brings us neatly to the point that the administrative cost and bureaucratic complexity which would be brought about by implementation of a differential “Northern Ireland rate” has to be worthwhile (and not just the reduction in public spending). Back when this was first proposed, in 2010, the headline gap would have been a full 15.5 points (the UK Standard rate was 28%). By the time anyone gets around to implementing it, in 2020, that gap will be just 4.5 points. Add to this that the current Chancellor’s speed in the direction of lower Corporation Tax is increasing (i.e. that he may well, in future budgets, announce a further reduction of 2020, quite possibly to as low as 15%), and the differential is scarcely noticeable. We may note also that the aforementioned bureaucratic complexity would not be borne solely by the administrators involved on the government side, but also by the businesses applying for (and proving their qualification for) the “Northern Ireland rate”.

The issue is simple. If they want a 12.5% rate, can Northern Ireland Ministers point with any confidence to a single company which would invest in Northern Ireland with a 12.5% profits tax (noting also the complexity in successfully applying for it) but not with 17% (or 15%)? Can they point to a company which chooses the Republic over Northern Ireland solely for tax reasons (given that employees in Northern Ireland enjoy significantly lower household taxes, more generous tax bands, and more limited VAT)? Can they point to a single company which would choose Northern Ireland over Great Britain because of four-and-a-half (or maybe even two-and-a-half) point profits tax gain? To be clear, it is possible such companies exist – but the public would need to see some evidence of them.

The other question is why, exactly, is the NI Executive so determined to set the “Northern Ireland rate” at 12.5%? Why invest so much time “matching” the Republic (in a limited way with added complexity) when it would now cost the same to beat it? If a lower rate is to be the key argument for choosing Northern Ireland over Great Britain, why not also set a lower rate to encourage choosing Northern Ireland over the Republic? Either a lower corporation (profits) tax rate is important, or it is not!

All of this ultimately suggests that a lower “Northern Ireland rate” of 12.5% will make no difference – merely matching the Republic while offering a steadily decreasing advantage over Great Britain. Northern Ireland’s problems are more fundamental – disinvestment in key skills (teachers over computer scientists), focus on the wrong areas in early education (RE over ICT), a laughably inefficient and instinctively anti-competitive planning system, an energy grid which is unfit for purpose and comparatively illiberal general attitudes (in general and towards incomers) are vastly bigger obstacles to real wealth creation than tax rates.

Not for the first time, the world is changing and Northern Ireland is still behaving as if it is as it was years ago. It is time to offload the “silver bullet” of differential corporation tax and move on to tackling the real economic problems we face – starting by tackling the vested interests which hold us all back.


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