NI warns Scotland on corporation tax

1 Jun 11
Northern Ireland First Minister Peter Robinson has warned his Scottish counterpart that Scotland could lose Westminster block grant if it follows Belfast’s bid to set its own corporation tax.

By Keith Aitken in Edinburgh | 2 June 2011

Northern Ireland First Minister Peter Robinson has warned his Scottish counterpart that Scotland could lose Westminster block grant if it follows Belfast’s bid to set its own corporation tax.

Tensions over corporation tax surfaced at a meeting in Edinburgh this week between the heads of the three devolved governments. 

Belfast has lobbied hard for devolved control of corporation tax, arguing that it needs to be able to compete effectively for international investment with the neighbouring Irish Republic, which has pegged the tax at 12.5%, less than half the UK rate.

Alex Salmond’s Scottish National Party government in Edinburgh is also seeking the power. The UK government has signalled its sympathy for Northern Ireland’s case, but senior figures in the Belfast administration fear the Treasury could be ‘spooked’ by the Scots demanding similar treatment.

Speaking after the meeting at Salmond’s Bute House residence, Northern Ireland’s Robinson pointedly described Belfast’s campaign for devolved control of the tax as ‘a special case’ because of the rate levied by the Republic of Ireland.

‘There is overwhelming support in Northern Ireland for this, even though we know we have to deal with a potential reduction in our block grant in consequence,’ he said.

For Scotland, he added, official estimates suggested that the block grant reduction could be as high as £1.5bn. ‘Every part of the UK would have to decide if that’s something they would want to be pushing for,’ Robinson said.

His warning was reinforced by the Welsh First Minister, Carwyn Jones, who said that the three countries could find themselves in ‘a spiral down to the bottom’ if they forfeited block grant for corporation tax that they then competitively cut.

The SNP has long sought Scottish control of fiscal policy, and a demand for devolved authority over corporation tax was a manifesto commitment. Scottish ministers also fear that Scotland would lose out to its Northern Irish neighbour, much as the province has to the republic, were Belfast able to offer investors lower tax rates.

Salmond acknowledged that Robinson’s administration was ‘in the lead’ on the corporation tax issue. But he also upheld the right of each administration to push its own priorities, adding: ‘I think the success, and I hope it will be success, of Northern Ireland in pushing for its claim on corporation tax will open up a very progressive agenda which will have implications elsewhere.’

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