I will probably differ in some emphasis and some recollection from the hon. Member for North Antrim (Ian Paisley), but I wish to begin on a point of absolute harmony, in offering thanks to the hon. Member for Tewkesbury (Mr Robertson) and all the members of the Northern Ireland Affairs Committee, who tilled this hard ground over quite some time, some years ago. The hon. Member for Tewkesbury has rightly been generous in acknowledging the role played by his colleague, the right hon. Member for North Shropshire (Mr Paterson), and I will do so, too.
The devolving of corporation tax to Northern Ireland has not always been the point of constant unanimity that it appears to be today. People did have different approaches and different concerns about it; back when we were negotiating the Belfast agreement or Good Friday agreement some of us wanted fiscal discretion as part of the devolved package, whereas most parties did not. My party was in the very small minority of those that did, and we were particularly clear about the corporation tax side of things. When we did get our institutions up and running, some of us argued the need for devolving corporation tax so that we could do more to maximise the north-south potential for inward investment on the island of Ireland, but many people resisted that idea of working with the south on inward investment. For that same reason, those people were very iffy about the idea of devolving corporation tax, as they felt that somehow it was going to separate Northern Ireland from the Union and be a chink in Unionism. I am very glad that, because of a variety of different experiences, positions have adjusted and moved on in that regard.
Reference has been made to the Varney review. When Sir David Varney was conducting the review of corporation tax issues under the previous Government, he made it clear that he was hearing different views from different parties in Northern Ireland and, in particular, from different Departments and from different Ministers. In fairness to the hon. Member for East Antrim (Sammy Wilson), he acknowledged that at times he had different views and different emphases on this issue, as it is understandable that a Minister of Finance and Personnel would have. I served in that office—I see that the right
hon. Member for Belfast North (Mr Dodds) is in his place, too—so I am conscious of the fact that cautionary pieces of advice need to come from that office about what some of the consequences might be. When I was in that post, I used to tell people that as the Minister of Finance and Personnel I did not suffer from depression but I was a carrier. So I can accept that Ministers of Finance and Personnel perhaps did need to sound some cautionary note, but this seemed to go beyond those Ministers; I am glad that we now have a much stronger position on the devolution of corporation tax.
We also need to be clear that the devolution of corporation tax does not put the north—does not put the Assembly—on a par with the corporation tax powers the Oireachtas has. Although it allows the Assembly to set the rates for certain qualifying businesses, it does not allow it to decide who the qualifying businesses are, and the Assembly has no control over any of the other rules that attach to that. The Oireachtas has a very different arrangement. Even when moves are made in the Oireachtas on the “double Irish” situation, which are long overdue and right, we also see a targeted use of things. A bit like this Government’s use of the patent box, the Irish Government have introduced the knowledge box. So there are other ways in which they are going to target competitiveness, and incentivise particular industries and sectors.
That is one issue I wish to address at this point in examining the overall impact of the Bill, because too often the focus in Northern Ireland has been that devolving corporation tax would allow us better to compete with the south. We need to recognise that the competition landscape within these islands has changed. I acknowledge that a regional economic dynamic has been provided under this Government, through initiatives such as enterprise zones, city deals and growth deals, which are creating some drive, regional economic traction and city economic traction. If Northern Ireland relies just on corporation tax and does not look to some of those other tools that are helping to drive regional and local economic growth, we will lose out.
I represent a city where many people go to work across the border for companies that are benefiting from the 12.5% corporation tax rate. That proximity—this is in our travel-to-work area—does not mitigate the fact that my constituency has the highest registered unemployment of all the 650 constituencies represented in this House, which shows that a reduced corporation tax rate alone is not a magic bullet and does not solve everything. As has been said, including by the hon. Member for North Antrim, the south of Ireland’s approach is not just about corporation tax alone; it is about investment in infrastructure and in education, not least in third-level education. Even this week, as we see that the Irish Government’s revenues are up and things are shifting there, and they are looking at and talking about possibly adjusting the spending and tax profile, the Tanaiste, Joan Burton, is emphasising that if money can now be spent, it has to be focused on infrastructure and on education, particularly at the third level.
We see that emphasis in the south, but not in the north. We need to recognise that, with regard to the Stormont House agreement and the wider landscape, all that glisters is not gold. The fact is that the Assembly and the Executive will have a difficult Budget landscape over a number of years and there will be a price on the
block grant. That was touched on by the hon. Member for Birmingham, Ladywood (Shabana Mahmood) when she referred to the letter from the Treasury to the Bill Committee—unfortunately, it arrived after the Bill Committee had completed its considerations. The letter, while reflecting the fact that negotiations with the Executive are ongoing, sets out a number of changes that will need to be made to the funding arrangements of Northern Ireland. I am talking about how the block grant will be set and how the Barnett formula will operate. More time needs to be taken to consider those wider consequentials and the implications for the devolved Budget.
In the Stormont House negotiations, I did question why we were not discussing the implications of a corporation tax rate cut or what the implications would be for the block grant. I was told by the First Minister that the rate cut was not an issue, that it would be modest and graduated and that it did not really need to come into our wider discussions about the strong budgetary pressures we were under. But that does not seem to be the case. His understanding and his reassurances were not reflected in the terms outlined by the Treasury Minister in the Bill Committee or in this letter and its attachments. There was an assumption that there would be a gradual working adjustment. In other words, there would not be a full hit in relation to the devolved envelope. But the Minister both in Committee and in the letter, made it clear that the hit would be up front.
I joined the hon. Member for East Antrim—I understand that his absence is to do with the unfortunate bereavement experienced by the hon. Member for Strangford (Jim Shannon)—in questioning the arrangements. We asked about the working implications of the Executive’s Budget year on year and of the setting of the block grant. We wanted to know whether adjustments would have to be made to reflect higher or lower tax takes. In the letter from the Minister, which was sent on 16 February, we see that those adjustments may be made two or three years later, whenever the full tax yield is made. That creates uncertainty. Given that corporation tax is, as the Institute for Fiscal Studies has pointed out, sometimes volatile, there could be further implications that we should acknowledge. We should not say that we do not understand them or that they were someone else’s fault. We need to go into these things with our eyes open.
Let me turn now to the wider position of the Executive in relation to the operation of corporation tax. Under the Bill, the Treasury retains not just ownership of all the rule-making and interpretive powers, but the commencement power in relation to corporation tax. We know that the timetable is 2017, but, as we heard from the Minister in Committee, the Government will exercise that commencement power when they are satisfied that the Executive has a sustainable Budget.
Over the past couple of years, the Treasury has made it very clear that it judged the sustainability of the Executive’s Budget on whether the Assembly would pass welfare reform legislation. That legislation may not have been to the Assembly’s taste or of a devolved design, but they would have to pass it as a way of proving that they had a sustainable Budget. In 2017, the issue will be whether the Treasury will use that same power to impose policy choices on the Executive. In the
Bill Committee, I specifically asked the Minister that question. Let us take the example of water charges. We know that the Executive have consistently tried to prevail on the Administration in Northern Ireland to move to direct water charges in one form or another. When I was a Minister, the then Chief Secretary to the Treasury, Paul Boateng, wrote to us at the Executive twice, asking that we make that commitment. The Executive, on my proposal, refused to do that. Various other ruses have been attempted. During the period of direct rule, Northern Ireland Water was essentially set up on a conveyor belt to privatisation. The question is whether the Treasury would abuse that power and say, “Just like we used to say that you had a sustainable Budget only when you had absorbed what we wanted you to do on welfare reform, we are saying now that you only have a sustainable Budget when we see you levying water charges, raising revenue in other areas or changing your policy in relation to student finances.” It could be linked again to welfare reform. After all, we are now locked into a welfare cap. Luckily, we are being given a lot of leeway in how the welfare cap operates at the minute. If the truth be told, the deal that was reached on welfare reform as part of the Stormont House agreement—