Fiscal Devolution Debates and the Future of the Barnett Formula

Professor Alan Trench (Ulster): The funding of the Northern Ireland Executive (and other devolved governments) has always been central to their ability to provide the public services for which they are responsible. It affects all policy areas, as well as being important in its own right. But since 2007 there have been debates in both Scotland and Wales about financial issues, which increasingly challenge the idea of devolved governments simply relying on a block grant calculated on the basis of the Barnett formula. In Wales, there have been calls for a grant based on relative need, and for increasing reliance on devolved taxes in Scotland. With the Scotland Act 2012 partially devolving income tax and transferring land taxes to the Scottish Government, all unionist parties considering how to enhance devolved Scottish tax powers in the event of a vote against independence in the 2014 referendum, and the UK Government’s response to similar proposals for Wales by the Silk Commission due early in the autumn, there is clearly momentum behind increased fiscal devolution. Those changes are likely to have significant effects on Northern Ireland in the medium term, if not immediately. Northern Ireland’s position in these debates so far has been to seek devolution of corporation tax – always likely to be rejected by the UK Government – but otherwise to maintain the status quo. That status quo is not as benign for Northern Ireland as it may appear, however. The present system allows a great deal of discretion to the Treasury; Barnett convergence means that the formula is likely to serve Northern Ireland much less favourably in the future than it has in the past; and reliance on the block grant ties Northern Ireland to an ‘English’ model of public services that may become increasingly politically unattractive. How Northern Ireland chooses to respond to these fragmented debates is a major choice for its politicians to make; trying to engage in a different debate, as it has, is no longer an option. This seminar took place on 3rd October 2013. Download: Policy Briefing Powerpoint Presentation