Northern Ireland to set the UK corporation tax race to the bottom on its way

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The Northern Ireland peace process and the Stormont power sharing government were saved by talks ending in agreement last night.

That's the good news.

Now for the band news.

The UK government has agreed to devolve corporation tax powers to Stormont from April 2017.

I've said it before, many times, and in many places that this will be a disaster for Northern Ireland because of the way EU law will apply to any cut in the tax rate, which means the UK block grant to Northern Ireland has to be cut by the amount that the tax cut will cost from the moment it is introduced with absolutely no guarantee at all that it will bring in a penny of additional revenue to make good the loss. That means the case for this cut is based on dogma, foolhardy belief and the spin put out by KPMG Belfast rather than any economic case. That means this will be a disaster for the people of Northern Ireland.

But it will be a disaster for all the rest of us in the UK too. Scotland was deliberately not given devolved corporation tax powers by the Smith Commission to prevent a race to the bottom on this tax where regions of the UK compete to reduce their corporation tax rate to attract jobs at an overall cost far in excess of any net benefit to the country as a whole, and with a resulting shift in the tax burden to ordinary people that can only massively increase inequality to add to the problems we face as a consequence.

Scotland is now bound to demand corporation tax powers.

And then Wales.

And then the 'Northern Powerhouse'.

And before long the Isle of Wight will want to be an offshore finance centre (don't mock: its bigger than most of them).

This is the path to the breakdown of integrated tax, failed macroeconomic policy, fractured industrial strategies, ineffective fiscal policy and regional and national inequalities that will increase social tensions as well as undermine the national economy.

I will continue to argue against this madness and will hope that a new government will overturn this madness, but with a hung parliament that would be unlikely. This was not a Christmas present I wanted, and it is one the country will live to regret.

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