John O’Farrell from the Irish Congress of Trade Unions (ICTU) writes about the need to replace the Barnett formula with a system of fiscal equalisation.
It is not on every topic that this column finds itself in agreement with Sammy Wilson MP, but it did so completely when the East Antrim MP informed the House of Commons in September 2023: “Education spending has gone up by 6 per cent in the rest of the United Kingdom, but it has fallen in Northern Ireland. The overall budget for Northern Ireland this year has fallen by 3.2 per cent in real terms, whereas the budgets for the rest of the United Kingdom went up by 1.7 per cent in real terms. That is partly a result of the fact that the formula used for the rest of the UK, which is based on need, has not been applied in Northern Ireland.”
Wilson was referring to Northern Ireland’s funding from HM Treasury being shackled to the 45-year-old Barnett formula rather than an alternative being rolled out for the devolved administration in Wales. “The Holtham formula has not been applied in Northern Ireland. Indeed, the Fiscal Council has estimated that, as a result of need not being considered, we probably have about £322 million less expenditure available than we would have had if we had been treated on the same basis as England, Scotland, and Wales.”
Introducing a needs-based system or a system of fiscal equalisation to replace the Barnett formula would ensure that spending power for public services actually is equalised on a per capita basis among the components of the UK. All successful states have a degree of fiscal equalisation, even federal states such as Germany and the US. Devolution was intended to bring government closer to the people, especially those whose economies have suffered from marginalisation, such as former mining areas of England, or the northwest of this province.
The idea that the regions and nations of the UK outside of the southeast of England are sponging off the hard work and enterprise of the Metropole-on-the-Thames is popular in HM Treasury and, sadly, its local branch office in Erskine House in central Belfast, the NIO. This geographical inequality was not caused by the weather, but the policies of successive administrations for over 40 years with the UK’s shift from making things to financialisaton as the backbone of the economy.
One result is that most graduate-level careers in the private sector are concentrated in southeast England with the regions dependent on the public sector and less-well paid jobs in the private sector. The fact that the cursed administration of Alexander Boris Johnson made a big thing about ‘levelling up’ was a grudging admission of the obvious in 2019, but very little was done until the scrapping of high-speed rail finally killed off any illusions that place was no longer a prison for the ambitious young.
Another reason for the UK’s absurd regional inequalities is that taxation is a power monopoly very much enjoyed in the Treasury and numbers 11 and 10 Downing Street. In any modern state with locally elected mayors and accountable assemblies, there is significant room for manoeuvre for various kinds of local taxes to raise or lower – income, property, carbon, consumption, tourism, etc. As the Northern Ireland Fiscal Commission found, what options there are will make very little difference.
While Chris Heaton-Harris MP wants us to focus on ‘super-parity’ measures, such as water charges; these would bring in small amounts of revenue. Northern Ireland does not receive additional monies to fund these. They are funded from within our existing funding allocation. Instead of ‘super-parity’, we have a real problem with ‘sub-parity’ issues, in particular childcare and apprenticeships.
The bigger picture is that we focus on the wrong taxes and we do not take enough of the right taxes.
Despite the whining of lobbyists and commentators in the business pages, the UK does not over-burden successful enterprises with taxation. On the contrary, we do not tax big business enough and even then we do not invest in the means of collecting what is owed to the public.
ICTU‘s 2020 No Going Back report highlighted that fact that in the UK, one of the largest gaps in tax was in social insurance contribution and in particular those levied on employers. This gap remains significant and it is estimated that if employer social insurance contributions were to rise to meet the average of our European peers, it would raise an extra £90 billion in the UK. For Northern Ireland, this would result in an extra £2.6 billion in revenue generated annually.
Bridging the gap in taxation between the UK and European peers represents the only realistic plan for well-funded and sustainable public finances and therefore public services, such as the investments of reliable infrastructure and an educated workforce, equitably distributed to areas of the UK based on need and not luck.
