Income tax: Call to devolve powers to Northern Ireland

Giving Stormont ministers control of income tax would be the most effective form of economic devolution, an independent commission has concluded.

The Fiscal Commission has been examining the Stormont executive's responsibility for tax and spending.

It has briefed Finance Minister Conor Murphy ahead of a final report to be published later this year.

It will be up to the next executive to decide whether to pursue further devolution.

Responding to the recommendation, Mr Murphy said increasing fiscal powers would "put more control in local hands" and allow Stormont to determine taxes "in line with the needs of society and businesses here".

Currently, the only significant revenue raising undertaken by Stormont is regional rates, a property tax paid by households and businesses.

Since 2015, Northern Ireland has had the power to cut corporation tax, albeit the treasury first needs to be satisfied the executive's finances are on a sustainable footing.

Commission chair Paul Johnson said they told the minister their final report would recommend that income tax was suitable for devolution to Northern Ireland.

Paul Johnson said safeguards and budgetary management tools would be needed if the tax was devolved

However, he added that full devolution of the tax was not required to "reap the main benefits".

Mr Johnson said that partial devolution, with powers over income tax rates and, potentially, bands would "be effective in giving the NI Assembly a major new way to raise revenues, reduce taxes for its citizens or vary the progressivity of its tax system".

"This is possible without the disproportionate complexity and the large administration and compliance burden that full devolution of such a big tax would bring," he said.

Mr Murphy said he was "glad" the commission would consider the practicalities of devolving tax powers "in more detail".

"I look forward to seeing the commission's final report which will be made available to the department and ministerial colleagues when it is published in May," the finance minister added.

"At that point the report can be comprehensively considered and taken forward."

'Risks and rewards'

Income tax has been partially devolved in Scotland since 2016 and means medium and higher earners pay more than in the rest of the UK.

However, that has not increased the Scottish government's spending power, relative to no devolution, because Scottish incomes have risen more slowly relative to the UK.

• How's Scotland's tax system doing?

Mr Johnson said while tax devolution has benefits, there were also real risks.

"Our analysis shows that, hypothetically, had Northern Ireland devolved income tax 20 years ago, for example, the NI budget would have been favourably impacted in the early years, but then significantly adversely affected, in the years following the financial crash," he said.

"That's largely because income growth has been poorer in Northern Ireland than in the rest of the UK over the latter period.

"While not a measure of what will happen in the future, this drives home the message that devolution comes with both risks and rewards.

"For this reason, our final report will also contain a detailed analysis of the various budgetary management tools and safeguards which will be critical to ensuring that the risks of fiscal devolution can be managed effectively."

The commission also concluded there was a case for the full devolution of a number of smaller taxes, including stamp duty land tax, air passenger duty and landfill tax.