The Northern Ireland Executive will be unable to reduce corporation taxes unless it agrees cuts to the welfare budget, NI Secretary of State Theresa Villiers has warned.
In the latest of a series of increasingly blunt warnings to Stormont, Ms Villiers said Northern Ireland had faced a fraction of the public spending cuts felt elsewhere in the UK.
The North faces cuts of £1 billion from its treasury block grant, NI First Minister Peter Robinson has warned because Sinn Féin and the SDLP refuse to accept welfare cuts sought by Westminster.
Negotiations to give Stormont power to cut corporation tax down or near to the Republic’s 12.5 per cent are scheduled to end with a favourable announcement in December, according to Ms Villiers.
Speaking at the Conservative Party Conference in Birmingham, she said significant progress had been made. However, she warned “the more generous the regime is for business, the more expensive it is to implement a tax cut”.
Under European Union law, Northern Ireland's block grant from the treasury will be cut by a sum equal to the reduction in corporation tax revenue. Sinn Féin and the SDLP reject the February 2013 benefit caps, housing benefit cuts, etc, arguing that would cut £750 million from the country's economy.
The treasury has already started to impose penalties.
In a speech to the Champ peace and reconciliation group on the margins of the Conservatives’ conference, Ms Villiers denied welfare reform was now a precondition for corporation tax cuts.
She said: “In practical terms, I don’t see how it would be feasible for the NI Executive to implement corporation tax cuts and fund it if it is still in dispute about its budget.”
Higher welfare bills already impose “significant” pressure on the NI Executive, but this will increase sharply once Northern Ireland needs its own IT system to handle payments from 2016, she said.
London support
The North, Ms Villiers said, continues “to be generously supported” by London. Its treasury funding is the highest per head in the UK and it is a quarter larger per head than that given to England.
Because of quirks in treasury funding rules, Northern Ireland is now getting a larger block grant than had been predicted and has had to face a cut that “has only been around 1 per cent a year”, she said.
The NI Executive “has not faced the same squeeze that many other parts of government have had to contend with”, Ms Villiers said, arguing that this means it must now to act to cut public spending.
However, Sinn Féin Newry and Armagh MP Conor Murphy claimed "the lurching to the right" in the DUP had "made it difficult to get any decisions made". The breakdown of relations has made "even decisions on mundane issues" impossible, he said.
Pressed to say if Sinn Féin would accept some welfare cuts for progress on other issues, Mr Murphy said all the North’s parties had once been united in their opposition to the cuts.
“If there is negotiation, welfare cuts are on the table. Then there is an opportunity for parties to reunite on the issue and find a way to offset the worst impact of the cuts.”
