Tax Error has cost region millions
Copyright 2000 Newcastle Chronicle & Journal Ltd
THE JOURNAL (Newcastle, UK)
June 27, 2000, Tuesday
Chris Jennings
TWO leading academics today claim the North-East could have missed out on hundreds of millions of pounds of EU aid because of a huge blunder by the Inland Revenue.
Economists Gavin Cameron and John Muellbauer say the Revenue seriously miscalculated the wealth of the United Kingdom's regions in the 1970s. Even though the problems have now been solved it is feared they have had an enormous knock-on effect.
Last night, the Inland Revenue admitted the findings were "a serious matter".
In a report to be issued today, the academics,fellows at Nuffield College, Oxford, claim figures on wages in the North-East were over-estimated by about 5pc for 11 years from 1979-90. Wages in more prosperous areas like the South-East were under-estimated.
Because allocation of hundreds of millions of pounds-worth of EU funds was partly based on the figures, Cameron and Muellbauer believe the poorer parts of the country that should have got the money missed out. This affected the funds allocation of 1989 and, to a lesser extent, 1994.
The loophole closed as Inland Revenue experts tightened their data collection methods after 1990 and this year's allocation was far fairer.
The report, published today in the Journal of the Royal Economic Society, is expected to spark calls in Parliament for an overhaul of regional economic data and to fuel the controversy over the North-South divide.
The Government is already under fire for not doing enough to combat the growing inequalities of income and wealth between the regions.
The inaccurate data, according to the report's authors, "will have misinformed public debate and public policy towards the English regions, Wales, Scotland and Northern Ireland. This should be of serious concern in a democracy".
Mr Cameron said last night: "With the current emphasis on the regions it's obviously very worrying that the historical record is wrong.
"The funding rounds it would have affected are 1989 to 1993 and 1994 to 1999 for EU Objective One status. It's quite possible that the North-East would have qualified as a whole. We are talking hundreds of millions of pounds. The North-East has the lowest income per worker in the country."
The report picks as an example the struggling West Wales and the Valleys area, which it says lost around £130m a year as a result of missing out on the most generous EU funding - so-called Objective One status - in 1994.
Last October Trade Secretary Stephen Byers announced a £460m European aid package under the 2000-2006 Objective Two initiative, which awards grants up to half the cost of projects ranging from new business parks to new roads. The announcement was then hailed as being generous to the North-East.
But there was anger poor communities in Castle Morpeth and Consett were not included in the map of areas eligible for funding.
A spokesman for the Inland Revenue last night said of the allegations: "It's obviously a serious matter. We'll obviously have to look at the report and give it serious consideration before making a comment."
Bill Midgley, president of the North-East Chamber of Commerce, called the news "quite amazing".
"Somehow the civil servants that came up with this have to be held accountable. At the end of the day this is the North-East economy we are talking about, and that's jobs and ultimately people's quality of life."
What went wrong?
The alleged inaccuracies were caused by the Inland Revenue being unable to locate the region of residence for about 12pc of a sample of tax records used to compile national estimates of income from employment and salaries. Instead, a national average figure was allocated to the missing 12pc.
This would have artificially raised wage figures in poorer areas like the North-East, while depressing those in the South-East.
Efforts by the Inland Revenue led to the percentage of unallocated sample cases reducing to just 1pc by 1995/96.
You can email me at Gavin.Cameron@economics.ox.ac.uk
Last updated: 9 November 2003.
