Michael Kelly: Simple arithmetic tells us three into one won't go

There was something of the surreal about the meeting of the triumvirate on Tuesday as the leaders of the devolved nations sat down together in Bute House.

Not least because it consisted of four rulers, Northern Ireland having to bring two reflecting the continuing divide in the Province.

Even odder was that our First Minister sought the views of those two Ulstermen on how to tackle sectarianism - something of an obsession lately with Mr Salmond.

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A former IRA commander and a supporter of the Orange Order, the two of them certainly know enough about it both having exploited religious bigotry over decades in pursuit of their political aims, only stopping when they got what they wanted - power. We'll be contacting Belgrade next.

But supping with the devil is what foreign policy is often about and there is no doubt that the Scottish Government with its new mandate wants to be able seen to be acting as much like a sovereign state as it can. Hence the posturing over the Supreme Court and the desire to re-route appeals to remote Brussels.

The tripartite meetings will be used as part of this process of separation. This week's was designed to construct a united front on the question of additional tax powers for the regions.

The Treasury prefers to deal with each devolved administration as if it were a government department. Finding them marching through the Whitehall corridors of power together makes that much less easy.

The SNP clearly thinks that there is more that binds them together with Wales and Northern Ireland than divides them. They may be wrong. For a start, while Sinn Fein's deputy first minister Martin McGuinness must share their nationalist aspirations, First Minister Peter Robinson is a hard-line unionist coming at this from a very different point of view. And the Welsh have seen off independence.

Despite putting it very politely, it is also clear that Robinson does not welcome attempts by Scotland to queer his pitch with the UK government on corporation tax.

He can argue a special case - something which is the SNP's traditional role and therefore harder for them to oppose. Northern Ireland shares a land border with a country whose corporation tax is significantly lower.

In the days when the Irish economy was overheating it made sense to argue that matching the tax south of the border would generate investment from firms that could find in Ulster the extra resources they needed to expand. Whether reducing the tax on company profits would have the same effect in the middle of a recession is doubtful, even for Northern Ireland.

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The outcome would seem to be even more uncertain for Scotland.For various reasons - rebates, offsets, lack of profitability - the effective rate that business in Northern Ireland pays is below the nominal 26 per cent and below the effective rate paid in Scotland.

This is important because the way this has to work is that the block grant is first reduced by the amount of the current yield from corporation tax in the devolved country. This could cost Scotland immediately to lose 1.5 billion.

Then, if the tax rate is cut - which is the point of the exercise - the same yield has to be generated the very next year from this lower rate. If it isn't, then the amount of money available to Holyrood to spend would be reduced and services would have to be cut.

It is not realistic to expect the tax cut to stimulate increased private investment for a number of years so the funding gap will continue until the private sector reacts.

This reaction will to some extent rely on the relative attraction of Scotland as a home for investment. But it will largely be determined by the state of the world economy over which Scotland - or even the UK - has no control. It is estimated that it would take a minimum of five years, maybe ten for it to kick in, a long time to be starved of funds.

The Welsh expressed the fear that handing over powers to cut corporation tax would lead to a spiral to the bottom as the different countries sought a competitive advantage. This is a remote fear if it refers to England following suit. The UK currently mimics the big European economies like France and Germany. It is likely that the setting of the English rate will continue to follow that pattern.

Again, with England having such a big business sector, any cut would be too costly and would be unlikely to generate sufficient return. In principle, cutting corporation tax makes sense for a small economy like Scotland - not for bigger ones.

It is probably worth reminding the First Minister before the next tripartite meeting that after the formation of the Irish Free State in 1922 there was a period during which Northern Ireland had full fiscal autonomy and was expected to make the "imperial contribution". As economic conditions deteriorated in the Thirties it found that it couldn't afford it and the system collapsed. So it is by no means the panacea that advocates claim. If Scotland had had it as the crash brought growth to an end the same thing would have happened here as the Scottish banks brought the Scottish economy down. Turning to it in an era as harsh as anything since the Great Depression may not seem like perfect timing.

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However, on balance it seems that varying the rate of corporation tax at some time in the future is worth a shot. And it seems that Robinson has the better of the argument over tactics. A joint demand by the three countries is likely to terrify the Treasury whereas Northern Ireland might just make it through on its own allowing Scotland to follow later.If Salmond really thinks it is a power worth acquiring he should step aside for now. If his priority is to pursue his fights with London in furthering his goal of separation he will press for it now, hope he gets rejected and continue his blame game. It will be interesting to see which way he jumps.