Budget, what budget?

Reaction to the Northern Ireland budget becomes more confusing as time passes. Northern Ireland is the exception among the three devolved governments, in that pressure to adopt greater taxation powers is not coming from the local adminsistration, but from Westminster. The supposed mandatory nature of the all-party coalition can’t take the whole blame or indeed much of it for  failure. It’s shared among the parties and is strategic rather than purely party political.   

 To make £4 billion of cuts in as many years, the Executive seems to be relying mainly on a civil service pay freeze, a plastic bag levy and Santa to deliver bumper public asset prices to get them out of a big black hole. Rate rises only keep pace with inflation.

 At last the penny has dropped on the Belfast Telegraph after its initial bromides. More expert comment – the little there is of it – is divided between those who believe the glass in a quarter full and those who are convinced that the tank is running on near empty. Economist Mike Smyth’s praise seems to be based on little more than amazement than they managed a budget at all, in tune with the “whatever you say, say nothing” line of  Ulster business.  The problem is not only next year’s budget but the robustness of the four year plan.

Mike Smyth

However, the decision to protect the employment and enterprise budgets with some additional help for job-creation showed real pragmatism.

The decision to kick-start the Green New Deal programme will go some way towards stimulating the moribund construction sector.

There was also a strong social element in the Budget with the creation of social protection and social investment funds.

All in all, the Draft Budget looks like a pretty good set of compromises that reflect the political composition of our Executive

But Mike knows better than most that these are fleabites. What is more these ” investments” are of course added expenditure, not savings.  The social protection and investment funds together amount to £100m in a single year with no guarantee that they can continue.

A harsher verdict is pronounced by Graham Gudgin of Oxford Econometrics who warns in the News Letter of the train crash coming down the line.

Graham Gudgin

The economy remains unbalanced and has been shrinking. The executive sets economic targets for itself that it has no means of delivering and which, like many others, may soon be consigned to the dustbin without comment or mourners

Unemployment on this claimant measure has also grown more rapidly than elsewhere in the UK, and is the only region in which joblessness has continued to rise in 2010.

Northern Ireland is also the only region with such a huge discrepancy between the two measures of joblessness. Once again something is wrong and is not being put right

The executive continues to rely on its grants regime to shore up the economy. Over £100 million is given to companies each year and mostly to firms already located here, but a spectre on the horizon is that the pit props of this policy may be kicked away.

From next month the EU is due to severely restrict the amount of money which can be given to private companies in Belfast, and the power to give any grants for investment in Northern Ireland is expected to disappear after 2013

The amazing thing is that only 50 miles north of Dundalk senior economists in the Northern Ireland Administration had no idea of the importance of low tax to attract the world’s high technology firms.

The lead such as it is,  has just been taken by the Secretary of State Owen Paterson who we’re told has presented the case for lower corporation tax to the Executive. They’ll approach it warily, being reluctant to take the gamble that business will grow sufficiently and in time to make up the consequent loss of block grant. The  issues have been aired in the NI Select Committee at Westminster,  but at home the serious debate hasn’t even started. It is certainly no quick fix for a four year budget strategy. It’s surely more appropriate for the 25 year time span the Conservatives have in mind for switching the emphasis from the public to  the private sector.  For the debate on corporation tax in the long term,  a credible budget for next year and a four year strategy, you need evidence-based analyses with comparators and supporting figures. Where are they?