A Tale of Two Cities – The contrast of future spending plans in Dublin & Belfast

It looks likely that Ireland will run a small current budget surplus in 2015, despite initially budgeting for a deficit. Growth is running at 4% plus, employment is up. taxes are flowing into the coffers at a greater rate than predicted, Social Welfare spending is falling as activation measures take hold and  Patrick Honohan has remitted an additional €300M more than expected from the Central Bank’s windfall profits. The Irish Government have announced plans to make positive adjustments of approximately €1,500M in their next Budget. Indeed, the figures would suggest that more could be afforded, but clearance from the European Commission to do so is required and probably not forthcoming.

The Irish Government had planned for a current Budget deficit of €3,730M, see here, Table 11, page C.24. The Spring Statement (Table 3) is expecting a current deficit of just €1,630M and the expected additional tax yield has been bumped up by just €1,000M. This additional figure should be reached comfortably by the end of May, and with taxes consistently running well ahead of target, a surplus on current spending is a reasonable expectation,    leaving the General Government Balance well below the 2.3% forecast.

The UK’s  Office for Budget Responsibility most recent forecast suggests a UK wide Current Budget Deficit of 2.4% and a net Borrowing Requirement of 4% in 2015/16. It also expects cuts in current spending of 0.7% and 0.9% in 2016 & 2017, which after inflation work out at 1.9% and 2.6% respectively.

While Dublin will be expanding spending, albeit slowly, the Belfast based administration will be finally getting around to making some negative adjustments in expenditure. And there are many, many years of these adjustments ahead. Their foot dragging over recent years will mean that the cuts will be far more severe and extreme than had decisions been made earlier. There is also a new political  dimension to the cuts, which is discussed below.

The Institute for Fiscal Studies,  (one of the few long-term winners from the UK election campaign together with the SNP,) has pointed out the massive gaps between income and spending commitments of all the parties, but particularly the focus of the DUP’s unrequited love, the Conservatives. I think it is fair to suspect that Northern Ireland’s comfort blanket of top-up spending will not survive for very long more as the new UK Government which is an almost purely English creation, sets its fiscal priorities. The hostages to fortune given during the campaign make it far worse, as   Andrew Rawnsley in this excellent piece  in the Observer 3^rd May, comments,

“The parties have made some foolishly exact commitments not to raise taxes, pledges that will come back to bite someone if economic circumstances force them to break those promises. At the same time, they have sprayed around a lot of spending pledges without being able to say how they will be paid for. We started the campaign in the dark about where a Conservative government would make the £12bn of further welfare cuts that they are committed to. We end the campaign with the Tories still refusing to say. We do not know from which money tree they are going to find the cash to pay for their promised tax cuts. Nor how they would finance their commitment to extra funding for the NHS.”

The hoped for accident of history failed to happen, the DUP is  not required to patch together a deal to support a Conservative Government. Secretly I imagine that even Martin McGuinness was praying for such a miracle to bail him out of defending the next set of cuts. Because none of the Stormont parties have a Plan B and Northern Ireland is the plump goose to be plucked. It helps that it is a meek tame one that will not fight back as it has no mainstream representation in Westminister. But unlike Colbert’s famous bird, it is expenditure rather than taxation, which will be the target.

Indeed  the result could not be better for the Conservatives as they face a diverse and divided opposition. They are much more worried about the 3,611,367 UKIP voters in England, 14.1% of the English vote almost completely unrepresented, than any little corner of John Bull’s Other Island. The Conservatives hold 60% of English seats with just 41% of the popular vote. The long-term threat to the Conservatives now comes from its right-wing and no where else.  The SNP’s 50% of the popular vote in Scotland adds to the contrast and gave them 95% of the seats.

The Conservatives need to protect themselves now from UKIP. To do this, they cannot afford to fritter money away on Northern Ireland, where they have no electoral interest at the cost of their English constituencies. Remember the number, 3,611,367 English votes, UKIP’s vote was twice the population of Northern Ireland and five times the 717,383 votes cast there.

Cameron’s One Nation is exactly that, the beginning and end of his party in now the English nation. In such circumstances the  Northern Ireland Budget does not look very safe. He needs desperately to minimise cuts in England to restrict any further leakage to UKIP and Northern Ireland is the logical place to start. The announced cuts are only the beginning

In political terms, Sinn Féin above all are now left in a quandary. They can refuse to implement the Northern Ireland budget, bring down the Assembly and destroy years of effort to show that they can act responsibly in positions of authority. Alternatively they can implement the cuts and face the taunts of making cuts in Northern Ireland just when the opposite is happening in Dublin. The arrival of the SWP under their People Before Profit trade name only adds to the torture.

However, there is a delicious irony for Sinn Féin watchers in Gerry Carroll‘s campaign in West Belfast and he should be returned to the Northern Ireland Assembly next year. The ongoing Casement Park affair  a mess of Sinn Féin’s own making, can only help him.

The unionist parties are also facing their own problems. Loyalty, whatever that ever meant, certainly means nothing now. The Conservatives ran a brilliant campaign, ignoring the “United Kingdom”, focussing on their core areas of England and won. They played to the prejudices against Scotland like a 19^th Century Punch Cartoon did about Ireland. Cameron’s tax covenant means the end of regional transfers, or alternatively he puts his own party in peril.

A weakening Northern Ireland economy creates its own problems for a Dublin Government.  However it’s electorate is as single minded as England’s and will be focussed on their own needs and demands alone. The assumed rates of growth will provide a modest increase in living standards, and there is no desire “to share” it.  The proportion of economic activity from State spending is over 60% in Northern Ireland, while the Irish figure will be little more than 30% of GDP by 2020. The next Irish election will be won by a strategy closer to that of the English Conservatives, focussing on the demands of the majority, rather than the needs of a minority.