Did devolution deliver..?

BRENDAN Keenan wonders if devolution actually makes any positive difference to the Northern Ireland economy. Meanwhile, a new report indicates that while southerners are tighening their belts in a ‘Rip-off Ireland’ where both the quality and cost of living are increasing, more northerners living outside Greater Belfast saw an improvement in their lifestyles than those within the city limits.

Keenan wrote:

The annual “subvention” of spending over local revenues is around £5bn (€7bn), out of total current spending of £14bn. There may be a perception that Northern Ireland has to go begging to London for this money each year. But it does not work like that.

In practice, Chancellor Gordon Brown decides what he is going to do about UK public spending, and the devolved regions get their share. The amount is calculated under an elaborate formula, which is also applied to Scotland and Wales. This “Barnett formula” may be revised as circumstances change, but it is hard to see how it could ever be abolished.

Recently, it has been delivering lots of extra cash, as Mr Brown throws money at the public services. There is little chance of the public sector’s share of the North’s economy declining, while London is ramping up public spending by 15pc over the next three years. Equally, the expected cutbacks after the May general election will cause a disproportionate cooling on the North’s economy, although the effects will not be felt until 2009.

In this context, what difference can a local administration make? There was quite a fuss a few weeks ago when Bank of Ireland economist Alan Bridle argued in a newspaper article that it would make no difference at all. “Arguably, the economy is doing better in spite of, rather than because of, the politics,” he wrote.

  • George

    The 2004 Annual economic Abstract from the NISRA shows that per capita GDP Northern Ireland is still only 79% of the UK, the same figure as in 1997.

    So I suppose the short answer to whether devolution delivered would be an emphatic no.

    The Barnett formula is to remain so we won’t be seeing any revenue-based capital investment any time soon.

    I know some are happy because they don’t don’t envisage Northern Ireland generating revenue of its own in their lifetime and are quite happy to be one of the 30% on the well-paid dole, I mean bloated public sector.

    What does this mean? It means that Northern Ireland will continue to wallow in the economic wake of Britain (and the Irish Republic where it it lags at 69% of GDP) for the forseeable future without any chance to make up the deficit.

    But whatever the people of NI do, they shouldn’t say a word because any survey looking into the Barnett formula might find that Northern Ireland is relatively overfunded not underfunded and then what would HM Treasury do?

    Instead, all the fiscal effort in the next ten years will have to come from within Northern Ireland.

    How will that be achieved? Higher rates, water charges and the phasing out of industrial derating.

    An assembly without tax-raising powers isn’t needed to implement those measures, the only ones at the people of Northern Ireland’s disposal.

  • willowfield

    George

    I know some are happy because they don’t don’t envisage Northern Ireland generating revenue of its own in their lifetime and are quite happy to be one of the 30% on the well-paid dole, I mean bloated public sector.

    Could you explain this 30% figure, and why you equate working in the public sector to being on the dole? I wonder do you make such feelings known, say, to hospital staff when you are in hospital? Do you tell the nurses that they should be on the dole when they are looking after you? When you go to your doctor do you tell him that he is a waste of taxpayers’ money and society would be better off if he were on the dole?

    But whatever the people of NI do, they shouldn’t say a word because any survey looking into the Barnett formula might find that Northern Ireland is relatively overfunded not underfunded and then what would HM Treasury do?

    Actually, studies have shown the opposite. Public funding lags behind in NI because it is not based on need, but rather it is a fixed proportion of UK-wide spending and the rest of the UK has less need than NI.

  • Lafcadio

    George – while I broadly agree with much of your analysis, as an aside you must be aware of the fact that using GDP in relation to Ireland’s economy can be very misleading, given the large discrepancy between GDP and GNP in Ireland. So for example much, if not all, of the difference between the GDP per capita lag with the UK and Ireland is likely to disappear if GNP is used.

  • willowfield

    What is the difference between GDP and GNP?

  • George

    Willowfield,
    The public sector should be down around 12% of the economy not 30%, the rest are receiving money from the state to keep them off the streets – which is a glorified dole policy, in my view.

    My Barnett formula comment is backed up by the Northern Ireland Economic Council which says campaiging to remove it could be a very dangerous “double-edged sword”.

    What studies are you referring to?

    Laficidio,
    large degree of truth in what you although they have converged of late. Either way, I should have left the Irish Republic out of it as it not relevant here. Please disregard it as it adds nothing to the debate and is more likely to detract from it.

  • Lafcadio

    Willow – they are both proxy measures for National Income. Gross Domestic Product is the more common measure, and is the total output of an economy usually measured over a year – roughly, it’s the total of private consumption, public spending, investment and net exports.

    To arrive at Gross National Product, “net transfers of factor incomes” are added, that is to say, income earned by domestic residents on investments abroad, less income paid to investors abroad.

    In most countries, these transfers are fairly small, but in Ireland, given the masses of FDI and low corp tax rates, this transfer is a large net negative – i.e. a lot of income earned (or at least booked..) in Ireland is repatriated to parent companies abroad, and is never available for Irish people to spend. This gap has been up to 25%; thus GDP can be a misleading measure when applied to Ireland.

    Irish politicians and diplomats cottoned onto this years ago, and have fluently flipped between GDP (when trumpeting the Celtic Tiger) and GNP (when discussing infrastructure funding in Brussels)..

  • George

    Laficidio and willowfield,
    taking the GNP figure doesn’t make it any better for Northern Ireland. It too is a double-edged sword.

    If you take the GNP figure, then the Irish Republc had a 28% of GNP infrastructure investment in 2003 compared to just 16% in the UK or 19% in the EU.

    I know there is a large infrastructure deficit south of the border but there is a large one in Northern Ireland too, which needs the same size of spend to catch up and keep up.

    The problem is back to an inability to raise is its own revenue.

  • Lafcadio

    George – I wasn’t talking about NI, or infrastructure investment, simply making the general point that economic comparisons in terms of GDP (such as the one you made above) are misleading with respect to the Irish Republic.

  • Lafcadio

    ..however, on the swaddling and inefficent public sector in NI, you’re preaching to the converted..

  • slug9987

    Andrew Dilnot, an economist at the IFS, has a slide he puts up giving tax as a percentage of GDP for EU countries comparing this to the US which is much lower.

    The EU countries vary by small increments from Sweden at the high end to UK at the low end then really JUMPS right down to Ireland, which is almost at US levels!

    Now Ireland is not in my view THAT low tax of a country so it does suggest that the GDP figures really shouldn’t be used when making comparisons.

  • willowfield

    George

    The public sector should be down around 12% of the economy not 30%, the rest are receiving money from the state to keep them off the streets – which is a glorified dole policy, in my view.

    First, even if we accept your conclusion, that would mean that 18%, not 30% were on the “well-paid dole”, so your initial statement was dishonest.

    Second, your reasoning is all wrong. For a start, public spending is based on need, not on a uniform and fixed percentage of the economy. If there is higher need in one region than another, then public spending will obviously be higher in that region. Then you claim that 60% of public employees are being paid to be “kept off the streets”, thus implying that their jobs are unnecessary. Perhaps you would like to quantify why you think NI has far too many nurses, doctors, teachers, policemen, judges, social workers, dentists, physiotherapists, etc.

    Re. Barnett, I don’t know any specific studies either way, but I do know that there are arguments that NI’s needs are greater than the funding provided for under Barnett. OK: this may or may not be correct, but we won’t know until a needs assessment is done.

    Lafcadio

    Thanks for the information. It seems GNP is the more useful measure as GDP disguises the fact that much of the Republic’s wealth actually goes to outsiders: the result, presumably, of dependence on inward investment from multinationals.