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?

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  • Fair Deal

    Sorry this is just sour grapes, begrudgery and confusion wrapped up as analysis.

    Example 1
    “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.”

    Never let the local campiagn for these powers supported by the various political parties and a number of party manifesto commitments get in the way of such a false claim.

    Also let’s overlook that the Treasury paper had to be pulled from their unwilling hands and if past rumours are true the range of conditions the treasury want to attach are such that it looks like a completely insincere offer.

    Why bother with any sort of proper analysis when banging on about local politicians and Stormont being crap is easier.

    Example 2

    “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.”

    You don’t make a cuts by increasing your revenues – that reduces the cuts you make.

    Example 3
    “But Mike knows better than most that these are fleabites.”

    So despite Mike Smyth has just explained his own views as they are generally positive and has the good grace to admit that prior predictions about the budget were wrong this gets ‘reinterpreted’ so even positivity can be shoehorned to fit a whinge.

    As regards Gudgin his general comments on the problems of the economy are perfectly true (and also why having no regional variation in the approach to cuts was a mistake by the national government). However, to present the public budget (especially a shrinking one) to solve them in the space of 4 years isn’t. The rebalancing of the economy will take at least a couple of decades.

    You also fail to recognise the opportunity in what Gudgin said about the blocking of one type of business support ie EU rule tightening on subsidies. This actually increases the possibility of taking up the tool of corporation taxes, if we can’t spend £100m on business grants then we could potentially use that money to cut corporation tax instead.

  • Mick Fealty

    @Fair Deal

    “…having no regional variation in the approach to cuts was a mistake by the national government”

    Interesting. Was it a mistake, or a deliberate strategy? In England, the councils are all being force-fed in precisely the same way.

    I read that as a political reluctance to take on Whitehall madarins head on, so you get your reduction in places that have insufficient political capital to fight back.

  • Frustrated Democrat

    It seems people just cannot get their heads around the fact that we are in serious debt problems, we are £4,000,000,000,000 in debt (including bank fundng which may be repaid) or to put it in a simpler way about £125,000 for every taxpayer in the UK or spending £5,500,000 every day since the year 0.

    We cannot afford to spend what we are spending we are still borrowing £1 in £4 spent and that is still continuing. We are going to pass this debt onto our grandchildren just so we can maintain our standard of living.

    Obviously in NI we are much worse off comparatively as £2,000,000,000 of the £8,000,000,000 we get as a present every year is borrowed.

    Still let’s worry about our little pet projects in the sports, arts and cultural pursuits that we don’t want to pay for ourselves, let’s not pay what we should for water, let’s continue to extravgantly fund a health service that pays through the nose for everything (believe me I know), lets fund a two track education system the list goes on and on, oh well never mind our grandchildren will pay the bill for us greedy b*st*rds.

  • Brian Walker

    Fair Deal

    The best test of a willingness to take on taxation powers is to raise some revenue. Essentially they’ve ducked this You can hardly claim that lowering corporation tax is the united policy of the Executive. Listen to Sammy,

    Ok let’s say I’m being ungenerous and that they’ve done a sterling job by getting even this much together. They’ve gone counter to Osborne’s front-loaded four year plan and tried to mitigate the worst of the cuts – not that we have an relaible estimate of how severe those cuts will actually be locally . What happens in later years? An assets boom? A revised plan from Whitehall to get them off the £4 billion hook? Micawberism is not analysis.

    I haven’t failed to take account on anything in Gudgin. He clearly favours a CT differential. I’m simply asking for the case to be made and stating the obvious, that it’s a long term option at best and asking for an informed debate.

    . . “…having no regional variation in the approach to cuts was a mistake by the national government” How is this to be achieved except through separate devolved budgets and better coordination with the centre? UK national budgets can only express ” local (non-English) variations” effectively when the devolved institutions assume local taxation powers as part of a new settlement to replace the Barnett formula. Some way off.

  • Brian Walker

    An analysis of the complexities of the Scotland Bill for implementing the taxation powers recommended in the Calman report is given by Alan Trench.

    http://devolutionmatters.wordpress.com/2010/12/14/the-financial-provisions-of-strengthening-scoltlands-future/

    NI and Wales would have a different set of local variations – an excellent reason why NI needs its equivalent of the Calman and Holtham commissions

  • Comrade Stalin

    Brian, I don’t know how you could present CT as being forced on an unwilling local administration by the enthusiastic Tories. I grant you that Sammy and co have been warning of the downside here – something we should welcome, as up until now nobody has mentioned the likelihood that a tax cut would have to lead to a cut in the block grant.

    But a regional CT cut creates a range of problems for London. How to avoid big City players upping sticks and moving their HQs to Belfast ? How to deal with other UK regions also clamouring for a cut ? And that’s before they get into dealing with Europe. My suspicion is that the Tories will kill it by setting the price too high.

  • Comrade Stalin

    FD:

    It seems people just cannot get their heads around the fact that we are in serious debt problems, we are £4,000,000,000,000 in debt (including bank fundng which may be repaid)

    Stop scaring people with made-up worst-case statistics. UK public sector debt is about £900bn. Your fantasy number is derived from the rather questionable assumption that the UK government will become liable for all of the RBS and Lloyds debt irrespective of quality. The contrary is proving to be the case, as it now looks as if both banks have grappled their debt problems and will be privatized in a few years’ time at a substantial profit for the taxpayer. Should be sufficient to make a nice dent in the £900bn.

    Given that the Tories seem to be willing to lie in order to present the case for their slash budgets, one does have to question where their priorities lie.

  • Brian Walker

    Comrade, I’m fully aware of the problems lower CT in NI presents for Westminster in GB and have discussed them several times. They don’t minimise the problems for NI though. Gradualism seems to be the approach. We all look forward to reading the Paterson plan.

  • Frustrated Democrat

    CS

    Time you checked a few facts about what is really owed.

    1. I did say it included banks, and we are showing losses on the banks at the moment.
    2. We have unfunded pensions to pay for.
    3. We have PFI’s to pay for.
    4. We have private debt to pay for.
    5. We have future borrowings, that are already budgeted, to pay for, and the books won’t balance for at least 4 years.

    Do your homework, the £4 trillion is a very reasonable estimate for the total debt UK citizens have to pay off in the coming years, not less than £1 trillion. Even without private debt it is approaching £3 trillion

    It is time we all faced up to the problem and not try to understate it. We are living way, way beyond our means and have done so for some time.

  • “a regional CT cut creates a range of problems for London”

    There are two ways of looking at this. It could be described as a problem for London, as CS says in that it creates resentment in regions which lose out to NI.

    The second way of looking at it is that many of these firms are set to leave the UK anyway to escape the headline CT of 28%. Why not make a region low CT to stop these impatient companies from leaving.

    Government policy is to reduce CT across the board down to 12.5% and lower as quickly as possible. The problem is that it raises £42bn. The Government can only ween CT away slowly. The advantage of having CT lowered to 12.5% or 10% in NI is that it at least stops these companies leaving the UK altogether.

    Before the General Election, I was told by a senior Conservative Official that if Northern Ireland, was granted 12.5% corporation tax in a revenue neutral budget, there would have to be £470 million in cuts from somewhere else.

    The figure was based on receipts going to companies before the recession, so the figure will be much lower now. Also, with Corporation tax to be reduced overall to 25% in the UK as a whole in the next budget. That figure comes down by a further 10.7%.

    Given the huge opportunities presented to Northern Ireland by this policy, and the fact that CT is coming down across the board in the UK eventually, anyway, the Executive should leave no stone unturned to find the savings. Time is of the essence. I believe that new jobs and investment will arrive rapidly enough, if the Executive can find the bottle to do it quickly.