Are the political parties still hoping that David Cameron will turn into a White Knight and Save Ulster from Austerity? What does Stormont have to do to persuade him to answer their pleas to up his offer? Among the elements are: devising a proper three year plan for the first time so as the world can see how they’re spending mainly GB public money; and even more difficult, to hold out at least the prospect of following the Republic in increasing public service charges. Hasty assets sales are unlikely to be enough. ,
What has a multiparty Executive got to lose if they’re all in it together and the Brits are holding guns to their heads instead of the other way round?
The measure of what they may have to do is expressed by local commentators. In the grim Economic Outlook just published by Price Waterhouse Cooper’s, Esmond Birnie the chief economist repeats the familiar point in restrained economist’s language, that Northern Ireland never has had a proper budget.
The absence of any detailed performance data from the Executive’s Programme for Government 2011-15 and the decision to create a draft budget in isolation from any new Programme for Government leaves the economy with few baseline performance indicators.
In other words no one really know how the hell we’re doing with public spending –and never have ever since the Executive merry-go-round started turning as PWC have regularly made clear. And note that the budget of Simon Hamilton’s is only a draft budget. The real thing which will depends on the outcome of the talks.
The warnings have been loud and clear for years. Stormont will have to change its ways of working well beyond the modest structural reforms which the British government have put on the table. In spite of a bloated OFMDFM, each department operates mainly in its own silo – never more graphically illustrated by Arlene Foster taking Mark H Durkan to judicial review over signing off the Belfast Metropolitan Plan. This state of affairs is insanity on stilts. Yet people have grown to expect it as the power sharing norm.
PWC concludes that the NI outlook is particularly downbeat.
“But despite the improving employment situation and modest real terms growth in exports other data suggest these are not being matched by growth in key feel-good factors like average wages or increased productivity.
“The prosperity gap between Northern Ireland and the other UK regions is actually widening and the modest growth in manufacturing sales and exports is mostly being delivered by fewer than a dozen companies.
“Our forecast for 2015 is for growth to slow reflecting a fall in household spending, marginal growth in most private sector activities and a sharp decline in public sector employment and spending.”
In terms of the labour market, the latest NIEO says that Northern Ireland’s claimant count unemployment fell by 8,700 to 5.9% in the year to October 2014 but remains over twice the UK’s 2.8% level. Overall, the rate of decline is about half the UK rate and local unemployment is the highest of the 12 UK regions.
Employment grew by around 14,000 over the past 12 months to more than 821,000, taking the region’s employment rate for those aged 16-64 to 68.5%, an increase of 1.4% points over the year. However, this is well below the UK average of 73.0% and is the lowest rate among the UK regions.
Northern Ireland has 566,000 economically inactive people, 5,000 more than a year ago and at 27%, is the highest amongst the UK regions and significantly above the UK average of 22.2%.
PwC says that, despite steady jobs growth, the latest data from the Annual Survey of Hours and Earnings suggest that, in the year to April 2014, average earnings in Northern Ireland declined in real terms and at a greater rate than the rest of the UK.
PWC’s Esmond Birnie warns that the draft budget only “represents a starting point for both negotiations towards a final agreed Budget and a baseline from which a more comprehensive Budget can be agreed for the period post 2015-16.
Can this be more than a fond hope?
John Simpson spells out the situation more bluntly in the Belfast Telegraph
The current budget for 2015-16 is ‘only’ reduced by 2.1% – a net reduction of just over £200m.
That cut of £200m is deceptive. It needs to be amended to take account of a range of complications to deal with extra spending commitments in departments which will exceed their budgets. Health is the biggest (but not the only) example.
In reality, the total cuts and re-allocations add up to £872m, or close to 9% of the current budget.
When this reduction is shared out, some departments face horrendous challenges. Indeed, reductions so large that the delivery action plans lie outside the past experience of any of the ministers or today’s civil servants.
Simpson’s solution is eminently realistic, looked at from the world outside.
First, should the Block Grant allocation from the Treasury be challenged? Has it now been squeezed to the point where it is inadequate to meet legitimate social needs?
This is not easily argued. The current Block Grant makes Northern Ireland the most generously treated region of the UK. There is a margin of over £700 per person (or over 7%) when Northern Ireland is compared to the next highest region, Scotland. A large part of the local advantage comes in higher social security and public order spending.
A plea for an improved Barnett formula would face serious challenges from other regions.
Second, should the Executive consider alternative methods of raising funds to offset some of the spending cuts?
The average household in Northern Ireland pays about £500 a year less in charges, rates and local service costs than households in England. That gives Northern Ireland an advantage worth over £350m each year. Should some of that be clawed back to the local budget?
This would be the option that might be expected from the Treasury.
It is not easy to resist. Closing the gap on rates, housing rents and water charges become serious proposals.
If the minister, Simon Hamilton, and the Executive can deliver an operationally practical budget, they will have survived the most demanding test yet faced.
Sadly, the budget deficit now being faced is too large to be removed in one single budget.
The Treasury must realise that the arithmetic is badly flawed. If the Stormont budget is to survive, the required financial adjustments will need to be slowed and planned over a three year period. Northern Ireland needs even more generous help from the Treasury.
Sadly too, there’s not a snowball’s chance in hell in upping rates, rents and water charges with an election a year over two years. Will the rest be enough self-help for Stormont to save the situation ?