On Welfare and the Budget, reality for Stormont is acceptable

Only the rashest observer would claim that s/he has a complete understanding of the complexities of welfare payments and reform and the  other details of the negotiations that are said to be reaching a climax. My feeling is that they are less about negotiations and more about accepting realities they can live with.

On welfare and other public expenditure issues it hardly came as a surprise that most local politicians – and not only Sinn Fein – at first adopted the line that whatever they were, we were against them. In  a major shift in the UK government’s approach to Northern Ireland from offering juicy carrots to  giving a fairly gentle prod from a stick, Treasury fines were greeted with shock and anger and precipitated some talk of existential crisis, in what I like to think of as the lisping Violet Elizabeth Bott’s  strategy of issuing dire threats to William and the Outlaws to force herself into their gang :  “I’ll thcream and thcream and thcream  until I’m thick.”  However, Violet Elizabeth’s tactics produced  greater success than Stormont tantrums have so far achieved.

By  registering zero impact outside the Northern Ireland bubble, they exposed the lack of leverage that has been one of the ironic effects of peace and a natural consequence of a £9 billion annual transfer from the GB taxpayer to Northern Ireland.

For every £1 spent by government in the UK as a whole, each person in Northern Ireland  received an addition 21p in 2010-11. Whilst this apparent disparity is down slightly on previous years, Northern Ireland retains the highest level of per capita spend in the UK.

And there’s more. Last year the Institute for Fiscal Studies found that every Scottish man, woman and child achieved an extra benefit have benefited by around £113 , while people in Northern Ireland have been saved £110 each. This was because the block grant was calculated on the basis of public spending in England but before cuts to English local spending had been factored in.

To start with, none of this appeared to cut much ice in Stormont.   In spite of all the evidence to the contrary since 2010, fond memories of the Downing St sofa still lingered.  Cameron’s far greater preoccupations, the massive pressures of  continuing austerity and the political neuroses that accompany them, such as immigration fears, the real threat UK breakup and growing English alienation from EU institutions counted for naught. Of course Northern Ireland continues to matter and arguably all areas of devolution received less attention than their due from Whitehall. This comparative neglect should have been celebrated rather than resented.

Nonetheless, this may yet prove to be a significant political moment  The old reflex of bringing our own house down is surely exposed as embarrassingly  immature and anachronistic.What was near tragedy in 1999- to 2006  is being partially replayed as near farce. Perhaps the Stormont leaderships  have woken up to that obvious fact. There are signs that Robinson and McGuinness get it ahead of many in their parties  all of them can hardly be surprised  that they’ve now been rumbled.

After months of tightening deadlock, they  now need to present a balanced picture to save their faces as well as encouraging their own supporters.

As the business magazine Agenda  NI has  pointed out

Welfare cuts is a contested term. It is true that welfare reform is reducing or ending some payments to individuals – but the overall budget is still rising. The Executive’s allocation for social security has increased from £5.1 billion to £5.6 billion since the Coalition Government came to power. Actual payments increased from £4.3 billion in 2010-2011 to almost £4.7 billion in 2012-2013.

If this was generosity, it didn’t  seem so from a different analysis of the figures. Just over a year ago the  Sheffield  Hallam University research paper sponsored  by the NICVA, The Impact of Welfare Reform on Northern Ireland  raised the alarm, forecasting that UK coalition  welfare reforms…

would take £750m a year out of the Northern Ireland economy. This is equivalent to £650 a year for every adult of working age. The financial loss to Northern Ireland, per adult of working age, is substantially larger than in any other part of the UK. Belfast is hit harder by the reforms than any major city in Britain.

The biggest financial losses to Northern Ireland arise from reforms to incapacity benefits (£230m a year), changes to Tax Credits (£135m a year), the 1 per cent up-rating of most working-age benefits (£120m a year) and reforms to Disability Living Allowance (£105m a year).

But it was pointed out by the economist John Simpson among others that the interpretation of the  £750m figure was misleading. Much of it had already been accounted for. The real shortfall was  closer to £250 million – around the figure a united Executive are now asking for annually.

As the BBC’s John Campbell reports, Sinn Fein have been holding out against a cap.

The main changes are the introduction of Universal Credit (UC) – a new benefit that combines in and out of work benefits, mainly Job Seeker’s Allowance, Housing Benefit and Tax Credits. The introduction of a benefit cap means an out of work family could not get more than £25k a year.  A Sinn Féin paper published earlier this week continued to take a tough line – repeating their rejection of the benefit cap.

The 2015/16 draft budget assumes a deal on welfare will be done and sets aside £70m – hardly enough to cover it. But how tight is this squeeze? The Institute for Fiscal  Studies in its study of universal credit found that:

Although benefit entitlements will fall very slightly overall in both Northern Ireland and the UK as a whole, this disguises significant winners and losers from the reform. In Northern Ireland, around 9% of families will gain and 9%of families will lose from the introduction of Universal Credit, ignoring transitional protection. Both of these figures are larger than in the UK as a whole: as Northern Ireland is a relatively low-income part of the UK, more people are entitled to means-tested support, and hence affected by reforms to means-tested benefit.

By increasing support for single-earner couples while reducing support for workless families on average, Universal Credit will strengthen the incentive  for one member of a couple to do paid work rather than none. Universal Credit also strengthens work incentives for single people without children.

 However, because means-tested support is withdrawn more quickly when the second member of a couple enters work under Universal Credit, the reform weakens the incentive for both members of a couple to be in paid work rather than just one. This effect is particularly acute in Northern Ireland, as lower average earnings levels mean that a greater proportion of single-earner couples are entitled to means-tested support, meaning that those not in paid work who have a partner in paid work are more likely to face withdrawal of Universal Credit if they were to enter paid work.

Of course any cuts are bound to be tough. It may well be right to incentivise  work;  but if there is no work the relevance of the incentives is  in suspension. In part this is a circular argument.  Sinn Fein’s  economic  policy,  There is a Better Way is feather-lite on detail on the North  ( but hardly uniquely),  with its  a call for “ tax varying powers  and increased borrowing  to stimulate  the economy.”

In the immediate circumstances the devolution of corporation tax is an irrelevance.  With such levels of dependency and the poverty of constructive debate locally, it’s inevitable that Westminster and the Treasury will set the terms.