Well, it’s finally here. After what seemed like an interminable period of consultations, talks, talks about talks, and talks about curried yoghurt, we finally have some numbers. The fact that the Budget is not quite as gruesome as might originally been feared is being spun as some sort of victory. It is still deeply grim reading.
First, the good news. Current spending (non-ringfenced DEL) will be £156.6m higher than was originally proposed under the Draft Budget. The £158.9m of extra spending (if you add £2.3m in cuts to the NI Assembly and Audit Office) over that outlined in the Draft Budget breaks down as follows:
The bulk of the additional funds are being applied to the Education budgets; the Department of Education and the Department of Employment and Learning. However, this looks decidedly less generous in the context of the £373.3m of reductions that were proposed in the first place. Nearly half of the axe in terms of spending reductions fell on the two Education budgets.
Bear in mind that the figures quoted in the Draft Budget were spending reductions, not cuts in cash terms. For example, the Education budget contains increases of £68.1m to cover what are called “inescapable pressures”; additional items of spending that are deemed unavoidable, for example additional funding for children with Special Educational Needs. When you consider this requirement for additional funding, the original reduction of £94.4m in the Education budget actually equated to required cuts of £162.5m.
The additional funding announced in the Final Budget for Education of £64.9m does not even cover the cost of these “inescapable pressures”. Massive cuts will still need to be made to Education services, and this will inevitably impact upon front line teaching services.
Meanwhile, the Department of Employment and Learning has had a partial reprieve, getting back £33.5m of the original reduction of £81.8m. The Budget concedes:
“The reductions will also have an adverse impact on other areas such as the universities’ research capabilities, the overall student experience, the number of courses on offer, and their ability to attract top academics and international students …
Reductions to the skills in industry budget will impact on the quantity of training provided to business, especially for small and medium-sized enterprises.”
Given the crucial role that increasing the skills base of the workforce plays in supporting future growth, this is grim reading.
The drafters of Budget note that “It is encouraging to see that the Northern Ireland economy has returned to growth, and it is hoped that this will continue to gain momentum over the coming months.” One has to wonder, in the context of the massive fiscal contraction that the Budget will bring, where this growth is to come from. The Stormont House Agreement permits the Executive to borrow £700m to fund a public sector redundancy scheme, which will invariably lead to higher unemployment or economic inactivity. Welfare reform, also, will result in a significant sum of money being withdrawn from the local economy as benefits are cut. This will disproportionately impact poorer and more disadvantaged sectors of society, which will have negative cascading effects on inequality and deprivation.
The latest Ulster Bank PMI shows that there has been marked decrease in business activity towards the end of 2014. This does not bode well for future growth prospects, even before considering the negative impact of a sharp contraction in fiscal policy. The Budget says that Northern Ireland has low levels of employment in finance and business services. This may well be true, but it is unfortunate that the much-vaunted Corporation Tax cut specifically excluded financial services and (nebulously defined) “back office activities” from benefiting from the impact of the tax cut.
The Northern Ireland economy desperately needs a surge of private sector economic growth. By cutting Corporation Tax, refusing to bring in Water charges, as well as making sweeping cuts to public services, the Executive have made it clear that they are determined to bring about economic shock therapy to tilt Northern Ireland towards a low tax, low government spending future. They have bet the farm that the cut in Corporation Tax, combined with a fair wind in the macroeconomic sense, will bring the growth and new jobs that Northern Ireland so desperately needs.
History suggests that Governments that make such brutal adjustments in a short space of time do not always get the consequences that they intended. Akin to the way Oscar Wilde described marriage, this casino budget is a triumph of hope over experience.