The casino budget – a triumph of hope over experience

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:

Additional Spend

 

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.

Draft Budget Cuts

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.

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  • SaffronDuck

    Salmon,

    As you’ve done the numbers I’ll ask you a sectarian question. Did the Catholics lose?

    1. Is, as SF claim, St Mary’s now out of Farry’s budget and the end in sight for training Catholic teachers in a segregated facility?

    2. Is the money for Casement clawed back – not ringfenced – and subject to the whim of a DUP Finance Minister in future funding rounds?

    If these cuts that would hit one ‘community’ are real are there similar cuts that hit the other community to the same level?

    Or are the Community specific cuts delivered by a DUP Finance Minister and agreed by SF cutting either shared services or those of Communities the DUP aren’t keen on?

  • The position of DEL in budget stood out to me most. Simon Hamilton said this budget will prepare the way for a corporation tax reduction but as you note higher education will be affected with a reduction of student places “likely”. Additionally the front line of further education cannot be protected. A reduction of FE places is “inevitable” with job losses and a significant reduction in students enrolments also likely. This puts many young people at risk of becoming economically inactive and clearly does nothing to improve our chances of attracting foreign direct investment.

  • Practically_Family

    “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.”

    Say goodbye to the farm

  • Catcher in the Rye

    The DEL minister said in the assembly today that some kind of grant support of St Mary’s is being removed.

    Maybe if SF hadn’t insisted on diverting money to the education budget in order to open more Irish language schools that few people need or want there might have been more money to allocate to DEL to keep the grants to St Mary’s in place. They can’t have everything.

  • Catcher in the Rye

    Wasting four years doing a degree in a non-vocational subject and then bumming it around for years afterwards as the interest mounts on the student loan debt is a pretty good definition of “economically inactive”.

  • notimetoshine

    I suppose you are right maybe it would make sense for queens and uu to offer vocational only courses. Of course the definition of ‘non vocational courses’ could widely vary… Physics, biology, languages all on the way out? And for that matter maths, economics as well. We can just produce accountants, actuaries, computer scientists, doctors, engineers, nurses and quantity surveyors. Only problem is might not bode well for research.

  • notimetoshine

    This budget was created with no reference to the economy. Not surprising really given the bubble our politicos exisit in. Though I am looking forward to the themmuns and usuns argu!ents regarding who gets hit worst. That’s all our government and its electorate are good for.

  • Ian James Parsley

    Super article, thanks.

    Just one thing. Removing 20,000 public sector jobs will not inevitably lead to higher unemployment. Similar schemes haven’t in England. Much of the “voluntary” exit will consist of effective early retirement; another part of it will be the likes of planners or finance officers who may be better off taking the package and finding employment elsewhere.

    Sending out a clear message that if you want a career in NI you may need to take a few risks and maybe even set up on your own need not be a bad thing. Indeed, it’s long been a necessary thing.

    That is not to say it won’t lead to higher unemployment, merely that it is not inevitable. Frankly we should have been planning for this for a long time.

  • Salmon of Data, Howdy,

    The bringing in of water charges will bring renewed Troubles and revolutionary acts. Forewarned is forearmed, amigo. Such will be perceived and spun as being akin to a terrorist move/motion and invite and result in an appropriate popular response/currently unknown and unspecified uncertain consequences?

    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.

    ……. Amen to that, but the dullard doesn’t learn from that shared experience, do they?

    Oh, and asking prospective NI Assembly candidates seeking election shortly, whether they will oppose or resign over the introduction of water charges and VAT rises is the sort of question people’s representatives need to be asked often and every so often.

    Failure then will be suitably rewarded and applauded.

  • barnshee

    “resign over the introduction of water charges and VAT rises”

    The assembly has no influence on VAT levels It like income tax is a “reserved matter”

  • Zeno

    I disagree. We will have 20,000 less jobs in the economy. So 20,000 jobs will have to be created just to get back to square one. Square one being where we are now. I’d say a lot of the younger smarter people will leave NI.
    The total number of employee jobs in Northern Ireland was estimated at 712,480 for June 2014, I would need to look at the numbers entering the workforce and the numbers leaving to get a clear picture, but I’d say the available workforce increases every year in line with population and we struggle to keep up with that increase, so adding 20,000 on definitely will lead to higher unemployment.

  • Ok then, banshee, regarding ….. The assembly has no influence on VAT levels It like income tax is a “reserved matter” …. let us correct and expand the range of the question lest it be feared and thought best avoided, and make sure that it, and many more such like it, are always asked of prospective and electioneering NI Assembly and Westminster Parliament hopefuls.

    One may discover though that the likes of the recent £600,000.00 donation by billionaire Charles Chuck Feeney is misspent and used to enhance incorrect political misdirect training in the avoidance of giving straight truthful answers to inconvenient and uncomfortable questions. But such dodgy non answers always point to the truth being denied and a false and therefore fraudulent and/or criminal agenda being defended and supported.

  • Ian James Parsley

    That doesn’t actually follow.

    The implicit idea that there is a “set number of jobs” is one of the biggest myths surrounding economic debate. We often hear phrasing like “There are no jobs”. Underlying this is the notion we should just hang around until “they” (whoever “they” are) give us a job. This is fundamentally untrue.

    In the UK overall, since 2010, the number of public sector jobs has fallen dramatically – by a higher proportion even than taking 20,000 out in NI. Yet the number of people in employment has risen!

    Of the 20,000, there will be some who can find a job with a business, applying skills to enable it to export and expand (thus cover the cost of the salary/post); there will be others who can set up on their own, applying the skills and experience they already have to add value to businesses, charities and even actually the public sector; there will be still others who were already part-time (and, say, running a small business the rest of the time) who can apply themselves full-time to the business and use that freedom to take a few risks and earn more in the long run.

    Very often what happens in NI with our bloated public sector is that people, who otherwise would have set up in business and applied skills to add value to the extent they would have created other jobs by so doing, end up in the public sector earning a reasonable wage for themselves but not adding the value or creating the employment they could create privately. If we have more of those people focusing on business, and particularly on export, we may find it quite easy to replace the 20,000 “jobs” and indeed add thousands more.

    To give just one example: I know someone who left school at 15 with no qualifications, but enjoyed travelling to GB and elsewhere to watch football. He had to hitch hike to do so but, by so doing, learned all about transport networks and so set up his own haulage firm, along with three other people, which now employs 195 people (no harm in saying it’s Redhead International, which you will frequently see on the roads across the British Isles). His decision to do that, rather than to go into the public sector, has directly created 45-50 jobs which otherwise would not have been created. That, fundamentally, is how a free market economy functions – there are no doubt hundreds of people, currently shuffling pieces of paper around in needless Health Service bureaucracy or in Departments which literally have nothing to do, who would be capable of doing likewise, except that the public sector offered the easy option.

    It would, of course, have been considerably easier to do this 10-12 years ago when the “economy”, particularly that of our nearest neighbour and chief export partner, appeared to be surging.

  • Kevin Breslin

    It should be noted that Special Educational Needs at Further Education level comes out of the Education department through the Education and Library boards not the Employment and Learning budget, so it’s not just children, it’s university undergraduates and postgraduates too.

  • Kevin Breslin

    It has no power, but it does have influence. Note the passenger fuel duty and corporation tax reductions which were led by the Assembly and NI MP’s. Also the NIO operates from Stormont, I believe.

    To amanfromMars … water charges won’t restart the Troubles but it would bring in a reaction like is being seen against Irish Water in the Republic on both sides of the community. We are probably too civil to go back to the days of maximum civil disobedience in any part of the island of Ireland, Northern Ireland included.

  • salmonofdata

    Just to note, I’m certainly not arguing that there are a fixed number of jobs in the economy. As you say, many of the 20,000 redundancies may find themselves more gainfully employed elsewhere, or start businesses that create wealth and jobs.
    But it’s stretching the limits of credulity to suggest that they all will, or even that most will. There will be those who are supporting families, and cannot take the risks that starting a business entails. As you also point out, some will take early retirement, swelling the already large ranks of the economically inactive.

    That Northern Ireland has a bloated public sector and needs to kickstart private sector growth is probably agreed by most. The problem with this budget is that, by implementing harsh welfare reform and cutting large numbers of public jobs simultaneously, the two are likely to amplify each other and cause serious damage to the economy. For instance, if you are made redundant from a job in a town with a proportionally high number of benefit claimants, and you wish to open a café, there are liable to be fewer customers than would have been the case had welfare reform not withdrew a large sum of money from the local economy.

    The current Executive was elected in 2011, and have had plenty of time to stagger the impact of reforms in such a way to minimize damage to the economy, as opposed to the “90s Russia” style big bang of public sector reform that they are enacting. We are facing a perfect storm of worsening macroeconomic conditions, public sector job losses, benefit cuts and government spending cuts all at the same time. The Executive will be praying that the secret sauce of the Corporation Tax cuts does its magic. We need a miracle.

  • Kevin Breslin

    That’s our own hubris IJP, no point cursing the darkness on our parochialism and failings in direct rule, it’s not a symptom of our politics but a causal truth of the nature of our society at large.

    We don’t research, We don’t explore, We don’t take risks, We don’t network, We can’t see our own manna in our deserts nor the lemons for our lemonade, We don’t fake things til we make things or contort our square peg skills into the round peg jobs. Not to down play, but the evidence from numerous surveys tells us this.

    These problems are not just harmful to the private sector they cause skill shortages in the public sector too, which often are filled by overpaid administrators to the chagrin of everyone from the neo-liberal commentator to the trade unions.

    To make matters worse, NI has the additional sin … we don’t boldly go where themuns have been and none of usuns have gone before. If this was GB or ROI that would be xenophobia, here it’s somehow patriotic. Social mobility comes with a lot of friction here because of 800 years of needless sectarian fears.

    The big challenge is how much we are willing to contort to change our culture, to change our society, to change ourselves in order to be what our people need us to be. If that servitude was the real measure of someone’s Irishness or Britishness or Northern Irishness rather than pompous flag waving, parades or ability to speak this language or another then we’d have a real patriotism.

    I don’t believe this is particularly a statist thing, or even a bureaucratic thing, it may even have little to do with the body politic. Northern Ireland had years of direct Conservative rule and yet there was no internal cultural change as a result. Northern Ireland had years of direct Labour rule, and where were the co-operative enterprises, and where was the socialism among common working class people?

    It’s not a constitutional thing, because we have GB and ROI enterprises willing to invest in our talent, thankfully.

    We have the skills, but do we have the wills to try and make something here, Ireland, UK or UK and Ireland, socially, politically, academically or economically.

    There’s plenty of people of any political definition more than happy to start businesses up and would want Stormont keeping out of their business. We have GAA players who play for nothing and marching bands who practice for nothing, and their unpaid work should be praised yet it is still a hard slog to change so much of ourselves for all the potential rewards we can get.

    We do have a proud culture of engineering in this place, and we do have a culture of makers and kinesthetic learners. We need to highlight the real tactile sense that allows us to use our modern tools for our modern purposes.

    Given we need engineering more than ever, we should be smart enough to realize we have an open challenge for people to engineer an economy out of this difficult economy with the limited resources and constraints we have.

    Entrepreneurs may have to be contortionists here, but hopefully with a bit of praise and appreciation their sacrifices can be respected by their community at large.

  • We are probably too civil to go back to the days of maximum civil disobedience in any part of the island of Ireland, Northern Ireland included. …. Kevin Breslin

    Quite possibly so, KB. Any new irregular and most probably unconventional proaction is most likely to be highly targeted and aimed directly at those personally responsible for forming, proposing and enabling austere anti social programs/intellectually bankrupt policies. However, I wouldn’t want to be putting any money on the other not being another course of action with many supporters disenfranchised.

  • chrisjones2

    Well Arlene can afford to rebrand the Tourist Board to eliminate all reference to Ireland so clearly she won. Now £1m is how many nurses for a year?

  • streetlegal

    Getting a budget agreed between the DUP and Sinn Fein is one thing. Actually following through on implementation of budget cuts within departmental spending is something quite different. Expect to see much procrastination and drift from Ministers on setting their own departmental budgets.

  • Zeno

    “Bloated Public Sector, hundreds employed to shuffle paper. a set number of jobs? (who said that?).”
    If it’s just hundreds employed to shuffle paper why are we paying off 20,000?
    What makes you think that NI can provide public services at the same or near the same price as the uk mainland.? That economy is over 30 times the size of NI. They have economies of scale not available to us. Geographically they are much better placed. They have a better infrastructure. And the rest.
    It sounds like you expect an extra 20,000 jobs just to appear because we are scrapping 20,000. If that really worked we should scrap 100,000 jobs and all become rich entrepreneurs.

    Have you any evidence at all that “very often people, who otherwise would have set up in business and applied skills to add value to the extent they would have created other jobs by so doing”

    The reason I ask is because I know several businessmen and I have been in business myself for a very long time and neither I or any of the businessmen I know are the type of people who just wanted an easy job in the civil service.

  • Zeno

    “That Northern Ireland has a bloated public sector and needs to kickstart private sector growth is probably agreed by most”

    I don’t agree with that. We are at a huge disadvantage when it come to providing services. We have a small widely spread population, are on a different Island and don’t have the same infrastructure. Our transport costs are higher. We just don’t have the economies of scale available to the other 3 regions.

    Population

    53.5 million England, Employed in Public Sector 4,316,000…….. (17%)

    5.3 million in Scotland, Employed in Public Sector 545,000 ………(21%)

    3.1 million in Wales Employed in Public Sector 318,000…………………….(24%)

    1.8 million in Northern Ireland. Employed in Public Sector 212,000…….,(27%)

  • salmonofdata

    Hence the weasel words “probably” and “most”.

    You’re right that Northern Ireland’s small size means that that emulating, say, the South East of England and its 16.2% public sector employment is not realistic. But, I think, few would say that private sector growth in Northern Ireland wouldn’t be welcome.

    Opinions on the desirableness of which proportion of economic activity should be in public hands is ultimately a matter of ideology. But, given that the stated aim of all the Northern Ireland executive parties are to move towards a private sector driven growth model, the question becomes more technocratic, in the sense of “how do we get there from here”.

    Had public sector redundancies been phased in whilst there was more in the pot for retraining and development of skills, we would be facing a softer landing than what we face now.

  • Zeno

    “But, I think, few would say that private sector growth in Northern Ireland wouldn’t be welcome.”

    Sure, but with a healthy public sector producing and servicing a healthy and a well educated workforce would we not be more likely to succeed? Do health and education kill the entrepreneurial spirit? Do we need poverty and unemployment as a stick to beat all these brilliant minds who are going to create jobs?

  • salmonofdata

    Yes, no, and of course not.

  • Zeno

    “We don’t research, We don’t explore, We don’t take risks, We don’t network, We can’t see our own manna in our deserts nor the lemons for our lemonade,”

    Who are you talking about?
    We have 34,000 firms in Northern Ireland that will benefit from a cut in Corporation Tax cut. Then we have the rest of the smaller one man band businesses. I’m sure none of those would agree with you,

  • Kevin Breslin

    They may not, but the R&D tax credits statistics, the labour mobility statistics, the university philanthropy statistics, distribution of industry away from Belfast, the over reliance on retail and financial services. These statistics say we are risk conservative followers of established practice.

    We cannot pretend local industry is high tech and high research when less than 2% of industries take up tax credits or EU Framework funds to fund their own research and the only enterprize zone in Northern Ireland has one industry employing 15 people. Saying ICT a lot of times and demanding DEL should fund or rather offset programming training from the costs of local industry, demanding academia should be steered to immediate industry need rather than pioneering is not the foundations of high tech or sustainable economy but rather a third world aid economy.

  • Kevin Breslin

    Northern Ireland has many economy of scales avaliable to it from the Republic of Ireland, more than half of the population are not afraid to use them.

  • Zeno

    What like?

  • Zeno

    How many businesses have you opened?

  • barnshee

    “Social mobility comes with a lot of friction here because of 800 years of needless sectarian fears.”

    Ah I see the various murder campaigns were a mirage

  • Kevin Breslin

    Sorry I forgot the rationale that holding sectarian fears about working in another community’s area was an effective guard against psychopaths with bombs and guns and the ineptitude and corruption of some people within the police and security forces.

  • barnshee

    “It has no power, but it does have influence”

    NI has some 2-3% of the UK population it is a best a pain in the arse and a burden on the overall state. Its problems -excessive population levels -arise largely as a result of the “welfare state” system in the UK

    The UK will not adjust its overall fiscal strategy to suit NI- where it tinkers at the edges -Corporation Tax rates- its will reduce the central subvention support to ensure no cost to the centre.

  • barnshee

    “Oh, and asking prospective NI Assembly candidates seeking election shortly, whether they will oppose or resign over the introduction of water charges and VAT rises is the sort of question people’s representatives need to be asked often and every so often.”

    Not a chance it was them nasty Brits/tories made me do it them big boys bullied us into in– we fought them totiesas hard as we could If we were in a UI we coudea stopped it.

  • barnshee

    “Sure, but with a healthy public sector”

    Funded by others whose patience is exhausted

  • barnshee

    “Sorry I forgot the rationale that holding sectarian fears about working in another community’s area was an effective guard ”

    I see “sectraian fears” caused La Mon- Enniskillen etc whowda thunkit

  • Kevin Breslin

    We have 34,000 firms in Northern Ireland that will benefit from a cut in Corporation Tax cut. Then we have the rest of the smaller one man band businesses. I’m sure none of those would agree with you.

    I am speaking from the point of view of an economy which has not cut corporation tax. I’m fairly aware of the Laffer-Curve economic argument being made for the tax cut. That does allow businesses more money in their pocket, to invest in wages and research but changing skills and wills is a bigger issue than simply expendable cash. Lower corp tax may even increase the tax revenue through more profitable industries and greater foreign direct investment.

    I am however skeptical that Northern Ireland can match the Republic of Ireland or Britain on a per-capita basis when it comes to research, and high technology that industries here say there are skills shortages for. In order to do so, we radically need to change from a government lobbying culture and a steering the curriculum culture to more in-house training and more in-house research with universities providing a broad range of academic fundamentals.

  • Kevin Breslin

    Recent surveys about how majorities of people from the so-called CNR community would be reluctant to work in a so-called PUL community, and vice versa. These fears or perhaps stigmas may be a better word predate the Troubles. There are plenty of unfilled skilled jobs simply because the industry is located in a different cultural community to where a worker may be from e.g. Protestant workers in Seagate, Catholic workers in Bombardier. Roughly 10% on both sides said they wouldn’t be bothered.

    How is a private sector going to grow when “type of area” becomes a deterrent? Public sector jobs outside of teaching like hospitals and universities and the civil service this isn’t an issue.

    There probably are Sinn Féin supporters as engineers in Bombardier in Seagate, there might well be PUP supporters as engineers in Bombardier, but the Troubles happened they’re over and work has to go on.

  • Kevin Breslin

    Transport networks, Trade routes, Tourism, Workers, Educational facilities, business networks etc. There are also a lot of economy of scales and restrictions on international bureaucracy between nations coming from being part of the European Union.

  • Zeno

    Whose patience is exausted?

  • Zeno

    Trade routes?

    How much could we save on that for example?

  • Zeno

    Sorry .I’m trying to work out where you are coming from on all this? Are you a Businessman? An expert in economics?
    What?

  • Kevin Breslin

    Surely it would be cheaper for businesses in NI to export to France through the Republic than by using the different island arguement and feel compelled to export through England, and the smaller route through the Republic makes lorry haulage cheaper than in Scotland or the Shetlands.

  • Kevin Breslin

    I haven’t seen you quote economists or business people.

  • Zeno

    I am a Businessman and have owned a number of businesses including a small IT Company. I also have a life long interest in economics and a 3rd Level qualification in the subject. Though that was a while ago.

    It is reasonable to ask where your expertise comes from?

  • Zeno

    We were talking about economies of scale regarding Public Sector spending.
    You are talking about Private Sector Companies saving money.
    Any business I know will use the Transport Company that gives them the best service and the best value for money. If Trucks are leaving Belfast on route to France I am sure the Transport Manager bases his route decisions purely on costs.

  • barnshee

    HM Treasury

  • Zeno

    I don’t think there is any evidence of that. The cuts in NI are as a direct consequence of the cuts in the UK. They can’t very well introduce austerity at home and let us continue to spend willy nilly.

  • Zeno

    I hear on the news that Gerry Adams has said no Public Service Jobs will be cut without the approval of the Trade Unions. Martin McGuinness has added that all of the people losing their jobs will be close to retirement anyway. That being the case I’d like to see how the figures stack up.
    Are we really borrowing £700 million to give to people who be close to retirement?
    Would we not be better waiting until they retire and saving £700 million?
    As the intention is to save money? How much are we going to save by paying people who are going soon anyway?