A Tale of Two Cities – The contrast of future spending plans in Dublin & Belfast

It looks likely that Ireland will run a small current budget surplus in 2015, despite initially budgeting for a deficit. Growth is running at 4% plus, employment is up. taxes are flowing into the coffers at a greater rate than predicted, Social Welfare spending is falling as activation measures take hold and  Patrick Honohan has remitted an additional €300M more than expected from the Central Bank’s windfall profits. The Irish Government have announced plans to make positive adjustments of approximately €1,500M in their next Budget. Indeed, the figures would suggest that more could be afforded, but clearance from the European Commission to do so is required and probably not forthcoming.

The Irish Government had planned for a current Budget deficit of €3,730M, see here, Table 11, page C.24. The Spring Statement (Table 3) is expecting a current deficit of just €1,630M and the expected additional tax yield has been bumped up by just €1,000M. This additional figure should be reached comfortably by the end of May, and with taxes consistently running well ahead of target, a surplus on current spending is a reasonable expectation,    leaving the General Government Balance well below the 2.3% forecast.

The UK’s  Office for Budget Responsibility most recent forecast suggests a UK wide Current Budget Deficit of 2.4% and a net Borrowing Requirement of 4% in 2015/16. It also expects cuts in current spending of 0.7% and 0.9% in 2016 & 2017, which after inflation work out at 1.9% and 2.6% respectively.

While Dublin will be expanding spending, albeit slowly, the Belfast based administration will be finally getting around to making some negative adjustments in expenditure. And there are many, many years of these adjustments ahead. Their foot dragging over recent years will mean that the cuts will be far more severe and extreme than had decisions been made earlier. There is also a new political  dimension to the cuts, which is discussed below.

The Institute for Fiscal Studies,  (one of the few long-term winners from the UK election campaign together with the SNP,) has pointed out the massive gaps between income and spending commitments of all the parties, but particularly the focus of the DUP’s unrequited love, the Conservatives. I think it is fair to suspect that Northern Ireland’s comfort blanket of top-up spending will not survive for very long more as the new UK Government which is an almost purely English creation, sets its fiscal priorities. The hostages to fortune given during the campaign make it far worse, as   Andrew Rawnsley in this excellent piece  in the Observer 3rd May, comments,

“The parties have made some foolishly exact commitments not to raise taxes, pledges that will come back to bite someone if economic circumstances force them to break those promises. At the same time, they have sprayed around a lot of spending pledges without being able to say how they will be paid for. We started the campaign in the dark about where a Conservative government would make the £12bn of further welfare cuts that they are committed to. We end the campaign with the Tories still refusing to say. We do not know from which money tree they are going to find the cash to pay for their promised tax cuts. Nor how they would finance their commitment to extra funding for the NHS.”

The hoped for accident of history failed to happen, the DUP is  not required to patch together a deal to support a Conservative Government. Secretly I imagine that even Martin McGuinness was praying for such a miracle to bail him out of defending the next set of cuts. Because none of the Stormont parties have a Plan B and Northern Ireland is the plump goose to be plucked. It helps that it is a meek tame one that will not fight back as it has no mainstream representation in Westminister. But unlike Colbert’s famous bird, it is expenditure rather than taxation, which will be the target.

Indeed  the result could not be better for the Conservatives as they face a diverse and divided opposition. They are much more worried about the 3,611,367 UKIP voters in England, 14.1% of the English vote almost completely unrepresented, than any little corner of John Bull’s Other Island. The Conservatives hold 60% of English seats with just 41% of the popular vote. The long-term threat to the Conservatives now comes from its right-wing and no where else.  The SNP’s 50% of the popular vote in Scotland adds to the contrast and gave them 95% of the seats.

The Conservatives need to protect themselves now from UKIP. To do this, they cannot afford to fritter money away on Northern Ireland, where they have no electoral interest at the cost of their English constituencies. Remember the number, 3,611,367 English votes, UKIP’s vote was twice the population of Northern Ireland and five times the 717,383 votes cast there.

Cameron’s One Nation is exactly that, the beginning and end of his party in now the English nation. In such circumstances the  Northern Ireland Budget does not look very safe. He needs desperately to minimise cuts in England to restrict any further leakage to UKIP and Northern Ireland is the logical place to start. The announced cuts are only the beginning

In political terms, Sinn Féin above all are now left in a quandary. They can refuse to implement the Northern Ireland budget, bring down the Assembly and destroy years of effort to show that they can act responsibly in positions of authority. Alternatively they can implement the cuts and face the taunts of making cuts in Northern Ireland just when the opposite is happening in Dublin. The arrival of the SWP under their People Before Profit trade name only adds to the torture.

However, there is a delicious irony for Sinn Féin watchers in Gerry Carroll‘s campaign in West Belfast and he should be returned to the Northern Ireland Assembly next year. The ongoing Casement Park affair  a mess of Sinn Féin’s own making, can only help him.

The unionist parties are also facing their own problems. Loyalty, whatever that ever meant, certainly means nothing now. The Conservatives ran a brilliant campaign, ignoring the “United Kingdom”, focussing on their core areas of England and won. They played to the prejudices against Scotland like a 19th Century Punch Cartoon did about Ireland. Cameron’s tax covenant means the end of regional transfers, or alternatively he puts his own party in peril.

A weakening Northern Ireland economy creates its own problems for a Dublin Government.  However it’s electorate is as single minded as England’s and will be focussed on their own needs and demands alone. The assumed rates of growth will provide a modest increase in living standards, and there is no desire “to share” it.  The proportion of economic activity from State spending is over 60% in Northern Ireland, while the Irish figure will be little more than 30% of GDP by 2020. The next Irish election will be won by a strategy closer to that of the English Conservatives, focussing on the demands of the majority, rather than the needs of a minority.

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  • I don’t see how Sinn Féin can come out of the northern welfare debacle unscathed. The southern strategy is based on a leftist, anti-austerity message, but that will be contradicted if they in anyway compromise to wishes of the Tory government, especially with the upcoming 2016 Dáil elections, as well as the emergence of the likes of Gerry Carroll who will outflank Sinn Féin on the left at every opportunity.

    And yet, if they bring Stormont to a standstill and collapse it, they’ll be derided as unfit for government, undermining the peace process they so advocate, and effectively bring back British direct rule. Quite the predicament.

  • Jack Stone

    Arent the British Conservatives the best foil for Sinn Fein? I mean it gives Martin McGuinness the ability to scream Thatcheriite Tory cuts at the top of his lungs and attempt to link the Government parties to the British conservatives in the Southern Elections? Isnt Mary Lou McDonald already using the Thatcher smear against Fine Gael? I mean wouldnt it be worse if Labour won and Sinn Fein had to implement the cuts anyway? If anything, the mainland outcomes help Sinn Fein’s counter argument to blame conservatives and champion the far left.

  • It simply won’t be good news for Sinn Féin if they are seen to be the Tories poodle. The 2016 Dáil election is too important, nor would it help in dealing with their northern opponents.

  • JohnTheOptimist

    Good post. I see such posts becoming more common in coming years as it becomes clear that the ‘terminal collapse’ of the Republic’s economy, trumpeted loudly a few years ago by some now-silent Dublin-based economists, was in fact a hoax. It is very likely that the next set of GDP/GNP figures published in the Republic will confirm this. What people need to realise is that the Republic of Ireland growing faster than the U. Kingdom and Northern Ireland is the norm. It is the opposite which is an aberration.

    The Republic of Ireland grew at over twice the rate of the U. Kingdom between 1958 and 1981/82. It then suffered a more severe recession than the U. Kingdom between 1981/82 and 1986 (although this was the period when North Sea oil output was surging). History then repeated itself. The Republic of Ireland grew at over 2.5 times the rate of the U. Kingdom between 1986 and 2007. It then suffered a more severe recession than the U. Kingdom between 2007 and 2011. That recession is now well and truly over and we’ve now entered a third prolonged period when the Republic’s economy will grow faster. However, it will take another 2/3 years before the legacy effects of the 2007-2011 recession (mainly higher unemployment in he Republic) unwind.

    It appears that during periods of global growth the Republic’s more flexible and more export-oriented economy performs better than the U. Kingdom economy. While the opposite is the case during periods of global turbulence and recession. Fortunately, years belonging to the former category are much more numerous.

    Will this have an effect on the unionist v nationalist debate now raging throughout these islands? I think its bound to. Although the effect may be greater in Scotland than in N. Ireland, something I wouldn’t have predicted a decade ago. When the next referendum in Scotland is held, GNI per capita in the Republic may well be 20% higher than that in the U. Kingdom. Based on current and likely future growth rates, this is an entirely realistic scenario. I think the SNP are clever enough to exploit this, just as they did in the ‘Celtic Tiger’ period. Last year’s referendum came at the worst possible time from the point of view of the SNP using Ireland as a model that Scotland should follow. I doubt if the effect will be as great in N. Ireland, due to greater polarisation between the communities and the overall uselessness of the nationalist parties. Nationalism in N. Ireland badly needs an SNP to expioit the opportunities that the Republic’s third economic boom are likely to throw up.

  • Dan

    No doubt the bankrupt nationalist parties will continue their tedious mantra about austerity whilst pissing away millions on failed projects, and in the case of Sinn Fein, on scams to loot the public purse.
    With guaranteed places in government, there’s no downside. It doesn’t matter a jot.

  • Jack Stone

    But why would they be the Tory poodle when either they can force concessions (unlikely) or stand firm in the face of Tory intransigence (in which they are cast as the traditional Republican role of being stripped of self rule by a Tory Government) If anything, it is a win/win, If they win the fight with Westminster and win more than intended. If they lose then they are painted as the victim. The only way Sinn Fein are greatly weakened by the situation is if they capitulate. Which makes them being a good dog to a Tory government unlikely at best. Again, when has demagogy at British expense ever harmed Sinn Fein? Isn’t playing the demagogue against a Tory held Westminster the most reliable play in the Sinn Fein playbook?

  • AndyB

    I see Westminster’s patience running out in the next Assembly term. The theme of 2011-2016 appears to have been “The Tories have agreed to save the big cuts to the Block Grant until 2015-16. Let’s sit tight and see if they change their minds before then” and then to have a (possibly convenient?) crisis when the cuts bite, needing extra money to fix.

    I don’t see that working twice. Expecting more money to stop our rates going up when they are the envy of council taxpayers across GB who have been suffering serious service cuts for years was always at best optimistic – it will be politically unacceptable in their own constituencies to throw cash at NI while local services are cut.

    On top of that, it has to be realised, much as Sinn Fein is in denial about this, and much as I think that Welfare Reform as implemented in GB is a bad thing, that we have no power whatsoever to get the Treasury to give us a single extra penny – they hold all the high cards, and drew trumps a long time ago.

    Speaking as a ratepayer, I fear that rises in the regional rate are inevitable in order to plug the gap.

  • chrisjones2

    From a SF standpoint they cannot agree welfare cuts

    So the other parties should react accordingly and make them pay the political price by vetoing the vanity projects, exposing examples of the fraud corruption and misspending that SF are supporting and let the voters decide. There Are Already signs for this vote that the electorate is more sophisticated than SF think.

    A large part of this effort by the other parties should focus on Ireland – not NI- as its Gerry and the cabal there that is the problem and voters there are more open to understanding that there is no free lunch. That may be anathema to the Unionists but they need to realise that if SF is an all Ireland party attacking the soft lying underbelly may be the best route to electoral success in de Nurth

  • Kev Hughes

    In this article I was actually hoping for their to be some kind of actual analysis in relation to spending differences between Dublin and Belfast, not the regurgitation of a thousand opinion pieces that have come before.

    The analysis is an amalgamation of that I’ve already read before:

    1. NI to face cuts and austerity.
    2. Deep cuts coming.

    What I’m specifically annoyed with is bringing Dublin into the mix and then not going the full hog and doing a comparison that actually lays it bare the stark differences between the south which is doing better than the North (or so it would appear).

  • Jeffrey Peel

    Excellent piece absolutely on the nail.

  • Zeno

    “Isn’t playing the demagogue against a Tory held Westminster the most reliable play in the Sinn Fein playbook?”

    I think they lost the playbook. Cutting 20,000 local jobs at the behest of the Tories and borrowing £700 million to do it and signing up to cut Corporation Tax hardly makes them anti Tory.

  • Brian O’Neill

    Excellent insights as always Niall. The conservatives are going to gut our budget to the bone. I can see the assembly falling over it all as SF will not want to implement the cuts.

    As the southern economy grows will this also halt the advance of SF in the south?

  • 23×7

    Disagree with this analysis. It is clear that UKIP had a more negative impact on Labour than on the Tories in this election. Labour should have supported the EU referendum. By 2020 the EU issue will have been resolved and Labour should be able to get those votes back.

  • 23×7

    The Republic will also indirectly benefit from the EU uncertainty that will exist in the UK for the next 2.5 years.

  • Ernekid

    Well said John.

  • Kevin Breslin

    Is it a it presumptuous to assume the UKIP votes in England are all English people’s votes?

  • Gingray

    Niall – a good post, and it is something I think we can expect to see become a bigger talking point over the next few years, as the south progresses while the north stagnates (both economically and politically).

    My own view is that by having our economy tied into a London/South of England centric UK, Northern Ireland will only ever be on the periphery, with ultimate direction over our finances determined in a parliament where we will rarely have any say. It doesn’t help that we are on a different island, nor that we only elect parties that do not reflect modern British values (SF/SDLP are too Irish, while the DUP/UUP too religious).

    Dont get me wrong – the UK is undoubtedly better placed to support the handout economy the DUP and Sinn Fein rely on. However reuniting with the rest of Ireland
    would give us the opportunity to join and grow an economy that reflects the needs and desires of the people living here.

  • scepticacademic

    I don’t think the increase in support for UKIP in the traditional Labour heartlands is only (or even mainly) about the EU question. It is more about the dis-connect between Labour and its traditional working class support base. It’s about issues like housing, living standards and immigration. UKIP is presenting itself as an appealing populist protest vote for people who feel they have been neglected by the Westminster elite. The SNP fulfills this role in Scotland but more successfully, due to their track record in the Scottish Parliament and skillful manipulation of nationalism. If I were a Labour strategist (do they have any?) I would be very worried about the threat of UKIP in the urban North of England.

  • murdockp

    If the NI efficiency and waste could be tackled and these departments right sized NI would have enough money. Buy alas these departments are stuffed to the gills with staff and there is no appetite to let anyone go, in fact staff numbers have increased since 2007. We are reaching a point now where it will cost £10 to deliver £1.00 of on the ground public services. In Newry, Mourne & Down for example the budget for running the Arts buildings is £500k per annum yet the budget for actual arts content is £7,500. The same up and down the land, loads of managers, administrators, staff many in socially useless jobs delivering nothing of value to the taxpayer.

    The irony in all this is the tories want to reduce spending per capita from £10,700 per capita to £8,800 which alligns our spending not only to the UK, but the Republic of Ireland. Who is making the loudest noise about Tory cuts, why the shinners of course.

    They are actually complaining about NI having the same spend per capita as the very country they wish to be a part of, that my friends sums it all up for me.

  • Brian O’Neill

    I have restored your comment. The discussion about the comments policy is detracting from this post. We can talk about the comments policy on a future post.

  • murdockp

    The average UK non domestic multiplier in the UK is between 0.45 and 0.50 depending where in the UK you live. Ours are between 0.57 and 0.6. So we are paying 10-15 % more in rates that comparable UK businesses and we wonder why our economy wont grow. Any more rises and we may as well pull down the shutters.

  • Gingray

    I largely agree, but I would be intrigued as to where you think all these extra bodies will go – our booming economy? NI will cut its public sector and create more benefit claimaints, force more of our young people to leave, but ultimately fail to address the underlying issues, particularly the fact that we are an isolated enclave within the UK, with an insignificant population.

    Our local government wasted money which could have been used to tackle the investment issues, and by doing so have left us in serious need of capital funding, none of which is available.

  • murdockp

    Wilson paid £39m for an office block in 2013 and Hamilton paid £12m last week and called it good business.

    None of the large accounting firms, lawyers, banks or corporates owned their own real estate preferring to rent. Why because they can use their cash to invest in their businesses and turn £1.00 into £20. It makes no sense to hold real estate unless you are a pension fund.

    For me is don’t see £51m invested in office blocks I see circa £500m removed from the economy due to lost economic growth possibilities.

  • Kev Hughes

    Thanks Brian, much appreciated.

  • ConallBoyle

    UKIP: got 1.6% in Scotland, 12.6% in England and 13.6% in Wales! (God help us, I an Irishman retired to Wales)

  • murdockp

    I think there are parallels with Labour in the UK and SF. The question is are citizens in ROI willing to put their economic recovery at risk for a left wing extremist organisation that could put the ROI back a decade?

    Even the die hardest of Union members of the south are smart enough to know that you need a booming economy to justify a €75k salary for driving a train, so when you are standing at the ballot box, who are you going to vote for? A party selling socialism and the unknown or a party delivering economic growth and prosperity.

    The lesson Labour taught us on Friday should not be underestimated. The left will struggle to win when there is a feelgood factor in the air.

  • barnshee

    The “loss of “patience” is long overdue–had it been imposed decades ago a lot of grief would have been avoided. The connection between tax raised in N,I the accountability of local politicians and the services paid/to be paid for is also long overdue. Bring it on.

  • barnshee

    “Stand firm”?
    Only impresses the financial/economic illiterates
    Subsidy reduces ? SF answer gimme more?

  • NMS

    Conall Yes, my point really is the pure size of their vote in England makes them a serious issue for the Conservatives there, because that is where the core of Conservative seats are. There are a few hotspots of UKIP support in NI or should it not be UKNI?

  • NMS

    Lads, I think the biggest problem in NI now is that the private sector economy is stalling just as the cuts will come on board, see for example http://www.bbc.com/news/uk-northern-ireland-32658945

  • NMS

    At the launch of a recent book, Britain & Europe: The Endgame, available http://www.iiea.com/ftp/Publications/Britain-and-Europe-The-Endgame_DigitalVersion.pdf, edited by Daithí ÓCeallaigh, the former long standing Irish ambassador, one of the speakers suggested that the NI economy was broadly in the same situation as the Free State economy in the 1920s.

    All economies are becoming more and more specialised. Where is the NI specialism? I personally am very pessimistic about the NI economy. It loses a large number of its cleverer or more motivated youngsters every year to GB Universities, who might be able to drag it forward . It is a peripheral part of one State and is also a peripheral part of a peripheral island with no plan.

  • NMS

    23 X 7, UKIP have a base everywhere, yes they mopped up some lumpen voters in the NE of England, but they have very strong support across a range of Conservative areas. The Nationalist genie is out of the English bottle and the Conservatives will need to get it back in and capped asap.

  • Gingray

    NMS – unfortunately I could not agree more – in addition we are losing skills craftsmen being tempted by the prospect of full time employment in Canada, Oz and New Zealand, as well as the UK. Serious change is needed but the UK government do not care and the Stormont government are incompetent.

  • NMS

    Brian & MurdockP – The SF support here (in Dublin) is concentrated in areas where there is serious problems. I do not think that they receive widespread support from the main unionised group of workers, the Public Service. The biggest problem for SF is a) that much of their polled support is soft, b) Trots. This is why West Belfast will be a metaphorical bloodbath. Just remember the Tallaght bye-election.

    Ireland is a country following a certain model, with incredibly low levels of Public expenditure. This is mainly possible because of a tiny cohort of pensioners because of the 1950s & early 1960s emigration.

    The BLP proposed a very right wing social democratic policy platform and were roundly beaten. The best analysis I have seen during the campaign and afterwards came from John Harris in the Guardian in his “Anywhere but Westminster” vignettes http://www.theguardian.com/politics/2015/may/12/can-the-explanation-for-labours-election-failure-be-found-in-nuneaton.

  • NMS

    Kevin, I will do a separate post on that, in the near future. In the interim, can I suggest you have a look at some of the documents prepared by the Nevin Economic Research Institute http://www.nerinstitute.net

  • NMS

    Dan, I wouldn’t limit the term “bankrupt”.

  • Kev Hughes

    Thanks Niall, gentle reading for my way home this evening! 😀

  • NMS

    Mark, Large parts of the Irish Left don’t “get” production. There is a complete lack of understanding that the goods and services consumed must be produced and paid for. This is ironic, because historically this was the strong point of the the Left. I have a problem with Trotskyites, but will happily wish Comrade Carroll on the NI Assembly, and who knows perhaps Westminster?

    I was struck recently by how many treated the bubble economy as the normal level of economic sustainable level of activity, rather than a debt fuelled binge.

    We now have a welfarist model being pushed as socialism, which in fact is closer to satisfying the mob in Rome. Perhaps Sinn Féin need Casement Park for their circus?

  • NMS

    The real danger for SF, is that Cameron will cut off their money. Imagine no Westminster expenses or staff allowances, unless they sign on the dotted line. That I think is the cut that would hurt!

  • NMS

    John, You are clearly more optimistic that I! There are major skills shortages in Ireland, which can be seen at present. The current Government has not repeated the error of the FF Governments from 1997 to 2007 in tolerating large scale non-participation. Joan Burton’s activation programme has meant that the sucking in of large numbers of less skilled workers is not happening this time.

    However the current Government failed to back Ruairi Quinn’s reform of the education system. In particular, stymied his attempts to reallocate money within his own Department by closing hundreds of non-viable rural national schools. There has also been a 13% cut in capitation fees at second level and a continuation of the two tier financing structure which leaves the voluntary secondary schools seriously under-financed when compared to EB schools. Quinn was facing up to lots of issues.

    However, the “meon an deontais” is gone, while in NI it remains “scread an deontais” ( Meoin = Sentiment, Deontas = Grant, Scread = scream)

  • Shane Frank

    Hard times ahead for NI. It will be interesting to see how both the DUP and Shinners package up the boke they are going to be served by the Tories as a ‘win’ of any sort