As austerity is set to continue whatever, it’s time for civil society to call for a halt in the game of chicken over the budget

The silence from local economists and business people has been deplorably deafening about the game of chicken being played out in the Assembly over the budget and the welfare Bill. Rather than mixing it with the politicians they can perhaps be forgiven for turning to bigger pictures and hoping that the Assembly will do likewise. But time is running out for  this passive attitude and a bolder line should be taken soon by those who keep the economic show on the road.

Meanwhile two reports are salutary if not exactly news. The UU’s Economic Policy Centre concludes that the private sector  will fail to make up for the loss of jobs created by the ongoing shrinkage of the public sector over the next three years. And Richard Ramsey of Ulster Bank has produced a mild corrective to the idea that Northern Ireland is the most deprived area in the western world. Try Birmingham. Manchester and Hull for worse off.

According to the reliable analysis by Neil Gibson and his colleagues at UU’s Economic Policy Centre the Spring 2015 forecast is one of austerity and its likely impact on growth. GVA ( local output measure) is projected to fall from 1.9 % this year to 1.1%, 1.0% and 1.3% respectively over the next three years.

In contrast to many other forecasts, UUEPC expect economic growth in the medium term to slow in Northern Ireland (a feature of our forecasts for some time) as the private sector moves to take up the slack created by lower Government spending

But will it?  Growth will be patchy and the Outlook often hints at   frustration at a lack of enterprise and grip. Time to talk straighter, guys?  

 Interestingly NI manufacturing is performing more strongly than in other parts of the UK. If NI manufacturing had only grown at average UK rates then 4,700 fewer jobs would have been created since 2012. Manufacturing also has the benefit of being one of the sectors least impacted by Government spending restraint.

Construction. Locally, a sustained increase in house prices continues to give confidence and activity levels are positive (NISRA reported an 8% rise in NI house prices in 2014 and a 24% jump in sales). However publicly funded construction activity is likely to come under continued pressure as austerity measures are implemented.

Private sector services. Northern Ireland has had an excellent record in attracting foreign direct investment, therefore it is disappointing that jobs growth in some of the targeted higher value added service sectors has not been higher. If the professional services and ICT sectors had grown at UK rates since 2012, then an additional 4,800 jobs would have been created. Looking forward, growth in areas such as professional services should be stronger as the jobs which have already been promoted/ announced are created.

Since 2012 Public Administration employment has increased by 1,300, however if we had followed the same path as the rest of the UK, employment in Public Administration would have fallen by 2,800. The forecast is for a loss of 8,400 jobs across the public sector over the next 4 years as headcount reductions, rather than changing pay and conditions, is the chosen response to reduced public funding. In this environment, workforce planning will be important to ensure internal capability continues to meet critical service delivery needs.

 Looking beyond 2015, the UUEPC forecasts a reduction in economic growth. Lower levels of government spending, an end to falling prices and rising interest rates (albeit modest) will all have a negative impact. Employment growth of approximately 12,400 net new jobs is forecast over the next four year period, which contrasts with over 27,000 jobs created between 2012 and 2014. The reduction in public sector employment explains the sharp fall in job creation, but encouragingly almost 21,000 private sector jobs are expected to be created over the forecast period, significantly more than the 14,000 created in the recovery period to date. This reflects a lag in recruitment following the impressive inward investment performance over the last 12 to 24 months.

At a national level the UUEPC forecast is more prudent than the Office of Budget Responsibility (OBR) outlook. A more optimistic scenario could be envisaged but this will require a number of factors to occur. These include:

  • A significant increase in wage growth;
  • Less severe government spending cuts; and
  • Lower inflation than projected allowing interest rates to remain low for longer.

If these factors materialise then stronger economic growth could be anticipated.

Don’t bet the house on much of the above happening.

Richard Ramsey, the chief economist of the Ulster Bank has popped his head above the parapet to qualify the  position so beloved of politicians of all parties really, but Sinn Fein especially,  as the most deprived region in the western world. The implication for SF’s stance on welfare is clear.

Disposable household income in Northern Ireland as a whole is higher in relation to the UK average than most of the midlands and north of England. That’s the message of a simple table produced  by  Ramsey. This is a part of an even handed analysis that is careful not to underplay the full context, including our poverty hotspots.

 In 2013, the typical disposable income available for Northern Ireland individuals to spend or save was £14,347. This was the lowest of all UK regions and was 81.7% of the UK average (£17,559) – the widest income gap since 2002. The equivalent figures for England, Scotland, Wales and the North East of England were £17,842, £17,039, £15,413 and £14,927 respectively.

Northern Ireland’s average disposable incomes fell in real terms, when adjusted for CPI inflation, for six consecutive years up to 2013. Northern Ireland’s GDHI per capita fell by 11.3% cumulatively over this period, which compares unfavourably with a decline of 4.2% for the UK. Furthermore, Northern Ireland’s decline was greater than that of any of the 12 statistical regions within the UK (the so-called ‘NUTS 1′ classification).

These headlines of the ONS data are likely to be seized upon by those arguing that the local economy cannot take more austerity or implement welfare reform measures.  However, it is important to note that headline averages can conceal significant variations at a sub-regional level.

Politicians in parts of England, Scotland and Wales could be quick to point out that, according to the ONS figures, Northern Ireland, on average, fares relatively better than many of their constituencies. And that their constituents have also had the full range of welfare reforms imposed on them, with no mitigating measures to alleviate the impact.

Comparing Northern Ireland with the 40 regions that make up the so-called ‘NUTS 2′ statistical classification reveals that South Yorkshire and the West Midlands have marginally lower disposable incomes per head than Northern Ireland.

Going down to the next statistical level – the NUTS 3 classification of 174 regions in the UK – reveals that there are an increasing number of sub-regions in Great Britain that, from a disposable income perspective, are worse off relative to Northern Ireland.

Last month’s statistical release confirms that Northern Ireland has experienced something of a lost decade when it comes to closing the income per head gap with the rest of the UK. However, a recovery has been in train since 2014 and this should lead to some improvement that will be reflected in future ONS data releases. Disposable incomes have been boosted by the record falls in food and petrol prices over the last year or so, which are not reflected in the 2013 figures. (Although in recent months petrol prices have started to rise again.)

The headlines from last month’s statistical release could encourage Northern Ireland to wallow in its low levels of Gross Disposable Household Incomes and by extension encourage us to continue to plead special status and apply for exemptions from austerity and welfare reforms.  However, it is clear that there are plenty of politicians the length and breadth of Great Britain who can claim that their constituents are worse off than the Northern Ireland average.



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