The five billion pound man made a long term case. To fulfil it, the Assembly has to show unity, leadership and competence

How was £5 billion arrived at?  Blame or praise goes to the estimable Esmond Birnie,  the PWC economist who was once a UU MLA.   Yesterday I included the media in blame for what I think of as the policy paradox: knowing full well how important  a policy is, but ducking it, or failing to give it enough attention because it’s too boring meaning incomprehensible, definitely non macho, but truth to tell, bloody scary. My point still holds good but needs to be modified. Articles like those by Esmond Birnie stand up like secular sermons well away from the news pages. Their messages need to be incorporated much more into news coverage and debate.

 Writing in the Belfast Telegraph, Birnie makes it clear that his £5 billion culled from various official sources is a total bill for years of reform and should not be used as a stick to beat the Brits with. The programme“Making good a historic deficit” is not an overnight task. “New Decade, New Approach” is medium term. The clue is in “decade.” It wasn’t “New Year.”

The category of demands is those which require a once off increase to reform services or make good an historic deficit. This category includes:

• Clearing the health waiting lists – £350m (e. £50m in each of seven years).
• Implementing the Bengoa structural reforms to health provisions – £750m (e. £150m in each of five years).
• Roads, to restore and repair after years of neglect, £1,2bn.
• Building new roads and other new physical infrastructure (such as the York Street Inter-Change) £200m plus.
• Water treatment and sewerage £2,5bn (spread over 2021-2027).

It is clear that these sums for capital spending are enormous and total about £5bn.

They should be compared to the existing capital budget of the Stormont departments which is only about £1,500m annually.

Then we come to the day-to day

Importantly, there are also funding pressures in terms of day-to-day or recurrent spending in the Northern Ireland departments, all of these figures are annual spends

• Health pay parity with GB – £50m.
• Welfare reform mitigation – about £125m.
• Education – £250m.
• Universities – £50m.
• Many other demands such as extra police and health staff.

He offers the obvious advice diplomatically.

The RHI crisis was only the most recent occasion on which the Treasury had to exercise forbearance to Northern Ireland. The Whitehall mandarins do not want that to ever be repeated. I therefore wonder if the best strategy might be to co-operate now, demonstrate a track record of good behaviour and hope for some more generosity down the line? In broader terms, the policy agenda for the Executive may have to be three-fold. First, even more attention to priority setting. The New Decade document contained a very long shopping list – some selectivity will be necessary in the short to medium term.

Second, spend more efficiently. The recent Audit Office report highlighted how far we need to sharpen up the procurement process when it comes to big infrastructure. Third, unpopular though this might be, an open and honest debate about revenue raising.

So far I think I only heard the Alliance party talking about raising the regional rate.

On Friday might Arlene Foster dipped a toe into the debate by thinking aloud about university tuition fees. This will immediately provoke the objection that it will fail to do anything to staunch the flow of students to GB, never to return and places a heavier burden on young graduates.  Tough choices indeed.

Elsewhere Birnie makes the familiar case for diversion into long term spending for growth rather than short term spending for consumption, the besetting sin for governments under pressure everywhere

Rates of investment per person in NI are about half those in Great Britain and one-third those in the Republic.

When an economy invests so little its long run growth potential is seriously reduced.

A low investment economy means a low productivity economy and that translates into relative decline in living standards.

Comparing 1998 with 2017 gross value added per person in NI declined from 80% of the UK average to 78%.

 

1: Bias to short-termism

Hence consumption is favoured over investment. For example, through the limits on domestic rates relative to Great Britain, absence of domestic water charges, the loading of the fixed costs of electricity generation towards the industrial (rather than the domestic) sector, movements of money within the Northern Ireland government budget away from the capital budget into everyday spending.

2: Reliance on UK Government as the backstop funder

There is a widespread belief throughout private, voluntary and government sectors, that no matter how bad policies or performances, HM Treasury will always rescue us. Economists term this soft budget constraints leading to moral hazard:

Conor Murphy the Sinn Fein finance minister knows better than he talks.