Pounds, shillings and pence: Stormont’s Fiscal Council…

I have before written about the idea of a fiscal council for Northern Ireland which was first mooted in the Stormont House Agreement. When the new decade new approach agreement was published there contained a solid commitment to the establishment of this crucial mechanism.

The post war Labour government who established the NHS were committed to ending the regional disparities in relief which had become stark in the nineteenth century. Across Britain and Ireland there was an old system of ‘parish relief’ which was largely left to the disposal of parochial authorities. When the work houses were established they were gradually put under the domain of regional authorities but again there was a lack of national consistency. What motivated this post war labour administration was not only a belief in the idea of ‘service free at the point of delivery’ but an end to regional outcomes disparity.

This plan for national insurance of every citizen was inevitably incompatible with the Stormont system of governance. As far back as 1938 the then Prime Minister of Northern Ireland, James Craig, had been given assurance that the Treasury would fund the NI state through ‘subvention’ and since then a net surplus has been paid into NI by the central London Treasury. By the time the Labour and Conservative post war governments had spent, rebuilt and refinanced the war torn nation it was impossible for NI to ever be a net contributor.

But the model began to crack when our economy slowed in the 1960s, traditional heavy industries who’d experienced a boom in the war period could not compete in a global economy blown open by the dominant USA. The so called’ “Kennedy Round” of tariff reductions at the GATT straight-jacketed any UK government from raising tariffs and a weak pound meant that attracting investment (especially in dollars) was more vital over protecting old failing industries.

Therefore our politics slipped into ‘moral hazard,’ fiscal responsibility fell solidly off of the political agenda and economics centred on grant schemes from a treasury funded pot. This is embodied most in the Minister for Commerce Brian Faulkner who said:

Firms have come to Northern Ireland, simply because we were able to offer them a factory ready made into which they could move literally within a matter of weeks.

Using resources in this fashion was a great short term buffer to big job losses, but it failed to address the underlying structural issues in NI (other examples of expensive schemes include the Craigavon city project, the Lockwood Report and the Motorways project). One example is the failure to reform education which occurred in the Republic of Ireland and England at the same time. The two latter regions established a comprehensive secondary and tertiary education systems, they did this to attract investment in key skills sectors.

The moral hazard persists with the most egregious recent example being exposed by the RHI scandal, Sam Mcbride used the example of a study conducted by a Department of Finance civil servant in 1992 to illustrate the issue:

His confidential assessment, which went to Stormont’s top mandarins, calculated that the previous year government spending in NI was close to 43% higher than the average in the rest of the UK, and that in several areas of expenditure NI was receiving ‘between three and four times’ more than the UK as a whole. The only area he could identify in which NI received less money was roads and transport [bold added]

Against the backdrop of this the Westminster Northern Ireland Affairs committee produced a report examining how the Fiscal Council would work and how broad its mandate would encompass – just to add this is the only region on these islands without an independent fiscal council or budgetary responsibility body.

Sir Jonathan Stephens gave evidence to the commitment in which he argued that the council could give MLAs political voter for policy decisions (think citizens assembly). Paul MacFlynn in his evidence called for complete independence as an arms length body:

As the fiscal council will be expected to criticise and evaluate government policies, the relationship between the council and government needs to be more distant.

The report also noted how the OECD have found (internationally) that the most fiscally governments take independent advice and have such bodies. Therefore the need for this to be staffed by competent people wholly independent from political parties is vital. The report quotes Paul MacFlynn’s testimony that policy which is implemented and policy which isn’t implemented must be fully costed, specifically he pointed out that when NI diverges from UK wide policy a full costing should be required. With Stormont’s limited abilities at raising revenues he also called on the council to have full access to how income is distributed from the treasury and where exactly it is collected.

The Fiscal Council deadline was July 2020, having now been passed and with COVID throwing the economic realities of the world into a tailspin it is more vital than ever that we establish a fiscal council.

Photo by nattanan23 is licensed under CC BY-NC-SA