By Philip Wilson
Amid the furore of recent weeks, a recent Finance Committee slipped under the radar with some interesting facts about the future of Northern Ireland’s economy.
Stormont’s financial settlement for this financial year is something of an aberration as overall expenditure has risen from last year’s £24 million to £28 million for this year. Much of this must be credited to the willingness of the Treasury and Bank of England to go above and beyond in their COVID-related support. Understandably, Stormont’s plenary sessions are full of discussions about making the most of this year’s largesse, whether that is through programmes or carryover into next year. However, prudence is on the horizon.
Ulster University’s Economic Policy Centre (UUEPC) is about as credible a forecaster as Northern Ireland has, and its representatives provided the Committee with a few interesting insights: the — comfortably — largest source of funding from the UK block grant is set to rise by just 0.13% from this year to 2021-22; NDNA’s one-off £350 million sum won’t be replicated next year; the UK’s Shared Prosperity Fund is thought to be less than the EU funding that it replaces, and will be spent directly by the Treasury; and Fresh Start funding will be reduced from last year.
The one exception that stands out is the Executive’s willingness — having not done so this year — to borrow £140 million in 2021-22 for capital spending. Still, the UUEPC concluded that “it is a challenging funding settlement”. All of this is while the Office for National Statistics calculates that Northern Ireland’s fiscal deficit may increase from £10 billion to £13-14 billion for this year. Such figures leave limited wriggle room for the Executive to duck responsibility for economic consolidation in the years ahead.
UUEPC’s director, Gareth Hetherington, estimated — based on projections by the OBR and BOE that the UK would recover to pre-COVID levels in the first or last quarter of 2022 — that Northern Ireland may take 12-18 months more than the rest of the UK to get back to the same levels of economic activity as the last quarter of 2019. When that’s added to the pressure that COVID has put on the Treasury, we can be sure that we’re in for a few years of payback and consolidation.
The generosity of the Treasury has partly covered up some levels of incompetence and short-termism in recent times at Stormont, but this should concentrate minds on long-overdue questions around the efficient use of money under an economic strategy, public service reform, tax policy and improving Northern Ireland’s economic credibility.
On public sector reform, Health and Education make up the two most costly Executive Departments . While our more rural and dispersed population accounts for a degree of the extra cost in running public services here, those two Departments cannot keep kicking the can down the road on much needed reforms.
UUEPC – using HMRC’s figures – explained to the Committee that the Department of Health’s budget accounts for about 50% of Northern Ireland’s day-to-day spending, and is equal to the total income tax, national insurance, alcohol, and tobacco duty taken from Northern Ireland in a single year. Pivotal’s Ann Watt, a former Treasury official, also informed the Finance Committee that health expenditure is expected to grow 6.5% annually. To put that in context, it overruns the extravagant average 5.6% annual rise of health spending under New Labour. After putting it out to consultation over a week ago, the Executive may only get their Programme for Government together in time for next year’s election. That election will provide the political space for the Executive to finally get a grip on longer-term and controversial reforms, such as implementing the cost-saving Bengoa recommendations to put health and social care spending on a sustainable footing.
A similar timeline exists for NDNA’s commitment to a “fundamental review” of our education system, as it is scheduled to be published shortly after the election. UU’s UNESCO Education Centre branded the education system “overly expensive” a fortnight ago and a prior study indicated that there may be up to a £95 million segregation cost in education . NDNA’s new review will likely bring all this all back to the spotlight for the new Executive. If the projected Alliance surge in the election is true then it would add further impetus, along with the budgetary pressures, for such reforms. Indeed, Alliance’s Education Committee Chair, Chris Lyttle, is the most vocal Assembly advocate for the integration of education in Northern Ireland. The savings from such a step would have the added benefit of investing in the peace process for the next generation.
Regarding economic credibility, it is fair to say that Stormont’s relationship with the Treasury has been getting increasingly rocky in recent years. It is not surprising when the background music is the Executive’s bungling of RHI and the Finance Minister is a leading member of a party which put the UK’s subvention at perhaps as little as £2.7 billion. Put simply, Stormont’s regard for efficiency and economic facts is found wanting. The Executive could remedy this by quickly establishing a fiscal council, which has already missed its deadline, to report on the Executive’s spending proposals and finances. Simon Hoare, the Northern Ireland Select Committee Chair, is right to say that the Executive will “go into argue with the Treasury for extra funds with one hand tied behind their back” if they don’t follow through on this basic commitment. Given the economic forecasts, they cannot build this goodwill up soon enough.
With COVID and an election looming, Conor Murphy has understandably ruled out increasing the regional rate for 2021-22, but that iron Executive party consensus is going to come under pressure with the predicted budget strains. COVID adds an extra spanner in the works as the Executive will have to get creative to free up enough funds to aid and target the recovery. The days are long gone since Stormont’s old talk of cutting corporation tax to 12.5%.
While COVID has made it difficult to plan – to the extent that even the Treasury has signed up to a one-year budget in many areas as it contends with COVID – the Executive has a long record of short-termism on budgets. The last multi-year budget was set way back in 2011, which is quite a contrast to the long-term thinking of the Scottish Government as its budget runs until 2026 in some areas. Multi-year budgets provide the stability to plan on public sector reform and capital programmes; a strategic lens to target specific industries, projects and people who have been most impacted by the pandemic; and the space to address long-running issues such as skills shortages and the crisis in mental health. One of the few advantages of the devolved system in Northern Ireland is how it enables the Assembly to – theoretically – be fleet of foot, while still prioritising local needs, in situations such as implementing an economic strategy for the COVID recovery. While the elected Executive parties haven’t been much use in doing so to date, that potential hasn’t gone away, you know.
As I have suggested, COVID and the 2022 election could change the calculation there in marrying and aligning a Programme for Government with funding allocations and a multi-year budget. The silo mentality of the Executive’s Departments, the political system and the baked in tension of a multi-party Executive makes a Scottish level of coordination and planning fanciful, but — if we take it as written that Stormont will stay standing — there’s little reason that the Executive can’t use the remainder of this mandate to do serious work on a PFG and lay the groundwork for more effective governance in the next mandate.
Insofar as the ‘make Northern Ireland work’ mantra goes, these are just some steps that the Executive could take over the coming years. To that extent, these forecasts, along with the election, present something of an opportunity to get off the Stormont conveyor belt of ducking difficult issues and prioritising short-term electoral considerations. It may be that a ‘make Northern Ireland work’ prioritisation is what makes so many in my generation drift towards Alliance; we’ll have to wait until next year to see. All I know is that with each year that passes, it will become ever clearer that we can ill afford not to adopt that mantra.
This is a guest slot to give a platform for new writers either as a one off, or a prelude to becoming part of the regular Slugger team.