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Northern Ireland's Budget CrunchAuthor(s): Graham GudginSource: Fortnight, No. 455 (Nov., 2007), pp. 6-7Published by: Fortnight Publications Ltd.Stable URL: http://www.jstor.org/stable/25562023 .

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Northern Ireland's budget crunch

The latest UK spending review provides only a 1.75% increase in the Executive's budget. Graham Gudgin argues that populist promises could undermine both our economy

and our social services.

Gordon Brown was badly rattled in the recent Prime

Minister's Questions byTory taunts that he was a fraud.

Northern Ireland voters had already come to this

conclusion some months earlier in ignoring Brown's

absurd claim that he was to give us ?50 billion as a

sweetener for devolution.

B rown's claim came after the

first of two meetings in 11

Downing Street with the four main

Northern Ireland parties in the run-up to devolution. He threw an impenetrable jumble of numbers at the

party representatives, promising them that it was all new money, but had

already distributed a press release

promising that ?50 million was to come to Northern Ireland. This duly received huge publicity in the local and national

papers, but was quickly forgotten as the

Parties' economic advisors calculated that in reality virtually no new money

was involved. The new Chancellor's first Pre

Budget Statement last week now allows us to know what the financial deal has

actually been. The news is that the amount available to the Executive will

rise by 1.7% a year, above inflation, for

the next three years. This is a much

slower annual increase than in recent

years, because the Labour government

has finally run out of money, further tax

increases will lose them votes, while borrowing is already the highest in Europe.

Even so, 1.7% a year is not bad, and

still allows an increase in public services as long as pay increases can be held

down. The UK government plans to

squeeze public sector pay, with increases averaging only 2%, barely enough to

keep pace with inflation. Already unions are flexing their muscles and

may break through this pay barrier. If

they do so, standards of public service may stagnate. Either way, a rough ride

on pay is guaranteed. Pay settlements in Northern Ireland's

public sector have been transferred to

local ministers as part of devolution, and the pressures will be strong. A sign

of things to come was big-hearted Michael McGimpsey's decision not to stagger the nurses 2.5% national pay

offer as is the case in England. If this

populist trend continues, Northern Ireland's public sector pay will drift above English levels, as it has done in

Scotland. This would cause huge resentment among English taxpayers,

who foot much of the bill. It would also

widen the already large gap between

public and private sector pay, and will

limit the improvement in services. What is also clear is that Northern

Ireland's 1.7% increase is less than in

England, Scotland or Wales. Gordon Brown's outrageous exaggeration of the money on offer has been proved to be

Estimate Plans Plans Plans w 2007/8 2008/9 2009/10 2010/11

4 NIO 1175 1236 1201 1199

O,a C Executive 8421 8789 9157 9596

, ? = Social Security 6500 6800 7100 7400 Other (includes local

.. councils) 1050 1100 1150 1200 GI 0

( A e Total 17146 17925 18608 19395

Current and planned public expenditure per head in Northern Ireland (? millions)

the mirage that local economists always

knew it was. Northern Ireland has got

neither more nor less than the

automatic settlement under the long established Barnett Formula which is used to disperse funds to devolved administrations. Brown's nine point list of financial concessions, announced to Parliament after the Downing Street. meetings are shown to be smoke and

mirrors, with one exception.

Expenditure Per Head 2006/7 ? UK=100

England 7,121 96.7 Scotland 8,623 117.1

Wales 8,139 110.6 Northern Ireland 9,385 127.5

UK 7,362 100.0

Public expenditure per head in Northern Ireland

The only real concession was ?100 million in the current year to allow a

one year delay in water bills and to

finance the first year of a new, small,

innovation fund. After weeks in which our MLA's deliberated in the Preparation for Government Committees, beating their chests in

building up multi-billion financial demands to accompany devolution, this

small, once-off payment, equal to 1% of

total spending, was all they got. Not

that they seemed to mind in what had

appeared to be little more than a public relations exercise. The protestations of some DUP members that reductions in

corporation tax were a deal-breaker for

devolution were shown to be equally shallow.

So now the Executive will have to

soldier on in a much tougher financial environment than faced by the last

Assembly. In truth the total amount of

money available is sufficient if well

managed, but it is here that the doubts

creep in. We have a government with

limited experience, and containing one

major partner whose economics would be more at home in North Korea than in Northern Ireland. Sinn Fein's Conor

Murphy has already rigged the Review of Water Charges by appointing an academic sociologist, with a background of work on equality issues, to head the Review and by keeping tougher local economists away. Murphy has also ruled out privatisation of water

6 FORTNIGHT NOVEMBER 2007

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despite evidence of lower costs in GB's privatised water companies.

Not surprisingly the Review has reported that separate water charging should be dropped, with the costs being initially taken out of existing rates revenue. This would mean that

Northern Ireland decides not to charge the public for water, at least in the short term. Instead the costs would come out

of general public spending and would involve a reduction in spending on health, education and everything else.

Peter Robinson has also suggested to business leaders that he will halt the

evolving process of making industrial companies contribute to rates, as they do everywhere else in the UK. Again, Northern Ireland will pay less tax than in GB, while expecting GB tax-payers to contribute massively to the cost of our public services.

This creeping populism is a big

danger in our strange form of

What is clear is that Northern Ireland's 1.7% increase is less than in England, Scotland or Wales.

government, which has been devised to

stop people shooting at us rather than to provide effective government. If the

danger continues, then we will all suffer for our lack of interest in the details of

devolution. Public services will fall behind those in GB and tough decisions will be avoided.

At present, many hopes of rescue rest

on the Varney Inquiry granting another

huge tax concession in the form of

much reduced Corporation Tax. Low

company tax has fuelled the Celtic

Tiger and could do much the same for

Northern Ireland. Unfortunately Sir

David Varney has already said that it is

off his agenda. His report was expected by the time of the pre-budget announcement and its delay is likely to reflect Government nervousness at having nothing to satisfy high, if unrealistic, expectations. Expect some small concession, but nothing to provide the feather-bedding which the Executive feels we deserve. U

Graham Gudgin is an economic commentator and a director of Regional Forecasts Ltd.

State of the union(ism)

Unionism has always been fragile and fragmented. James Dingley reports on the latest developments in the search for unity.

T>. he state of unionism has

always been fragile. Under the surface it was always an uneasy

alliance between a variety of different

forces, interests and groups often forced in to an alliance more by what they were

commonly against than anything else. This was one reason why the Orange Order was so important - and why it was targeted by Republicans - as

umbrella organisation for a single

Protestant voice comparable to the Catholic Church. The Order in turn

provided much of the infrastructure and unity for unionism. This has now gone as the Ulster Unionist Party has cut its links with the Order in an appeal to

Catholics - with notable lack of success

and an associated decline in Protestant support. Concurrently, Paisley's triumph in becoming First Minister has led to the first major splits within the

Democratic Unionists and to indications that it will fragment like the

UUP. Most unionists share a sense of

despondency at these developments. There is even a fear of the union being

seriously under threat in the longer term, due to a series of factors which are

exacerbating these long-existing fissures. First, there is deep mistrust and

alienation amongst all unionists. The UUP lost to the DUP because it signed up to the Belfast Agreement and even

now most of the 50% of Unionists who

voted for it regard it as a mistake. The DUP got to power by opposing the

Agreement and now they have gone into

government with Sinn Fein under it. Now Paisley is working hand in hand with McGuinness and seems to be

losing the support of his Church. How now can the UUP oppose what they created? And how do DUP voters

continue to support what they voted

against? There are too many circles to

square, alienating swathes of unionists

and causing mass apathy.

Meanwhile, though they have a

leading role in government, DUP ministers find their hands tied to

implementing policies either as legal requirements or as part of the

Agreement. For most unionists this creates severe problems since much of the structure and nature of unionism is

bottom up, with a focus on local interest and control that rejects central directives for a Presbyterian style local autonomy.

The realities of government and the Agreement mean that the DUP can't live up to its election promises and its supporters expectations.

The chaotic nature of the UUP's structure illustrates this tendency. Real party control and finance lies in local branches and reflects local rather than

province-wide or policy-driven interests. Its leaders are almost devoid of

influence. Similar grassroots attitudes exist within the DUP, even though they are much more centrally organised. Their supporters expect to be able to do what they want and believe the role of

government is to let them. Hence the

disarray over planning regulations within the DUP.

Another factor is that the old Stormont Parliament did not have to

deal with the fact that 80% of

legislation is now derived from EU

directives. Unionist culture has not

caught up with this new straitjacket.

Previously local factions, interests and individuals could operate autonomously

without threatening fissures within the

party, since different policies could be

played out harmlessly under the benign UUP umbrella. Now government requires an intellectually coherent, thought out and coordinated response.

Much unionist thinking is not ready for

this, still being locked in a kind of I9th

century empiricism of local autonomy.

Meanwhile, the ex-terrorists in Sinn Fein go from strength to strength. They y

FORTNIGHT NOVEMBER 2007 7

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