Monday, 21 June 2010

Remember AME

Tomorrow will not be a happy day for anyone as the Con Dem Coalition presents its emergency budget. Judging by the 'authorising environment' leaks VAT will be the headline story - something that Taxpayers Alliance has pointed out neither party has a mandate for:

The justification that they didn't know how big the hole was especially on debt repayment levels doesn't hold water. The Institute for Fiscal Studies was well aware of it (pdf file) but somehow we are expected to believe it escaped the notice of the Conservatives and Liberal Democrats. Also the fact that the budget deficit of the year has decreased undermines this as well but only slightly as a deficit of over £150 billion as opposed to over £170bn is not a case for reaching for the champagne bottle.

However, the doom and gloom now has an economic and a political purpose. Economically, the aim is to create a virtuous cycle - paint it as bleak, act as if it is bleak and then take the confidence boost when things (hopefully) don't turn out as bleak. Politically the logic is that a bit more pain now will actually create more breathing room later. Essentially, when will an extra billion here or there get you a political reward - in the next couple of years by dissipating a little the depth of cut or a tax cut/boost to health in the year or so before an election?

In terms of Northern Ireland, the public discussion has been upon the Departmental Expenditure Limits, commonly referred to as the block grant. The broad shape should become clear in tomorrow's budget but the full detail will be from the Comprehensive Spending Review later in the year. However, in terms of the economic impact we need to remember the Annually Managed Expenditure (AME), essentially welfare/transfer payments. From the leaks it is clear those on benefits will be taking a hit as well.

So it is likely the Northern Ireland economy will receive a double gut punch not one in the short-medium term due to its reliance on the public purse. This makes the Coalition talk of bolstering the private sector in the regions and particular areas like manufacturing even more important but to date they seem to be something jotted down on the back of an envelope rather than serious proposals.

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