Comparisons

Nolan this morning is building its attack on Treasury figures (pdf file).  However, the figures don't provide the backing that is claimed. Table 9.16 shows the difference in spending is minimal.  With 100 in 2009-2010 the baseline spending was:

England   99

Scotland 108

Wales     102

NI              98

Nolan is also ignoring the significant regional variation within England:

North East         109

North West        107

Y'shire & Hum     98

East Mids            91

West Mids           99

East                   112

South East          92

South West         94 

Table 9.15 sets out per head expenditure, in 2009-2010 the English average was £1,896 while Northern Ireland it was at £1,881.  In terms of at regional level, the following English regions spent the same or less:

Y'shire & Hum £1882

East Midlands £1744

East £1711

South East £1759

South West £1807

What this all means is that to present the situation as plenty in England and famine in Northern Ireland is a misrepresentation.

Nolan is also following McGimpsey's failure to finish the sentence even when he talks about "priorities". The same Treasury figures point to the answer Nolan and McGimpsey don't want to discuss. The following would face savage cuts to bring NI in line with England:

1. Housing and community amenities

2. General Public services

3. Recreation, culture and religion

4. Economic affairs

5. Public order and safety 

The following would face significant cuts

6. Social Protection

The following would face cuts:

7. Education

Oppose

Jim Allister has came out against varying corporation tax rates in Northern Ireland:

"A common fiscal regime is inextricably linked to the maintenance and purpose of the Union, which is why devolved institutions in Northern Ireland have never had tax-raising powers. The matters reserved to Westminster are the common bond that binds the UK together and warrants our representation in Parliament. Reduce those reserved matters and you further detach from the rest of the UK."  

This possibly means that Jim's ability to oppose has achieved its zenith.  He now stands in opposition not only to the other parties in Northern Ireland but himself.  In 2005 in a speech to the European Parliament Jim Allister said:

"In this context, the DUP MEP called for a reduction in Corporation Tax in Northern Ireland, as was recently recommended by an economic task force under Sir George Quigley... "For economic growth, independence and freedom of action is essential, with more not less national flexibility.  For example, corporation tax in an area likeNorthern Ireland should be radically reduced as a means of stimulating investment and thereby moving us away from over-dependence on the public sector."

He has also been a strong advocate of differential treatment for Northern Ireland as he set out in 2006:

"I welcome the fact that the present Regional Aid Guidelines, as they affect Northern Ireland, are a marked improvement from earlier drafts and that the Commission listened to representations from myself and others.  The new draft Guidelines provide for continued distinctive treatment of Northern Ireland as an economic development region and therefore allow ongoing aid to attract inward foreign investment, though on a reducing scale until 2011."

Tong

Oh dear it's all gone a bit Pete Tong. The recovery has slipped with a 0.5% decline in GDP (as well as growth in the previous quarter revised downwards from 0.8% to 0.7%.  To provide historical perspective on where our economy is at the ONS points out that:


"GDP fell 4.6 per cent in the 1980s recession, by 2.5 per cent in the 1990s recession and by 6.4 per cent in the 2000s recession."


Factors at play - weather?  Cuts in government spending? Inflation taking its bite?  As with much of this data you require two sets of figures before you can really know what is going on but the nature of the Coalition means the wobbles may begin before then.

Wilful

Yesterday I asked the question would the UUP continue with multiple positions on budgetary issues.  According to a Mallie tweet (or twitlonger to be accurate) the UUP has indeed opted to do just that with Danny Kennedy saying no decision had been taken to oppose it while a UUP document said a decision to oppose had been.

Answer?

"If Sammy Wilson can point to a major Western Economy which has not had to implement public spending reductions as a result of the global financial downturn, then by all means let him do so."


United States of America hasn't cut public spending and neither has Canada (still rolling out C$62 billion in stimulus spending).

Cartoon

News in cartoon form is growing on me as a form.

Fewer

The OBR has reviewed its projections for the economy.  In the area of public sector jobs they have reviewed  public job losses down from 490,000 to 330,000.  This is based on the CSR decision to make a higher proportion of the cuts from the welfare budget rather than departmental budgets (with the warning that welfare cuts have proven much more difficult to realise in the past so this may have to be revisited).

Unsurprisingly they have cottoned on to the fact their predictions for this year were wrong and have raised their predictions to 1.8% but this good news in the short-term is tempered with predictions of lower growth in future years.  With the sobering warning that:

"The economy will continue to recover from recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s."

It also is predicting a further drop in house prices.

55/45

Our government has decided to support the Irish government and economy through a direct loan of over £7 billion as well as billions more through European Union support mechanisms.  It must be recognised that this decision is not an easy one, to characterise it as a black and white issue would be a mistake.

There is national interest at play.  An Irish economic and banking collapse would have consequences for the British economy with the resulting pain particularly acute for Northern Ireland as well as the need for a further bailout of some of our banks. 

However, it would be a misjudgement to represent the bail-out as an panacea for Ireland.  It will not prevent the Republic experiencing acute economic pain in the next few years.  Its aim is to prevent a collapse not spare the Irish from pain (nor prevent the knock-on effects of that pain to Northern Ireland).  The second problem is it may not work.  There is the potential to be throwing good money after bad.  The lack of any positive signs from the Greek bailout makes such concerns rational as do the economists' predictions (scroll down) that a number of countries will end up quitting the Eurozone even with bailouts.  The bailout may simply be buying time rather than solving the problems.

This leads us to the complicated factor in the decision, the Euro.  How much the Euro contributed to the Irish crisis will no doubt be debated for years to come but what cannot be disputed is that Ireland finds itself without a number of economic tools that a country with its own currency would have.  The problems within the Eurozone have pretty much validated the Thatcherite critique of the entire project but validation does not mean protection from the consequences. 

There is an attempt to defend what was done as for Northern Ireland.  However, this leads to something of a contradiction.  Previously we had been informed the cupboard was bare both in terms of cash and borrowing.  Action on either would not be in our national interest.  Now the Coalition government has managed to find both, cash for the EU and now loans for the Republic.  So concern for the banking sector seems to have been the motivating factor.

However, it was the Euro that negated the need for our participation in the bail-out.  The IMF are sufficiently concerned about the world economy and the EU from an economic (and equally political perspective to keep propping up the Euro) that whatever borrowing Ireland needed would have been forthcoming.  The absence of a £7bn loan from us would not have left Ireland wanting it would have beens ecured elsewhere.  It would have also kept us out of the potential morass of further bail-outs for other countries. Any promises that we won't should be treated with the sceptcisim any statement on Europe from this government deserves.  For me the 55/45 comes down on the side of No.

The die is cast on our particpation but if the government's concern for Northern Ireland is genuine there is a further step it must take.  The Coalition government is to produce a paper on the future of British banks, the over-reliance of Northern Ireland on Irish banks must be addressed in that paper.

Dominoes

They had been referred to as the PIGS but events seem to be leading to GIPS with Ireland apparently in talks for a bailout and Portugal now talking about getting in on the act:

"Meanwhile, Portugal's finance minister has said his country is at a high risk of needing a bailout due to the danger of contagion from other debt-hit euro nations."

Exception

While official denials continue to emanate from Dublin about a bailout for the Irish economy, the working assumption of everyone else appears to be that it will happen.  Professor Morgan Kelly provides an insight into why while a former IMF economist, Simon Johnston, advices them to do it now rather than later.

However, Coffee House blog reveals some of the possible detail of the bail-out.  The bail-out may not be restricted to the credit facility available to Eurozone countries but also involve access to the emergency funding mechanism that all EU members potentially contribute through.  This would involve a potential £6bn loan bill for the UK with it appearing the Treasury consider Ireland an exception to the previous rule:

"It's thought that any bailout to Ireland will be made from the European Financial Stability Facility Fund – a eurozone mechanism from which we're exempt – but there's also talk (£) of deploying the EU's emergency fund, which could make us liable for a loan of up to £6 billion. Whereas Treasury officials were keen to keep a solution to the Greek crisis within the eurozone, they are now telling the papers that, "This is not like Greece. [Ireland] are close trading partners."

It also sums up the difficulty of such decisions:

"It rather sums up the peculiar situation facing Europe, including the UK. Failure to act means that the contagion from Ireland could spread. But action carries with it clear costs, both fiscal and presentational. It's true to say that few domestic voters will relish the idea of propping up ailing economies elsewhere, particularly at a time of gruel and restraint at home. And what kind of precedent is being set should other countries, such as Portugal and Spain, go the way of Ireland themselves? A few years ago, the Celtic Tiger was a proud, growling beast. Now we must grapple with the consequences of its death."

National

The good news at a national level has once again been tempered by the local news.  The Ulster Bank is reporting a further decline in private sector business activity making Northern Ireland the worst performing region for 20 months.  The private sector has now been shedding jobs for 32 months. On the positive side the survey did show some growth in the manufacturing sector.

Meanwhile the Northern Bank is somewhat more upbeat predicting the NI economy will grow 1% this year (although he national economy managed nmore than that in one quarter).  While reporting growth Scotland, Wales they are the second and third worst performing regions.  So the national economic policies pursued by Labour and now the Conservatives and Liberal Democrats are not achieving a meaningful spread in growth across the country.  Hardly surprising as regional differences was never a meaningful consideration in the development of them.  A national plan that failed to take account of these was never truly national but that appears to be what we have.

Nature

The TUV have just released a new leaflet (pdf file).  In keeping with its attempts to shift its ground and perceptions, it tries to go for some positivity:

"TUVʼs positive vision for Stormont: We donʼt want to wreck Stormont, we want to make it better for you...Jobs for you, not job for the boys: Facing up to economic reality, getting the priorities right"

However, its nature overwhelms the intent.  In terms of economic vision it manages to offer even less than the UUP document (yes it appears that is possible).  It calls for a economic strategy and that's about it.  No ideas of what it should actually contain only what it shouldn't.

They only have two ideas for savings - cut backs on the operation of government (fair enough) and abolish North-South bodies.  On the second suggestion the numbers don't entirely add up to the level of savings they claim.  A number of the tasks fulfiled by cross-border bodies would still need to happen so a Northern Ireland enitity would have to be created unless of course the TUV wishes to turn off the lighthouses and end all funding to Ulster-Scots etc etc. Even if we take their figures as accurate it would only fill about £500 million of a £4 billion hole (although perhaps they will save the rest by axeing the NHS as their economics spokesperson, David Vance, believes.)

The lack of ideas isn't the only thing undermining the "jobs for the you, not for the boys" message. The centre pages are taken up by what even the accompanying press statement admits is a "lengthy" article on the history of the methodology for electing first minister.  An article that involves some interesting re-writing of Allister's history in the DUP. He says:

"If there was a single occasion when I realised my days in the DUP were probably numbered it was 17 November 2006."

Despite this apparent realisation and objections to the legislation as soon as November he went on the campaign trail for the DUP in the subsequent Assembly election in February 2007.  There is also a bit of irony by-pass about the complaint of parades legislation being in abeyance.  Overall, the shoot of positivity gets buried by the muck-spreader.

Growth

Finally got a moment to stop chasing my tail and comment on the UK growth figures of the third quarter. 

First the estimated 0.8% is good news.  It is down on the previous quarter but appears away from double dip territory. Locally, the question will be how spread is this growth across the country?  So far it hasn't been.

Second it raises further questions about the Office of Budget Responsibility.  Its estimates are the underpinning for the cuts programme and it appears its projections for this year at least have seriously underestimated growth. The Treasury projections that were much derided as over-optimistic appear to have called it better.

Third, if the strong growth continues it will have a political impact upon the cuts programme.  The sooner and more the economy grows the better for tax revenues.  This will open up a debate about how much of the spending deficit was genuinely structural and how much was caused by the downturn. 

However, depending on their scale better revenues don't necessarily solve all the problems.  There would be the issue of paying down the national debt.  There is also the nature of the cuts programme.  When the Coalition actually looked at departmental spending cuts it was not so easy hence why the axe was shifted to the welfare budget to provide more of the notional savings than originally planned.  Welfare cuts have proven notoriously difficult to deliver in the past.  Therefore, the potential benefits of extra revenues could be diluted by the inability to achieve the proposed savings but these potential pitfalls should not get in the way of what was good news for the UK.

Challenge

The DUP has produced a set of proposals (pdf file) on how the budgets cuts could be dealt with and the budget re-ordered to drive the economy forward.  It aims to:

"balance our budget and provide the same range of services, to the same high standards, without the community feeling any appreciable level of pain...ensure that Northern Ireland emerges from the present difficulties stronger than ever to face the future."

Its package of proposals on the revenue budget includes:

• Unfreezing the regional rate by raising it at the rate of inflation for the next four years and also capping the district rate to the rate of inflation as well.
• No water charges.
• Civil Service Pay freeze for those earning above £21k a year.
• Legislation to end any entitlement to one step pay progression.
• Reducing perfromance bonuses
• Ministerial pay reduced by 5-10% through voluntary return.
• Reduce use of consultants.
• Financial Management e.g. identifying and dealing with under-spends
• Freeze in civil service recuritment.
• Quango review with proposals for abolition, merger, sharing of back office swervices or return to the department.
• Better Asset Ultilisation - the second highest cost of government is the public estate and this seeks to manage it better.
• Continuing to tackle absenteeism.
• MLAs cut.
• Departments cut to 8.
• Procurement procedures overhaul.
• Review of North-South and East-West spending and approaches.
• Efficiency Savings of 2-3% per year.
• Commitment in principle to taking and using Corporation Tax powers.
• Prioritisation of disadvantaged communities.
• Greater Utilisation of Community and Voluntary Sector.

On capital spending it recommends:

• A transfer of £100m from revenue to capital in the early years of the CSR
• New revenue streams for capital e.g. rather than selling the Port of Belfast it provides an annual dividend used for capital spending.
• Asset disposal (later in the CSR period to allow the market to recover)
• Private sector mechanism e.g. joint ventures
• Sale and leaseback of public sector assets

On jobs it outlines a number of additional jobs programmes to create 7000 jobs.

Hornets Nest

While we are all distracted by the big numbers and the consequences it will undoubtedly have for our individual and collective standard of living in the next few years one of our Executive Ministers seems to be playing a largely unnoticed but ultimately dangerous game.  Alex Attwood seems to be dallying with the idea of breaching parity. 

In the Assembly earlier this week he stated:

"My officials are currently conducting an equality impact assessment on to the principle of parity in Northern Ireland. I am not just looking at the individual changes to child benefit or housing benefit, or any of the other proposals that are coming down the tracks, but am beginning to scope the much more fundamental issue of the principle of parity, and whether the principle of parity, as it currently operates, does or does not have equality implications. That is some blue sky thinking and the broader context in which we should consider those matters."

This morning he was talking about how the Osborne announcements of £7bn in welfare cuts would involve £200m taken from benefit claimants here.  However, he went on to imply that the Executive budget process was a means to preventing this.  This fundamentally misrepresents our budget process.  Government expenditure falls under two categories the block grant called Departmental Expenditure Limits (DEL) and benefits which are Annual Managed Exepnditure (AME). 

The Executive has made one foray in the region of benefits with its one off winter fuel payment.  However, the one-off and small nature of it meant it was permitted and not seen as destructive to the principle of parity.  What Attwood seems to be proposing is well beyond. This would involve a rejection of the principle of parity.  This is the financial equivalent of punching a hornets nest.

It may be mighty tempting to a nationalist minister to destroy Craig's negotiating success with the Treasury in the 1930's.  It might be mighty tempting to a SDLP minister to pick such a fight to up their profile with a nationalist and leftward posturing and increase their relevance to working class republican areas.  It might be a good issue to base an Executive resignation on. 

However, if this path is the one Attwood and the SDLP plan to follow it would only make our budgetary problems worse.

Planet Paterson

According to the Stephen Nolan Show the Northern Ireland Secretary of State has questioned what planet our local politicians are living on.  Simple it's a place called Planet Paterson, This was a planet were the capital spending was presented as safe until 2018.  This proved to be a lie and the Planet Osborne we had believed we were on was the correct one.  Trying to blame others for believeing your own lies is a real low.

Barnett - Updated

If I picked Osborne up right Northern Ireland will recieve a cash increase in the first year to £9.5 billion, by a quick reckoning this is a below inflation rise but higher than the flat cash prediction.  The other three years I don't know.

I picked him up wrong, the block grant will rise to £9.5bn in the second half of the CSR not next year.  The grant will increase from £9.3bn this year to £9.4bn for the first two years.  Treasury figures say this represents a 6.9% cut over the CSR period.

UPDATE On the capital side the Treasury figures predict a 37% cut over the CSR period for Northern Ireland from £1.3bn this year to £0.9bn in the first two years of the CSR and to £0.8bn in the final two years.  This brings back into focus Paterson's promises.

UPDATE 2 Sammy Wilson has raised the capital issues and Paterson's comments.  Osborne's defence is his capital cuts are less than Labour but sidesteps the SoS's comments.

UPDATE 3 The Treasury figures and DFP figures are different.  This is based on whether or not you include this year's Coalition cuts in your calculations or not.  Treasury don't and DFP does.

The dog's breakfast

Perhaps the Ulster fry has not been completed because the UUP were busy making the dog's breakfast.  Yesterday, they released a brief document on the budget crisis.  Unlike the wall to wall coverage of Sinn Fein's proposals, it receives skant media attention.  Whether they realise it or not this is probably doing them a favour as the less attention brought to the document the better for them.  However, the fact it is not on their website maybe shows they do realise it. So despite it being called "You heard it here first" not from their website you don't. (In the absence of this it can be downloaded here.)

On first reading I thought it could be so bad that it would be deserving of a cult status - so monumentally weak that its direness is worthy of appreciation. However, it even fails to achieve that.  The document is by and large incoherent noise and babble with some economic cliche bingo thrown in.  It barely has a single actual proposal.  

The sole thing it does do  is isolate the  UUP Health Minister Michael McGimpsey with no backing for ring-fencing.  It rejects:

"Narrow departmental priorities cannot be allowed to usurp Northern Ireland plc’s priorities..."

Then offers a sentence on health that is near non-sensical:

"All research suggests that front-line health services are at the head of the public’s list of public service delivery which should be protected."

If Sinn Fein's proposals were economically illiterate then the UUP document is the equivalent of cave paintings. I had suggested the Sinn Fein proposals should be placed on the fridge for the UUP I have an alternative suggestion.  One of the most memorable quotes from my time in the UUP was John Taylor during a UUP Executive refering to a Maginnis/McGimpsey drafted negotiation document as "toilet paper". This follows in that tradition.

Privatisation

The Adam Smith Institute has highlighted the potential income from a new privatisation programme in the UK (pdf file).  It claims there is £90 billion in potential income from such a programme.  A figure not to be sniffed at in these chastened times.  It includes on its list the ideas of selling ports and water companies.  It estimates that NI Water is worth £500m (but provides no estimate for the sale of ports here).

Previously, privatisation would have been seen as a non-starter because of Sinn Fein's opposition to the principle.  However, their proposals for the de facto privatisation of the Housing Executive and assets sales may have made this percieved wisdom outdated. Another practical impediment is getting an agreement with Treasury over who receives the receipts for such sales. Plus you have to accept that any sales in the next few years will produce returns on the lower end of the scale and that it will take a couple of years to provide any returns.

The Sinn Fein option of borrowing against sales in the future has been turned down by Treasury before and carries the future risk of what happens if the sale doesn't realise what you expected - how is that hole filled?  There is some suspicion that privatisation/asset sales will be the means of Paterson 'keeping' the capital spend pledge but we should get clarity on that this Wednesday.

Sounds good - UPDATE

It appears that Owen Paterson has announced a reversal on the position of the capital cuts and now apparently we can cash the capital spending cheque agreed as part of the St Andrews Agreeement package.  Caution makes me want to see the detail, you always do when the Treasury is involved.  However, this does appear to be genuinely good news.  Capital cuts are the easiest but not the most strategic.  It will help us address the infrastructural underinvestment that dogs our economic development as well as help the construction sector through the tough years ahead.

However, two challenges remain.  If it has been secured then we must ensure it gets spent.  Furthermore, this does not solve the revenue spending problems.

UPDATE It doesn't bode too well on the details when it appears that the figures the NIO released are wrong. Some claim it increased the spend by £800 million more than had been spent.