The announcement by Sammy Wilson, the finance minister at Stormont, that £370 million in savings were needed before Christmas came like a bucket of cold water to the political system. Wilson's statement was a brave move which followed months of denial, spin and diversionary tactics by the DUP and Sinn Féin.
The two big parties delayed this admission because it meant conceding that many of their manifesto promises cannot be kept. If they implement what's been set out in the programme for government, the administration will go broke or fall apart. The first test of their fitness to govern will be their ability to retreat, to lower expectations and and to adjust their policies tothe new realities. They may well fail.
To have some chance of success, they need the equivalent of the republic's Special Group on Public Service Numbers and Expenditure Programmes, An Bord Snip Nua as it is more commonly called. This body dissected the public sector in an unsentimental way.
The main parties in the north need cover if they are to go back on the promises they made to get elected. Sinn Féin's manifesto, for instance, assumed £10 billion in British government subsidies over the next ten years. Instead, the British are trying to claw back some of the contribution of £8 billion a year which they make to the north's economy.
Sinn Féin's manifesto also counted on "a substantial contribution" from our richer cousins south of the border. If these had happened they would have provided ample funding for pet projects, including an Irish Language Act, an anti-poverty strategy and the expansion of cross border bodies.
The DUP was more conservative. It asked for a minimum of £1 billion extra but, like many others, put its faith in real estate. Spending shortfall was to be eased by selling off land and offices to the private sector.
In October 2007, just as the property bubble was about to burst, these projected windfalls allowed Peter Robinson, the then finance minister, to introduce a giveaway budget. He suspended planned water charges and froze domestic and industrial rates, foregoing the only taxation instruments available to the devolved administration. Robinson agreed to pay £100 million – possibly £200 million when all the bills come in- in back pay to civil servants, the result of an equality claim.
He was supported in his spending commitments by the other executive parties. They happily took the money for their departments. Everyone was with the DUP minister when he proposed improving health care, attracting well paid jobs and a tram system for Belfast.
I was one of the few commentators who warned that things could go badly wrong if the property market took a downturn. I wrote "if there is a problem it will be two or three years before the crunch is reached. It would be close enough to an election to tempt the smaller parties to pull out of government and blame the DUP." Now, after two years of economic self congratulation at Stormont, Wilson has sounded the alarm bells. He says we must make the cuts because the cost of foregoing water charges, a commitment in every party's manifesto, had to be paid for and the executive had not been able to realise the sort of money it had hoped from the sale of land and buildings.
The Housing Executive's house sale programme has practically collapsed. Private sector developers have been unable to borrow the money to go into Public Private Partnerships to buy and lease back government offices, a key part of the now defunct economic strategy.
Up to now the administration has been scraping by on ad hoc efficiency savings and low interest Treasury loans to cover the revenue shortfall. £700 million has been cut from health, which takes up 47% of the executive budget; it looks as if there is not much more that could be cut. We are now down to closing hospital beds and letting waiting lists mount up by not paying for private operations.
The health department is controlled by Michael McGimpsey, a member of the UUP. Margaret Ritchie, of the SDLP, can expect her housing budget to be cut. Conor Murphy of Sinn Féin should not expect all his roads projects, however desirable, to survive the axe either.
There is a danger of a beggar-my-neighbour policy in which the DUP takes the credit for the taxation giveaways and gets ministers from other parties to make the cuts. That could give the UUP or SDLP a good reason to resign from the executive. Even Sinn Féin's support could not be taken for granted if the DUP sets about slaughtering the cross border bodies in the name of financial efficiency. The Economic Research Institute of Northern Ireland (ERINI) took a more dispassionate look at the situation in a report last February.
It was rejected as alarmist by the Stormont parties at the time. It makes sobering reading now, warning of "an expanding wave of collateral damage" if the executive could not face up to increased taxes and/or cuts in expenditure. ERINI put the true cost of foregoing water charges in revenue loss and capital charges, at £900 million a year. Stopping this tax was a crowd pleaser at the time, but imposing it now would go a long way to plugging the black hole in the public finances. Freezing the rates cost £45 million.
Victor Hewitt, the director of ERINI, costed several other giveaways from the halcyon early days of the administration. These included free travel for the elderly (£4 million a year) and free prescription charges (£15 million). A number of less painful measures were proposed, such as the public sector using its leverage as the province's major bank customer, to influence the lending policy of any bank with which it did business. He also urged getting tough with Northern Ireland Electricity as a bulk buyer of power and a "triage" system to concentrate investment grants on those businesses which gave the best return.
Another measure was top slicing 5% of each department's budget and letting them argue their case to get some money back, raising £70 million a year by increasing the cost of MOT tests for cars. These ideas, dismissed by our big hearted politicians in February, may help to focus minds now that the alternatives of deep health cuts are coming to the fore. They don't all have to happen but if they are to be avoided other hard choices may have to be made.
The network of quangos, which were set up under direct rule to make up for the lack of local democracy, could be streamlined now that devolution is place. The 12 government departments and 108 MLAs, not to mention the 450 staff in the Office of the First Minister and Deputy first Minister, would be hard to prioitise above hospital beds, police and industrial investment in any rational calculation.
Figures obtained by Patsy McGlone of the SDLP show that departmental spending on consultants' reports is ballooning as ministers and civil servants use outside reports to cover their backs in difficult decisions. Wilson's own Finance Department spent nearly £5 million last year and £6.63 million the year before. Reg Empey's Enterprise Department was the next highest spender, at £3.3 million. Despite their huge staff, the OFM/DFM still spent over a million this year and nearly £3 million last year on consultants.
Politicians were elected to balance the books but the system at Stormont is too dysfunctional to handle these choices. There are too many campaign promises and vested interests at stake for agreement to be reached. It would need an independent task force, backed by the politicians in advance and possibly based on ERINI, to cut through the jungle of public spending so as to minimise the pain of recession.
