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Bloody Sunday, election, Irish, Ireland, British, Ulster, Unionist, Sinn Féin, SDLP, Ahern, Blair, Irish America

The North must kick its handout habit

(by Liam Clarke, Sunday Times)

When Alan Johnson, Britain's shadow chancellor of the exchequer, was searching for a quote to make his point last week, he reached for Brian Lenihan. George Osborne, the chancellor, had just listed the international bodies that backed his austerity measures. "Here is another supportive quotation that he missed out," Johnson said, and proceeded to quote something the embattled Irish finance minister had told the Dáil.

"The measures we have taken have been commended by international bodies such as the European Central Bank, the European commission, the IMF [International Monetary Fund] and the OECD [Organisation for Economic Co-operation and Development].

They have also won the approval of the international markets."

The suggestion was that Britain was taking the same failed course as Ireland, by courting financiers and making the retention of a triple-A credit rating its priority. Of course, the UK has options that Ireland lacks. As a relatively large economy with its own currency it could, like America, embark on another round of quantitative easing, an economist's term for printing money. Letting sterling fall in value would help exports. Britain hasn't chosen to pull that lever again and, as part of the eurozone, Ireland cannot. In Northern Ireland it isn't an option either – but to listen to some local politicians you would think that the devolved government could simply conjure money out of thin air instead of accepting what it is given.

Peter Robinson and Martin McGuinness, the first minister and the deputy first minister respectively, were in America at an investment conference at which 60 new jobs were announced on the day that Osborne sent their administration a "letter of settlement" that implies the loss of 30,000 posts. The letter sets out the block grant and other payments from Westminster for the next four years. In revenue terms it is down a little, but manageable. It amounts to £10.3 billion (¤11.6 billion) a year with no inflation escalator. At the end of the four years, that will leave spending up to £2 billion below what was expected before the crash. In all, Stormont will have received about £4 billion less in running costs over those four years.

While it may be manageable, this will entail painful choices. The double whammy comes with a reduction in capital spending of, Stormont claims, up to 40% below what was promised by Gordon Brown, the former prime minister.

The figure is contested by Owen Paterson, the secretary of state for Northern Ireland, who insists Brown's promises of £18 billion by 2014/15 will be met. He is counting other income streams, but then so did Brown. They include the sale of government-owned land, such as army bases, handed over by Westminster as a dowry to the devolved administration. Now that the property market has crashed, the land isn't worth nearly as much and Stormont wants Westminster to make up the shortfall. Osborne's refusal led to accusations of bad faith from Robinson and McGuinness. Gerry Adams went further, insisting that the North should take control of its own financial affairs instead of looking for handouts. The Sinn Féin leader sounded like a child threatening to run away if his pocket money is cut. The plan may be to join the circus, but such runaways are more likely to end up sleeping under a bridge.

Without the power to print money, Stormont has to live with what is available. Anyway, based on Treasury figures, Osborne has cut Northern Ireland's budget by just 6.9%, while the average Whitehall department has lost 19%.

Northern Ireland's economy is an artificial construct. It was kept above water by public spending in the years when violence deterred investment. As a result, some politicians believe economic reality need not constrain their decisions. Collectively, they have pushed the hard fiscal decisions down the pipe and used the veto powers they were given by the Good Friday and St Andrews agreements to protect trophy projects. Two-thirds of Northern Ireland's GDP is handed to it on a plate by Westminster, and meanwhile much of the international goodwill and money generated by the ending of violence has been squandered. Northern Ireland's leaders are like actors who insists on stepping onto the international stage for more curtain calls even though the applause has subsided and the audience is making its way home.

The Community Relations Council (CRC) estimates the North has received £2 billion in peace money from the EU, an income stream likely to end in a couple of years. The province has had £630m from the International Fund for Ireland, an independent body. Such subventions were generous but are dwarfed by the annual £8 billion subsidy that the CRC estimates the North gets from Westminster.

In the early days of devolution, Northern Ireland was a good news story in a world riven by ethnic conflict. Consequently, Stormont was pampered like a hothouse flower. Safe under glass and kept healthy with artificial nutrients, politicians didn't need to make hard choices and started to forget there was such a thing as bad weather outside. Nothing was put aside for a rainy day. The first budget after St Andrews was a giveaway.

Two taxation instruments available to the executive were foregone when the regional rate was frozen and ministers pledged not to impose water rates. The Economic Research Institute of Northern Ireland (ERINI) put the revenue cost of relinquished water rates at £200m a year and found it triggered a reduction in the capital allowance of a further £200m. Freezing rates cost £55m a year. The executive also introduced new subsidies. ERINI costed free prescription charges at £13m a year and free travel for the elderly at £4m. Other pledges included reducing bowel and cervical cancer rates and the introduction of a tram system for Belfast.

The intention was to fund this by selling government land and buildings into the booming property market and in some cases leasing it back. When that did not work out, the executive asked London for more. There is a limit to the number of times you can do that. Even if British macroeconomic policy is too tough, Stormont is unlikely to get much sympathy unless it shows the Treasury it is doing all it can to balance its books.

Osborne dispensed one crumb of comfort when he told Sammy Wilson, Stormont's finance minister, that he and Paterson are prepared to meet northern leaders later in the year "to discuss what we can do to help Northern Ireland see that private sector job growth [occurs]". So far, Wilson has been more realistic than most. He has tried to focus his ministerial colleagues on taking hard decisions instead of berating British ministers who control the purse strings.

Continuing in the old way will leach confidence from Stormont at a time when it is already dangerously low. Last week, an Ipsos Mori Poll, commissioned by the assembly, found almost two-thirds of respondents took little or no interest in the assembly. The unfunded giveaways and the sob stories haven't worked economically and haven't built voter confidence. If the politicians can't take decisions as they were elected to do, scrapping Stormont may start to look like the easiest economy of all.

October 25, 2010

This article first appeared in the Sunday Times on October 24, 2010.



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