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
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
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
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
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
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
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.