Northern Ireland’s spending crisis not going to go away

New taxes, water charges and possible public sector pay protests – could this be a taste of what the future holds for Northern Ireland?

Because life as we know it in the North is about to change. For the first time since devolution, Northern Ireland is facing a spending crisis that threatens to overwhelm the system.

Forget for a moment the fact that a new set of cross-party political talks kicks off this week to try to settle local “outstanding issues” – see parades and flags for a start.

Or that the North’s Executive managed to squeeze an emergency £100 million loan out of the UK treasury last week to paper over the immediate financial cracks at Stormont.

The real elephant in the room is the fact that the North's budgets are under unprecedented pressure and unless Peter Robinson and Martin McGuinness find an unclaimed pot of gold the problem is not going to go away.

It is an easy equation to get your head around but some political leaders have chosen to ignore the fact that the North can no longer pay for all the things that make it special in their eyes. These include free prescriptions for all, free travel for the over-60s, an expensive education system and an encompassing health service.

The North’s budget woes are not entirely of its own making – it has had to shoulder a reduction in money it receives to operate as a region from the UK government. There have also been increased demands for money from departments such as justice and health.

Difficult decisions

But instead of addressing these and taking difficult decisions on where to make budget cuts, the Executive has prevaricated and danced around issues without much finesse and then made things a whole lot worse by not being able to agree on implementing a package of welfare reforms dictated by the UK government.

The end result is that it could be hit with fines from the British treasury totalling £87 million this year and potentially £114 million next year if it does not introduce sweeping welfare reforms.

Add this to the prospect of the £100 million loan – which will be deducted from Stormont’s overall budget next year – and the immediate financial outlook, regardless of what the local economy may be doing, is far from cheery.

What the Executive urgently needs is a cash injection – not another loan – and a way of making its finances work.

According to Prof Neil Gibson, director of the Northern Ireland Centre for Economic Policy, this is a mammoth challenge.

“The Executive has never been in this position before. When it came into existence it was during a time of plenty in an era of very generous public spending and significant European money available. Now it is facing significant financial pressures which it has never had to live through before.

“Northern Ireland always had the British taxpayer, as a sugar daddy of sorts, to bail it out but those days are over.

“We’re now living in an era where the British taxpayer, whether he lives in Merseyside or she lives in the Welsh valleys, does not want to pay for Northern Ireland.”

Tax-raising options

Gibson believes the challenge for Northern Ireland plc is first to look at how its operates – does it have the right structures in place to manage its budgets – to best distribute money to particular departments, and secondly to visit the prospect of tax-raising options.

“What options does it have? When it comes to levying taxes then the question is who does it want to take money off? Does it want to end free travel for the over-60s and take away free prescriptions or will it look at introducing water charges or increasing rates bills?

“Maybe it might raise the spectre of pay cuts for public sector workers or look for other tax-raising options.

“The only thing that is definite is that the Executive and Northern Ireland is at the start of what is going to be a very painful journey. It’s going to get much worse – we only have to look at [the Republic] as an example to see how painful it could be.”