Paying a price for obduracy on welfare reform

It is difficult to assess if it ever really existed but Simon Hamilton’s honeymoon as Northern Ireland’s Minister for Finance is officially over – just one year into the job.

Savage budget cuts, long running battles over welfare programmes and an ambitious public sector reform campaign have all taken their toll on the affable minister.

Last July, his upbeat enthusiasm was clear to see – one of the North’s youngest ever finance ministers – he is 37 – had change high on his agenda.

During his first year in office Hamilton has been approachable as far as the business community is concerned, never missing an opportunity to get his message across and constantly engaging with them. He has teamed up with the Northern Ireland Chamber of Commerce to take part on a "Minister on the Move" initiative where he goes out to hear in person from local businesspeople and see how their firms operate.

It is clear he has also invested in developing closer relationships with political counterparts in Britain and with Ministers in the Republic in connection with Nama’s former role in the North.

Budget portfolio

However, while Hamilton may not be any less eager about his role today than he was 12 months ago, the daily realities of managing a budget portfolio which never really adds up has hit home. He is the man who signs off on how Northern Ireland spends the £10.5 billion block grant it gets each year from the UK Treasury.

Hamilton, who is a member of the Democratic Unionist Party, has never been under any illusion that his job could be difficult. But the fact that he was forced last week to unveil wide cuts to the budget totalling £78 million puts it in a completely new light. Every department bar health and education will be hit by the cuts, which he says "means less money to create jobs, police our streets and create safer roads".

Hamilton has repeatedly warned during his first year as Minister that the public sector is “facing a sustained period of budget constraint”, chiefly because Northern Ireland’s key source of money – the UK government – wants to cut public spending to reduce its budget deficit.

The response of some local politicians has been sadly predictable, adopting a head-in-the-sand approach that the North is all too famous for when it comes to budgets and fiscal responsibility.

There are a number of reasons why the North is now facing budget cuts but one simple factor has not helped – some local government departments have overspent.

If that was the end of its budget woes, it would be bad enough. But worse may be yet to come with even more dramatic cuts of up to £87 million in the pipeline if the Executive cannot agree a way forward on widespread welfare reforms stipulated by the UK government.

Last year the Westminster coalition introduced a new system which will overhaul how welfare benefits are paid. The universal credit benefit is a single means-tested benefit which will be paid to people of working age and will replace most means-tested benefits, including jobless benefits and child tax credits.

London has argued that too many people are trapped on benefits which makes it financially better for them not to work: it says this new system is designed to make work pay.

It is being phased in across the UK, not without difficulties and not without its critics who argue vulnerable people could be worse off, not better off under the new system. The North’s Executive was told to implement the reforms last January or face multimillion- pound monthly penalties from the UK Treasury.

Vehemently opposed

Sinn Féin is vehemently opposed to the reforms and has been locked in a long-running battle with the DUP over its refusal to agree to implement them. The SDLP has also fought against the introduction of the welfare reforms.

Both parties argue that people will be harder hit than any other part of the UK because of the large numbers on incapacity benefits rather than jobless benefits and because of the weaker local economy.

Research produced for the Northern Ireland Council for Voluntary Actions suggests the impact of the welfare changes could take £750 million out of the local economy.

While the debate has continued to rage, the North has been hit every month since January with a £5 million penalty charge for not passing the legislation required to introduce the new universal credit benefit.

Although the Executive has agreed the current round of £78 million of cuts to the budget, no deal has been reached on the reforms. Instead, what Sinn Féin and the DUP have done is simply delay dealing with the problem until October.

The stand-off continues. Northern Ireland now faces its biggest budget crisis since devolution and for Simon Hamilton the biggest challenge of his political career.