Austerity drive in North replaces London handouts

Belfast Briefing: fresh debate gets under way about future of local economy

“Hands up who is going to pay?” It is not a question most people enjoy hearing – particularly in Northern Ireland where there is a history of getting someone else, normally the UK chancellor, to pick up the bill.

But as a fresh debate gets under way this week about the future of the local economy, it is a question that can no longer be avoided, according to a leading economist pushing for change.

Prof Neil Gibson says the time has come to abandon dependency economics and lay the foundations for a very different fiscal framework in the North.

Gibson is not the first to say it – this argument has been doing the rounds since the Executive got up and running in 1999. But in the past 15 years virtually nothing – bar a short-lived property boom, local economic crash and the emergence of a film industry – has really changed when it comes to the North and economic independence.

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Key issues

Now with the Scottish referendum just around the corner and key issues such as welfare reform and a possible deal on corporation tax later this autumn, Gibson says the North’s days of procrastinating need to come to an end.

The North will still get its annual £10 billion “subvention” from the UK treasury to make up the shortfall between what it can raise locally in taxation and its public expenditure bill. But there is no doubt that the once cosy little arrangement where London had an apparently bottomless purse to fund the North’s extensive public sector is no longer in place – austerity drives have replaced the handouts.

Gibson, who is the director of the Northern Ireland Centre for Economic Policy, an independent research centre based at the University of Ulster, is warning that there will be inevitable and “significant funding challenges” ahead. He says the impact of this should not be underestimated.

“We face a period of austerity,” he warns. This is likely to impact on everyone because people like their public sector. They like free medical care, first-rate hospitals, good schools, world-class universities and robust infrastructure.

Businesses are the same. They like all the financial support packages that exist from training to job creation and research and development incentives.

‘Tough decisions’

But neither has ever really had to foot the entire bill for the services they enjoy. “The world is changing and we can’t ignore it. We all, as a society, have some very tough decisions to make. We are at a crossroads moment and the mindset has to change – from the perspective of the individual, the corporate and government.

“For very legitimate reasons – not least because we needed to get a peace settlement in place – Northern Ireland didn’t always have genuine choices to make. We do now. He says Northern Ireland cannot escape making decisions that could potentially set the local economy on a new trajectory.

“Everything comes with a price tag and we are moving into an era where decisions like welfare reform or a lower rate of corporation tax will result in tough choices that the public and political leaders have to make.

“No one should be under any illusion that, if we want something, we are now going to have to find a way to pay for it – people just cannot take the approach that it is nothing to do with them. This doesn’t all come down to the Executive or politicians – we all need to be involved in the debate about who is going to pay and about how we are going to pay. We need to question how we raise money, what we are willing to pay for – how many hospitals we have, schools or doctors – we’ve got to come up with solutions,” Gibson says.

He hopes to kick off this debate in earnest tomorrow at the Future of the Northern Ireland Economy conferences in Belfast and Limavady organised by London-based wealth management firm St James’s Place, a FTSE 100 firm with £47.6 billion of client funds under management.