JM Thorn

2 November 2010

Given the dependency of the north upon state spending (which accounts for almost 70 per cent of GDP) the cuts announced in the UK government’s Comprehensive Spending Review were always going to have a big impact.This is compounded by the fact the recovery in local economy is very weak, and that many businesses are dependent on state capital spend and procurement.

In the run up to the CSR announcement there were various predictions on how much the Westminster block grant to the north, which currently runs at around £9.5bn per year, would be cut.These predictions ranged from £1bn to £2bn, with the latter figure being heavily trailed by the finance minister Sammy Wilson.As it turned out, the actual figure was in the middle of this range, with the north receiving £1.4bn less in 2014/15 than it was in the last financial year. This is roughly proportional to the cut that was announced in the June budget for the current year.There has been some confusion over the severity of the cuts, with Stormont’s Dept claiming that the budget has been cut by £4bn and First Minister Peter Robinson saying that £5bn would be lost.The dispute over whether the cuts were worse than expected was largely based on how the figures were calculated and presented.For example, the £4bn figure from the Dept of Finance represented the cumulative loss over four years.In nominal terms the block from Westminster is actually staying stable - £9.4bn in 2011-12 and £9.5bn at the end of the four year period.In real terms, when inflation and other costs have factored in, this represents a reduction of 6.9 per cent.This is the type of figure that had been predicted, and it is in proportion to the cuts that had been announced earlier in the year.The political parties cannot say it was worse than expected.By saying this they are merely trying to absolve themselves of any responsibility

Another source of dispute between Stormont and Westminster is on the cuts to the capital budget.The funds for roads, hospitals and public projects will be cut by about 40 per cent by 2014/15.The local parties claimed that capital spending had been guaranteed under the terms of the St Andrews Agreement, with the executive promised £18bn over a 12 year period.However, this commitment was never as clear as local parties would contend, with much of it expected to be made up of receipts from asset sales.

While the cuts may not be as bad as feared or claimed, they will still have a negative impact. This is likely to manifest itself it terms of slower growth, with the danger of the north falling back into recession, and rising unemployment. Cuts to the capital budget will hit the contraction sector particularly hard, and will come at a time when it has experience a massive decline as a result of the collapse of the property boom.The latest figures from the NI Construction Bulletin showed a 5.7 per cent decrease in output during the past quarter, while total construction volume was 14.5 per cent down over the same time frame in 2009.It is estimated that 21,000 people have lost their jobs in the sector during the recession, 13,000 of whom are still on benefits. Reductions in capital spending will also hit the health service as large projects such as the new maternity hospital in the Belfast RVH and the new hospital for Omagh are delayed. 

The cuts could result in the loss of 20,000 public sector jobs, with a further 16,000 going in the private sector as a result of the reduction in consumer spending and in public investment. Where the north could be hit particularly hard is in the area of welfare spending.Falling under the category of Annually Managed Expenditure some £4.2bn is spent on welfare payments in Northern Ireland each year. While administered locally this expenditure is not under the control of the Executive.As there is parity across the UK in terms of benefits, any changes or reductions introduced at Westminster will apply automatically to Northern Ireland. In the June budget the UK Government took £11 billion out of welfare benefits and in this CSR a further £7billion. The Northern Ireland share is not far off half a billion pounds. Cuts in the welfare budget will also have disproportionate impact in the north given the higher than average number of benefit claimants here.Overall, 155,000 are in receipt of housing benefit; 58,500 Jobseekers Allowance; 185,900 Disability Living Allowance; 91,448 Incapacity Benefit; and 97,987 Pension Credit.Across Northern Ireland, one in ten people claim DLA, rising to two in ten in some parts of Belfast.It is in the area of welfare rather than the block grant where potentially the impact of cuts could be greatest.

Despite their protestations and supposedly differing approaches to offsetting the impact of cuts there is a large degree of common ground between the local parties.This was reflected in the Assembly debate on the CSR which produced a unanimous vote on a motion condemning the cuts but urging parties to work together and act responsibly.Despite being portrayed as being out on a limb for his seeming enthusiasm for cuts finance minister Sammy Wilson probably summed up the mood of the Assembly when he stated that they had “to simply accept what has been handed down to us.”There was no sense than the local parties were going to offer any opposition to the cuts, or were going to push the institutions to the point of crisis over the issue. 

The cuts have been implicitly accepted.The focus now is on agreeing a budget for next year and putting forward suggestions on where cuts could be made or revenue raised to offset them. A number of the parties have already come up with suggestions.In its There is a Better Way document Sinn Fein said it would save £1.9bn through a variety of measures, including a £2,000 per month tax on mobile phone masts and a pay cut of 15 per cent for politicians and senior civil servants.At the lunch his own party’s document DUP leader Peter Robinson called for a civil service pay freeze for the next two years for anyone earning more than £21,000.The DUP called an end to "one-step progression" under which workers gradually move up their pay scales and the removal of performance bonuses.The party said that pay restraint should apply across the whole of the public sector, including for medical staff and teachers, whose salaries are usually negotiated on a UK-wide basis.Another proposal put forward by various lobby groups and commentators is for a raft of privatisations which would include Belfast Harbour, MOT centres, NI Water and even the public transport network.One of the most ominous proposals has been SDLP leader Margaret Ritchie’s call for a social partnership approach to public spending.We need only look to the savage austerity being imposed in south to see where such an approach could lead.

In the short term the parties at Stormont are likely to agree to a budget that will hold off any major cuts until after next year’s Assembly election.After that we can expect the full cuts agenda, including privatisation and wage cuts, to proceed quite rapidly. What is clear is that workers cannot depend on local parties to defend them – these parties have accepted that cuts have to be made and that the burden of those cuts must be borne by the working class.The trade union strategy of building alliances with local parties and between regions of the UK is completely flawed.It can only lead to beggar the neighbour polices and workers being asked to make sacrifices for the supposed benefit of their own regions.What is needed is unity between workers north and south, and between workers in Ireland and Britain, and with workers across the whole of the EU in a common struggle against the austerity policies being pursued by their governments.