WHAT a month it has been. From being hailed as the most exciting economic zone in the world and having presidential visitors tell us of our amazing potential (which is true) to the stark realities of a budget set by the Secretary of State that raises serious concern about the mess our public services are in.
After months of waiting, and months of being told that cuts of up to 20 per cent were being modelled by civil servants, the Secretary of State finally delivered what has been termed a ‘punishment budget’.
Those of a more optimistic outlook have focussed on an ‘it could have been worse’ commentary. Of course it could have been worse and while a ‘glass half full’ view is creditable, let’s not pretend this budget was anything other than grim.
Despite the wait for a budget, finally getting one is not the end of the story. There is a lot to unpick and many difficult decisions are now facing our decision makers. The situation is not readily solved by a begging bowl to Treasury approach. The mood from the Secretary of State and Treasury is that this is a problem of our own making and one we have to solve ourselves.
They have a point.
Looking at the various elements of public spending where we’ve deviated from the rest of the UK, the value comes up to almost £700 million a year. The largest element of this is domestic water charges which is valued at £345m.
Other significant elements include £59m for industrial de-rating. If we really are the most exciting economic zone in the world, is this a cost still worth bearing? With our finances in the state they are in, all the policy choices that cost us extra need thought through.
Another key consideration for us is deciding what sort of public services we really want? Fewer, but more sustainable schools? Fewer, but efficient hospitals? Sewers that aren’t full?
What about coming at it from the perspective of what we need? The NI Fiscal Council have been reporting on this in the past week. The argument for Northern Ireland receiving more money is that we have a greater need than the rest of the UK. Basically, because we have different population and economic conditions, the cost of delivering the same standard of public services is higher.
Just a few years ago, public spending per head here was about 40 per cent higher than in England, partly because of previous injections of cash from political agreements. The most recent set of accounts show that our public spending per head is 23 per cent above England. Our relatively greater needs here suggest that this should be 24 per cent so we are broadly in line with our relative need.
The trajectory is one where our spending per head looks set to fall below this relative need in what is known as the ‘Barnett squeeze’. I note that Wales has secured a ‘Barnett floor’ below which spending per head relative to England will not fall. This is set at 15 per cent and sounds like something Northern Ireland should be lobbying hard for.
Of course, the Secretary of State has flagged revenue raising in his budget statement. We don’t raise as much in local revenues compared to our near neighbours and the budget statement called this out as unsustainable. We can probably expect revenue raising options to be presented in the near future.
I come back to a point I have made numerous times – only when we have contented ourselves that our public services are being delivered efficiently should we then move to revenue raising. Otherwise it will feel like throwing money good money after bad.
Which brings me to reform.
How right the Bengoa health reform report was when it wrote “If we do not change the way we provide health and social care, the situation will only continue to get worse – the demand will continue to increase, activity will remain static and waiting times will continue to lengthen.”
With a health service that is creaking under the strain of demand placed upon it and now dealing with a cash flat budget that creates further pressures it is the case that we can’t afford the cost of the reforms required to achieve a better service.
An Executive coming back doesn’t solve these problems. An Executive coming back with a cheque from Treasury to implement much needed reform to public services might.
:: Andrew Webb is chief economist at Grant Thornton
