Belfast Telegraph

Why we need more than cuts

By John Simpson

Growing the economy to offset the impact of recession is an undisputed ambition. If measures can be developed that increase local demand, increase employment and add to the scale of domestic incomes, these would be very acceptable.

The political debate, nationally, Europe-wide and locally has adopted the apparent choice of seeking measures to switch from austerity linked policies to policies to generate growth.

This apparent choice is deceptive. At a UK level, part of the answer from Government is that the policies to correct the UK Government deficit cannot be set aside without creating serious problems.

If the deficit begins to increase, instead of decrease, the concern is that interest rates would rise, borrowing costs would increase, the housing market would take an additional knock, and the exchange rate for sterling may depreciate adding further to increases in the cost of living.

The Chancellor of the Exchequer is not willing to abandon the thrust of Government budgetary rebalancing.

For the Chancellor, choosing growth policies and moderating austerity policies as an either/or choice, over-simplifies the issues. What the Chancellor and other Ministers need to do is find methods to combine a growth initiative with a continuing deficit reduction programme.

In Northern Ireland, the Executive could make a similar choice. The Stormont public sector spending totals until 2014-15 have been set. The Executive faces a challenge. Within the spending available, can the austerity element be eased by reallocation, reconsideration or innovative additions?

The search for an additional growth agenda poses difficult choices. However, there are choices that might make a difference.

In principle, the concept calls for reconsideration of the existing spending allocations and some switching of priorities. In parallel, the concept points to the merits of a search for alternative financing mechanisms with a focus on a short-term boost covering two to three years until the economy shows more signs of endogenous recovery.

In principle, the Executive might consider two related questions. First, can current public services be reorganised to make significant savings that can be released to develop alternative, possibly capital, projects? Second, can the Executive, as a short to medium term policy, extend its use of external finance?

If the Executive had the 'will', there is no doubt that special steps could be taken to release or generate funds that would be spent with greater economic leverage for jobs and incomes.

Although the suggestion is not popular, there may be scope to reorganise and reshape some public services, or selectively ask for reductions, over and above the modest reductions in some current expenditure budgets.

The Northern Ireland public sector has not been faced with the rigours of an external efficiency review on the lines used by McCarthy in Dublin. There has been no known effort to test whether some services might be internally reorganised (to create spending reductions) or market tested to consider out-sourcing.

In the search for greater leverage from external funding sources, the Executive has proved reluctant to increase its borrowing through schemes aligned to additional social housing or more capital projects that are wholly or partially contractor financed, akin to PPP (public private partnership) models.

The possible search for extra funding cannot easily overlook the possibility of restoring the revenue lost when prescription charges were abolished, when revenue from regional rates was capped, and when social charges linked to housing benefit and housing rents were adjusted taking a local advantage.

Growth should be an aspect added to the inevitable austerity changes.


From Belfast Telegraph