Belfast Telegraph

UK Website Of The Year

A stable Executive and corporation tax control is a good start for 2016

Economy Watch

By Angela McGowan, Chief Economist, Danske Bank

Published 08/12/2015

Chancellor George Osborne
Chancellor George Osborne

We heard again during Chancellor of the Exchequer George Osborne's Autumn Statement that the "economic plan is working" which can largely be put down to the fact that 'the economic plan keeps changing'.

The Office for Budget Responsibility (OBR) estimates that the Conservative government's newly scaled-back cuts are now very similar to the proposed cuts set out by the Labour party prior to the general election in May. Nonetheless, so long as the correct economic policies are finally being implemented and the economy stays on track, it doesn't really matter to us if Mr Osborne turns around more times than a puppy before it lies down.

November was a good month for Northern Ireland. We had a breakthrough political agreement and the Autumn Statement and Comprehensive Spending Review was not as tough on the local economy as initially anticipated. Although hefty cuts were applied to many Whitehall departments, health and education in England were largely protected and therefore, through the workings of the Barnett formula, Northern Ireland's block grant for public expenditure was also for the most part protected.

There was a short-term reprieve from the Chancellor for households receiving working tax credits and, at long last, it was good to see that Mr Osborne finally recognised that when interest rates are low and borrowing is cheap, this is actually a good time to invest in infrastructure.

Infrastructure investment is an integral component of economic growth and thus the latest 12.4% uplift in real terms in Northern Ireland's capital budget should be welcomed.

At the end of this month the Finance Minister Arlene Foster will set out the new budget for the NI Executive to agree. With a planned reduction to only nine government departments, a May election and new Executive mid-2016, a short-term budget will most probably be the most realistic option until all the new structures are established.

While there will, of course, be some departmental constraints (only health and education are protected) we should nonetheless expect to see some of George Osborne's increased funds for capital spend translated into signing off a number of major infrastructure projects that have been sitting in the pipeline.

Any new investment in our roads, hospitals, schools, social housing, air routes and telecommunications will not only be beneficial to the public, but will also raise our attractiveness to foreign direct investors and lend much needed support to the construction, architecture and civil engineering sectors.

Interestingly, another theme running through the November Spending Review was the emphasis on devolution. The Chancellor is keen to push out greater powers to local authorities for services such as social care and in doing so he will be putting some distance between central government and future cuts to service provision.

Power from the centre is also being pushed out to the UK regions and as part of that greater devolution plan the Northern Ireland Assembly will finally have control over the local rate of corporation tax - subject to local finances being put on a "sustainable footing".

Sustainable fiscal planning will be a core element of our economic independence. We have to assume that in the future we will have to face up to making the right choices in terms of reducing wasteful public spending and introducing some moderate tax revenue raising streams, such as prescription charges or water rates. The new Stormont House Agreement 'A Fresh Start' incorporates a plan to create an independent fiscal council in Northern Ireland and indeed, independent fiscal analysis should be welcomed. Perhaps a regional division of the Office of Budgetary Responsibility could fulfil that commitment without the added cost.

Mr Osborne's eagerness to promote devolution means that local economic prosperity will be increasingly down to local people and in Northern Ireland that can only be a good thing. For too long, our economy has lagged behind the rest of the UK in terms of economic growth, yet in such a small place it should be perfectly feasible to co-ordinate tailor made economic policies that tackle our challenges head on and allow us to grasp good opportunities.

The challenges for our economy are well documented - an under-developed private sector, low levels of external trade, underachievement in schools and low productivity.

The opportunities are probably less renowned but include: developing further the knowledge element of our economy, rediscovering our entrepreneurial and innovative flair, investing in infrastructure and connectivity, developing business clusters around local universities and FE colleges, scaling-up indigenous businesses and having a tax regime conducive to business and investment. We could also make better use of the goodwill that is extended to NI from right across the globe, working with our neighbours in the Republic of Ireland on cross-border initiatives and to access more EU funding for public and private R&D programmes, cross-border tourism and the development of border towns. Economic success can be ours if we focus on supplying 21st century products and technologies relating to health, security, energy, entertainment and food.

In summary, we are entering 2016 with a working government and greater control over an economy which holds untold potential.

That's a very good start.

Belfast Telegraph

Your Comments

COMMENT RULES: Comments that are judged to be defamatory, abusive or in bad taste are not acceptable and contributors who consistently fall below certain criteria will be permanently blacklisted. The moderator will not enter into debate with individual contributors and the moderator’s decision is final. It is Belfast Telegraph policy to close comments on court cases, tribunals and active legal investigations. We may also close comments on articles which are being targeted for abuse. Problems with commenting?

Read More

From Belfast Telegraph