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Why the identity of the next PM will have a massive impact on our future

Opinion: Esmond Birnie

The manifestos of the two largest UK parties matter given that we may be about to enter a period of direct rule. Even if the post-election talks in Northern Ireland (NI) are successful, when devolution was operating from May 2007 to January 2017, much of the time social and economic policies were cut and pasted from Whitehall in any case. Thus, it really does matter to the economy what the two parties are proposing to do.

Conservative manifesto:

Pensioners here, as elsewhere in the UK, will see support from the state grow less rapidly. The winter fuel payments are to be means tested, the famous 'triple lock' on the state pension becomes just a double lock, i.e. increase at the highest of either annual average wage growth or annual inflation - the triple lock included 2.5%, if that was the highest of the three measures.

Whilst the NI authorities (Executive or direct rule) do not have to follow the English approach to funding social care, given that we face very similar challenges, the approach announced in this manifesto is likely to be considered here too.

In the manifesto it is proposed that the threshold up to which the state will fully fund that care is pushed up to £100,000 of assets (from £23,500). However, for care in the home that calculation will now, for the first time, include the value of the family home.

There will be provision for costs to be paid through the sale of that house though as part of the estate, after death. A choice has been made to throw a greater proportion of the burden of paying for long-term social care on to families include middle-income ones (and, perhaps, some below the average, too) as opposed to making this more of a general charge on the taxpayers.

May's Conservatives have chosen to set to one side the advice given in Andrew Dilnot's report on social care in England in 2011 which recommended a cap on the maximum lifetime care costs any individual would have to pay (he said about £35,000 and for a while the 2010-15 coalition looked as though it might settle on £70,000). This might have given people greater certainty and allowed an insurance market to develop (one could take out insurance against the possibility of paying care costs of up to £35,000).

Businesses employing migrants will find it more difficult to recruit non-UK origin workers. Some sectors of the NI economy have become heavily dependent (up to 20-25% of the total workforce in manufacturing, food processing, hotels and restaurants) on migrant workers.

Expect adjustments problems although in the long run it may be a good thing if the NI economy is forced to re-engage with the enormous number of economically inactive.

Regarding spending commitments (and hence follow-through or Barnett consequentials to NI) there is little of the pyrotechnics of the Labour manifesto. About £1bn annually extra on schools in England - that would translate to about £30m extra coming to Stormont. Also, £8bn extra in real terms for the NHS in England (though it is less clear if this is 'new money').

Philip Hammond or whoever is the Chancellor will find themselves less encumbered by various promises not to raise taxes (there are fewer such commitments this time round) but the general implication is "steady as she goes" with respect to income tax, VAT and National Insurance rates and thresholds. Any further decreases in UK corporation tax are not mentioned - the objective of 17% by 2020 is confirmed.

NI is dealt with explicitly on a single page (that is similar to the scale of attention in the Labour manifesto - both documents are about 85 pages long). There are scattered mentions elsewhere, e.g. that UK shipbuilding could have a renaissance in locations including Belfast. A future May Government would work with a restored Executive to improve productivity, rebalance towards the private sector and reduce corporation tax rates in NI. Crucially, it is re-stated, the latter is conditional on "fiscal stability".

Labour manifesto commitments and their impact on the NI economy:

NI has a relatively small population of the super-rich. Hence, the proposed tax rises on higher earnings have less, proportional, impact.

A further rise in the National Living Wage, to £10 by 2020 instead of about £9 per hour, would have a proportionally greater impact in NI (given greater prevalence of low pay).

This would be good news for low earners but challenging to the competitiveness of NI businesses.

A £6n annual increase in spending on the NHS in England would translate, through the Barnett formula, to about £200m extra funding to the NI departments. On top of this might be factored in a Barnett share of the enormous extra spending proposed for infrastructure, social housing, social care, universities, education and training in England.

The nationalisation of railways and water in GB would not apply here (already in public ownership). Royal Mail does operate here and Labour propose to return it to state ownership. Nationalisation of the energy companies in England would set an interesting precedent for policy here in NI. Labour propose to abolish university tuition fees in England (usually about £9,000). The fees here in NI are about £4,000.

If fees went in England it would be hard to defend their retention here in NI but in that situation a further funding gap would be created in terms of supporting higher education in NI compared to its counterpart in England.

Labour place much stress on having a very active National Investment Bank (state financed lending). They are explicit that this bank would operate in Scotland and Wales but they do not spell out whether the NIB would provide loans in Northern Ireland.

One of the most interesting aspects of the Labour manifesto from an NI point of view is the proposal to push the UK corporation tax rate back up to 26% (19% currently, the Conservative plan has been to continue reducing it until it reaches 17% in 2020).

Assuming the Labour plan does occur this might help revive the policy proposal that NI's rate be cut to only 12.5% - a differential of 12.5% compared to 26% could represent a sufficient incentive effect to divert some substantial inward investment from GB to NI. Of course, the downside is that the cost in reduction to the NI block grant would also be higher.

By Esmond Birnie,  senior economist at  the Ulster University economic policy centre

Belfast Telegraph


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