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Executive's framework has set itself some major challenges

Economy Watch

By Esmond Birnie, chief economist at PwC

Published 13/09/2016

The Executive has laid out its Programme for Government
The Executive has laid out its Programme for Government

Although its publication was overshadowed by the EU Referendum on June 23, it is good to have a 'framework' for the Programme for Government for 2016-21.

The previous Programme for Government 2011-15 contained 82 commitments. So many may have implied a loss of coherence with less joined-up thinking by departments on cross-cutting themes. This time, the framework has a very different structure designed to encourage the necessary focus on problem solving rather than departmental structure. There are 14 strategic outcomes which in turn are related to 42 indicators.

Undoubtedly '14 strategic outcomes' are more manageable than '82 commitments', but is that number still too large? The Executive could be pressurised to add to those 14 and that creates the danger of coherence being lost. We would agree with the OECD, in its report on the effectiveness of Northern Ireland Government, July 6, 2016, when it argued for 'three to five, strategic, multi-dimensional commitments'.

Even though the document has 114 pages, a lot of detail still has to be worked out. Most of the indicators still have no target number assigned to them. In some cases it may be necessary to refine the indicator or even choose a new one. The Executive could reflect on the experience and practice of the Scottish Government and develop a clear system of 'key national indicators' (OECD) so the public can judge the success or otherwise in implementing the final Programme for Government, It would be a useful exercise if the Executive could collate and record in one place the outcomes against targets for each of the commitments set for 2011-15.

What is clear is that in this framework the Executive has set itself some major challenges, particularly with respect to the economy. One indicator is to grow the total size of the economy as measured by the Northern Ireland Composite Economic Index (NICEI). In almost every year since 1945 the Northern Ireland economy has grown but the NICEI indicator could be very challenging if refined as follows - instead of considering simply year on year growth, consider the level of the NICEI compared to its pre-banking crisis (early 2008) peak value; by that measure the current level of output remains 7% below its previous peak level before the recession in 2008-9. In contrast, between 2008 and mid-2016 the total output of the UK economy grew by 8%.

The Executive has correctly committed to improve economic competitiveness. The chosen indicator here is the level of total external sales by the economy - a combination of exports and sales to Great Britain. Leaving to one side the question of why they did not choose a more direct measure of competitiveness such as productivity, this is a challenging indicator. Notwithstanding last week's figures, our overall export performance throughout most of the previous Programme for Government period was lukewarm, albeit with some patches of good performance - sales to some emerging markets grew very well, albeit from an extremely low base.

The employment rate has, quite correctly, been chosen as an indicator. Whilst this has been growing at a very slow rate, a gap of about 5% points compared to the UK average has remained.

The OECD was right that the Programme for Government must be, "…fully supported by the budget and fiscal framework, whilst enhancing capacity to assess spending decisions against the objectives identified in the Programme for Government…" We must develop independent capacity to monitor and evaluate the Executive's Budget plans.

How sensitive is this programme to certain key assumptions? The framework has, inevitably, required that assumptions are made about what the future state of the economy will be. The future is inherently uncertain so it would be a useful exercise for the Executive to spell out its critical assumptions and also provide some indication of the sensitivity of outcomes to variations in those.

The importance of such uncertainty is exemplified by the fact that even in the relatively short period since the framework was published we have seen the EU Referendum result and some indications from the UK government that it might cut the rate of corporation tax. This suggests that it might be useful if the programme could make provision for a mid-term review. The Programme for Government 2007-11 was published before the impact of the banking crisis and subsequent recession was obvious. The usefulness of that programme was reduced because it was devised for a state of the world which no longer existed.

In our commentary on the Programme for Government (2007-11) and elsewhere we noted that Northern Ireland government has traditionally been very strong at providing intense analysis of 'what the problem is'. The track record in then implementing policy responses has been much more mixed. As the OECD argued in its report, the emphasis now has to be on implementation but allied to that flexibility in what is actually done.

In fact, as circumstances change in the UK, European and world economies there may be unexpected windows of opportunity. As a small region with only 1.85m people we must be fleet-footed to take any such opportunities.

Belfast Telegraph

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