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Congratulations Arlene, you have a big challenge ahead

Analysis

By John Simpson

Published 22/12/2015

DUP leader Arlene Foster waves to her party members
DUP leader Arlene Foster waves to her party members

Congratulations and good wishes to the soon-to-be First Minister, not just for Christmas and the New Year, but for the longer years ahead.

Her immediate challenge might be described as to keep the economy improving. There is an obvious case to review the agenda and pose testing questions on how to address weaknesses and build more effective policies.

As a new First Minister, Arlene Foster arrives with a useful range of ministerial experience. Her inherited mantra has been that 'the economy is the priority'. Living up to that ambition will be testing. Improving its delivery is an even bigger challenge.

Beware the deceptive language around the aspiration to introduce a Northern Ireland rate of corporation tax of 12.5%. Yes, it is an added incentive. However, the impact may not justify the term 'game changer.'

The Irish government has developed a much wider incentive policy, especially as applied to multi-national companies using the (so-called) double Irish company structures. The attraction of FDI (foreign direct investment) will remain a challenging process.

In the period leading up to the UK referendum on Brexit from the EU, there will be a degree of instability affecting potential investors. If the Brexit referendum goes the wrong way, then north-south policies on this island may be less mutually shared.

In the early weeks of 2016, all aspects of economic policy are under the microscope. Executive budget funds must be skilfully targeted. Financial assistance for business must be assessed by objectively measurable results.

As a general principle, where government policy has a choice, better that it should be used to maximise incentives and less should be used to offer general subsidies, particularly if the subsidies are more to protect existing businesses, sometimes with large dead weight impact, rather than stimulate new ones.

The next Corporate Development Plan for Invest NI will be a watershed. Refreshed new targets will replace 'more of the same'. More of the same will be less effective as EU rules constrain its application.

What scope is there to get ahead of other European regions in special incentive related ideas? The advice of civil servants must become better informed, more original, more imaginative and path breaking.

Reshaped policies must be designed to achieve 'more for less'. General subsidies to offset parts of the rates bill should be reformulated, to put the emphasis on expansion, not maintenance of the status quo.

The reconsideration of how to make economic policy more effective comes with two significant local contextual changes.

First, the policy environment is being shaped by the imminent Assembly elections. A cogent five-year mandate is needed.

Second, the Executive is being reshaped with fewer ministers and, this time, with a First Minister who may be expected to retain a direct interest in the regional economy. With the awaited advice due to be delivered from the OECD experts and the opportunity for a major restatement of a programme to improve the critical parts of the physical infrastructure, 2016 is an opportunity not to be wasted.

For the incoming First Minister, the agenda is exciting but formidable.

All ministers must sign up to managing Northern Ireland's resources within the framework of the agreement with the UK Treasury. The five-year budget horizon has been clearly defined. Asking for extra bailout funds should now be beyond expectation.

Within the revised Stormont budget, financial flexibility has been narrowed. Welfare reform has an earmarked reserved supplementary allowance (deducted from the existing Block grant) at an annual cost of probably over £100m. Water charges continue to have an annual call on over £250m.

Into the later budgets, allowance must now be made to offset the loss of corporation tax revenue, possibly over £200m pa when fully implemented. Then there are the costs of ring-fencing spending on health and social services.

First Minister: welcome. Making the economy a priority and delivering results remains a big challenge.

Belfast Telegraph

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