Failure to reach a deal on how Northern Ireland should implement the welfare reform proposals is now, cumulatively, eroding confidence in the operations of the devolved Executive.
The party political stand-off has the potential, at the least, to leave some public services seriously short of operational budgets.
There is a compelling argument from the Treasury perspective that the Northern Ireland Executive should appreciate the long-term benefits of funding arrangements that will allow continuing parity with Great Britain in the funding of welfare services.
The converse argument is that the financial penalties imposed by the Treasury will disproportionately disadvantage Northern Ireland.
Before the budget crisis gets worse, efforts are needed to find an acceptable solution. Some of the taxation and welfare reform proposals have already been implemented here.
The package of reform proposals is extensive. Four of the core issues involve:
- changes in personal taxation and allowances affecting families
- the introduction of universal credit in place of several existing benefits
- a ‘spare bedroom’ tax to reduce the cost of housing benefit
- the introduction of personal independence payments [PIPs] replacing disability living allowances (DLA).
The taxation changes have already been implemented in Northern Ireland as part of the UK system. This has not raised any specific Northern Ireland administrative problems.
The roll-out of a system of universal credit has been slower than expected in parts of England and there is a concern that it is proving administratively cumbersome. Nevertheless, the principle of a switch to universal credit seems to carry little criticism of the merits of the concept in NI.
The proposals to reduce the level of housing benefit for households which are deemed to have a spare bedroom have proved controversial in Northern Ireland (and also in Great Britain).
The merits of adjusting housing benefit to give incentives to a more logical allocation of housing are not as controversial as the operational details. Northern Ireland ministers have secured a phasing-in agreement with London that postpone for some years the impact on existing tenancies. Arguably, this is a deal that meets local needs for unpopular changes.
The main feature of welfare reform that faces political resistance is the proposal to switch over time from most (but not all) DLA allowances to a system of PIPs.
In a preliminary study, published by the Department of Social Development (DSD)in late 2012, the evidence showed that 190,000 people in Northern Ireland claimed DLA. This was, proportionately, nearly double the number in Great Britain.
These benefit payments recently totalled over £840m each year.
Under the proposals used in Great Britain, because people of over 64 would continue with the existing scheme, only 118,000 of DLA claimants would be affected by a possible switch to PIPs and even then, of the 118,000, only 27,000 would be reassessed for PIP in the first two years.
The estimates by the DSD, drawing on a small statistical sample, suggest that, if/when the PIP scheme is phased in, possibly 25% of existing claimants might not be entitled to the new style benefit.
This would mean that total benefit spending would be reduced by about £29m per annum. These changes need to be better understood.
The proposals would mean that the higher level of claims in NI, relative to Great Britain, would slowly and marginally be narrowed.
Northern Ireland for several years would continue to fund DLAs for more people, proportionately, than in Great Britain.
In search of a politically acceptable arrangement, the Northern Ireland Executive might suggest to London that the potential impact of PIPs here should be professionally re-examined to consider the merits of any factors justifying how the assessment for PIPs should be varied here.
There is already under way an official review of the operation of PIPs in Great Britain which will report before the end of November. Northern Ireland might usefully also draw on its conclusions.
As a constructive proposal, a local PIPs review could, potentially, be a deal maker in reaching an agreement with the Treasury.
Company report: Lissan Coal Co Ltd
Measured in terms of annual turnover, Lissan Coal, registered with headquarters in Cookstown, is probably the largest business in that area. It is a large and diverse family controlled business operating as a distributor in fuel oil and gas along with related fuel products and equipment, as well as the wholesaling and retailing of coal.
The group has continued to consolidate and roll-out its ‘GO’ branded fuel outlets. Several other energy and fuel companies operate within the group as related parties. In addition, there are subsidiary companies registered in Spain and Ireland whose main activities, consolidated in the Group, are the wholesaling of bulk coal.
Lissan also now holds 25% of the voting share capital of Centurion Bulk Pte, a company incorporated in Singapore.
A new subsidiary is LCC Power, registered in Northern Ireland, which has enjoyed a successful first year of trading.
Lissan Coal also owns half of the voting share capital of LSS Ltd, a Northern Ireland registered joint venture where the other participant was Statoil Hydro ASA. That joint venture registered a post-tax profit share of £1.5m in 2013 (compared to £1.6m in 2012).
Group turnover in 2013 was over £579m, ten times the amount eight years ago when it was just over £50m in 2005.
Operating and pre-tax profits peaked in 2011.
Since then, although turnover has increased further, profit levels have fallen marginally.
Profit margins in these businesses are small. Pre-tax profits in 2013 were equal to less than 2.5% of turnover having fallen from a peak of over 3.2% of turnover in 2011.
While turnover has increased to nearly eight times the annual figure in 2005, average employment has nearly quadrupled from 43 people in 2005 to 156 in 2013.
Most of post-tax profits are retained each year in the business.
The balance sheet value of shareholders’ funds reached £57.9m in September 2013, nearly £13m higher than a year earlier.