Belfast Telegraph

Wednesday 17 September 2014

Rebalancing the economy fraught with political and fiscal challenges

Forceful case: Sir David Varney

Rebalancing the economy is the agreed ambition of politicians and business representatives. When the concept is examined more closely, the implications are complicated.

The main confusion lies in the different perspectives. Rebalancing the economy does not necessarily mean the same thing as 'growing the economy'. Ideally, an outcome that combined both would be preferable.

The least controversial process would be something that introduced new or expanded businesses to add to the volume of output and either increased employment or improved productivity (or both). This supports the search for an increased flow of foreign direct investment (FDI) into Northern Ireland. In turn, the focus on FDI converts into the merits of introducing a differential (and lower) corporation tax rate here.

Even if the public sector remains at its present size, the balance in the larger economy would tilt towards the private sector. That would be an answer from growing the economy.

To rely only on that dynamic would be at the expense of the consideration of wider options.

The need to grow, and also rebalance, the economy starts with an acknowledgement that the private sector is regarded as small, or too small, relative to the size of the whole economy.

Sir David Varney, in his specialist reports after examining the merits of changes in corporation tax (even though he unfortunately persuaded the Treasury that the case was not strong) made a forceful case that some of the business activities delivered by the public sector should be reassessed to consider the merits of transferring some public sector activity into the private (including the community) sector. This could be achieved by testing where the private (or voluntary or community) sector could take on the work and deliver services more efficiently.

There is always a sensitivity to setting a challenge to the efficiency of the public sector by seeking private or voluntary sector bids to provide identified services and, incidentally, probably reducing the number of people employed whether in the private or public sectors. Of course, for an expanding service the level of provision might increase with the same number of people.

This suggestion would, understandably, be challenged by the existing providers. However, simply to argue for the protection of the status quo with inadequate testing of efficiency should be unacceptable. Some years ago a similar challenge, described as "market testing", was explored.

A degree of protection to current public sector employees lies in the employment protection requirements of the "transfer of undertakings" legislation (TUPE). Potential bidders in the private sector regard the TUPE legislation as a constraint affecting 'best buy' solutions but these requirements apply to all business transfers even in the private sector. Redundancy requirements usually transfer with an undertaking.

The possibility of rebalancing the economy and growing the private sector at the same time emerges in the policy proposals of some of the political parties.

The DUP suggested a need "to shift the 25-30% of care currently carried out inappropriately in hospitals, into the community".

It added a need to "transform the range of services that are tendered for, including areas such as social care, asset management, transport, fleet maintenance and facilities management. External support could also be explored for human resources, accounting data analysis and back office functions".

The SDLP pointed in the direction of public sector change by asking "whether the public sector should deliver or commission services. This will not be easy but it is a necessary project".

Alliance also placed these issues on the agenda when its manifesto said "the cost and quality of services delivered should be market tested where appropriate to ensure they are delivering value for money ... competitive tendering can result in cost savings of between 10% and 30%".

Growing the private sector by rebalancing from the public sector can be a critical feature of the sharpened policies alongside - and complementary to - measures to attract more FDI.

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