Belfast Telegraph

Friday 31 October 2014

DebateNI home of Northern Ireland politics

Welfare war of words may force us to get real on economy

Finance Minister Simon Hamilton

The one good thing to be said about the latest war of words on welfare reform is that it is at last focusing attention on the sort of hard choices that have to be made on spending as we go forward.

Up to now, the economic debate was often a matter of smoke and mirrors. The media was being far too negative, on that the big parties were agreed.

The First and deputy First Minister were touring the world, drawing in high-end investment at a record-breaking rate and if only we could get control of corporation tax, then the sky was the limit.

That was the official narrative and every shortfall would be met from 'efficiencies', which protected frontline services.

Recently, the DUP has bombarded us with a sea of figures painting a gloomier picture, as they attempt to bring Sinn Fein to heel on welfare reform.

The latest figures show the devastating effect, as the Finance Minister, Simon Hamilton, below, put it, of a 1.5% reduction in public spending – the price he puts on resisting the reforms this year.

He lumps in another £45m to cover the shortfall we incur by such measures as giving more generous student loans than Britain and of abolishing air passenger duty for long-haul flights.

Mr Hamilton didn't mention another £43.7m that it would cost us to implement the changes with the modifications he proposes to protect the hardest hit.

If we resist, Britain can take this money directly from us for the block grant they pay us, which was £9.6bn over the past year.

That represents the gap between taxes raised here and our public spending. It amounts to £5,333 for every man, woman and child here – just over £102 a week each.

We can't resist changes imposed by Westminster, because it can then reduce the amount it pays us and leave us to deal with the consequences.

If we just keep spending, then the banks will quickly stop cashing our cheques. We would then face something like the bailout which the Irish Republic, Spain and Greece endured, but with London, rather than the IMF, or Brussels, setting the terms.

Behind the scenes, heavy cuts are already in progress. As Edwin Poots revealed, health and social service spending has delivered "savings" of £665m over the current four-year budget.

There is no silver bullet to get around this, but we are still loaded with crowd-pleasing giveaways, which were started when thing looked rosier.

Back in 2008, when Peter Robinson became First Minister, there were plans to sell off, or lease out, government buildings into the booming property market. That was supposed to cover any deficits. There were also plans for the booming southern economy to export jobs here.

As a result, the devolved administration felt generous. The giveaways included sparing us domestic water rates (estimated to cost £500m a year at the time), holding down other local taxes and giving everyone free prescriptions.

We still have these measures and there is talk of cutting corporation tax to match the Republic's rate. The bill for that would be about £400m – far more than welfare reform would cost.

It would take £181.7m out of the Health budget if the cut was shared out proportionately between departments.

Political debate normally centres around such conundrums. Elsewhere, politicians have to argue for one priority against another; that doesn't happen here.

Perhaps this is the time to start before we walk into a fiscal disaster. If Mr Hamilton intends starting such a debate, then he deserves credit for it.

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