Belfast Telegraph

Budget hype exceeds the real allocation

By John Simpson

The draft Northern Ireland budget has the objective of strengthening the regional economy. However, the proposed allocations are not entirely convincing in the current and capital budgets or departmental allocations.

The allocations have attracted criticism, not entirely justified, from the Ministers responsible for health and housing.

Little public criticism has come from the ministers with responsibilities for economic policy, such as the departments of Enterprise, Trade and Investment, Employment and Learning, and Regional Development.

The budgetary arithmetic merits a closer critical review.

The headline figures are deceptively reassuring. Peter Robinson, Minister of Finance and Personnel, has made proposals for total spending in 2008-9 of over £9.9bn - an increase of 5% in money terms or about 2.3% when adjusted for forecast inflation.

This 5% increase is notable since the Treasury allocation (through the Barnett formula) only offers 4.4%. The difference of 0.6% is about £60m.

Two major contrasting features stand out in an examination of the Budget arithmetic.

First, the minister has squeezed current spending quite hard. And second, he has endorsed a very large increase in capital spending, provided that he can get extra capital from local asset sales of some £400m.

If the minister had increased current spending in proportion to the Treasury allocation, an extra £90m for departmental current spending was possible. However, by holding the regional rate constant, the share of current spending financed from local revenue has fallen. This was a popular decision with ratepayers.

Current spending allocations increase by 3%: the Treasury resource allocation was 4.1%. This has made some departments unhappy.

The overall 3% allocation is less than in England, it must finance inflation costs expected to be about 2.7% and only becomes a real increase when 3% internal efficiency savings are added back again.

The capital budget contrasts with the current budget. Capital spending, after realising nearly £400m in asset disposals, may reach £1.64bn: an increase of £230m or 16% in 2008-9 over 2007-8.

Without asset disposals, including the Workplace 2010 office contract and the sale of some Housing Executive homes, the capital budget might fall.

Funding from the Treasury for capital spending, through Barnett, and before any direct borrowing by the Executive, was earmarked for only a 6.1% increase.

The capital programme is largely dependent on local initiatives. If these mature too slowly an important economic stimulus will be reduced.

If the budget is designed to boost economic expansion then evidence should be found in the budget for attracting investment (DETI), for enhancing the number of people with the skills for tomorrow's demands (DEL) and better economic infrastructure (DRD).

From this group, the biggest increases are for infrastructure, although the priorities for maximum impact might be re-examined.

Attracting investment and enhancing tourist revenue falls to the Department of Enterprise, Trade and Investment.

Current spending is to grow by 7.3%, which seems healthy, except the sums allocated for Invest NI running costs seem generous while the allocation for 'policy and research' falls.

The net capital needs of Invest NI are forecast to fall but this is deceptive since planned increases have been offset by significant capital receipts from property sales.

Hardest hit are the current and capital allocations for employment and learning. The current budget is static and the capital budget is expected to fall.

This seems inconsistent with any plan to increase the number of skilled people and raise the achievements in universities and further education colleges.

The balance in the budget between a stronger economy and enhanced social policies marginally favours the former.

However, the choice between lower bills for the taxpayer and additional public services has tipped in favour of lower bills.

Creative tensions in the Executive are only one consequence.

Belfast Telegraph