Two Economists trade places with Arlene Foster and Sammy Wilson's hot seats
Richard Ramsey, Chief economist at Ulster Bank
While the DETI minister is ‘economy minister’, in many ways, it is actually the Department of Finance and Personnel (DFP) that has the most potential to influence the economy. DFP should therefore have an explicit tier-one objective to ‘rebalance the economy’ and should be ‘economy- proofing' all activities.
The DFP Minister’s ‘telling it as it is’ strategy should become a formalised approach to help address NI’s ‘fiscal deficit attention disorder’ (FDAD). This strategy would require greater transparency over revenues, subsidies, public expenditure and benefits take-up. Throwing sunlight on what and where money is spent is the most effective way to highlight waste and inefficiency and change behaviours. Effective communication with the electorate will enhance understanding and pave the way for unpopular but necessary policy decisions.
A State of the Nation public information broadcast by the DFP Minister highlighting our annual fiscal deficit would be a starting point. Headline per capita expenditure and revenue comparisons with other UK regions would also be included in the annual rates bills. Public sector workers would receive an annual reward statement highlighting their entire remuneration relative to the private sector average (including equivalent private pension cost).
An Independent Public Sector Pay Review would be initiated looking at frontline versus administrative pay and public versus private sector. Frontline expenditure/employment would be defined and quantified relative to non-frontline across all departments. The latter should bear the brunt of the required cuts. A new NICS pay structure would remove the automatic ‘one-step progression’ and provide meaningful pay progression commensurate with responsibilities and productivity, not length of service. The number of junior civil service grades would be reduced (from 7/8 to 4/5) with the aim of lowering the high admin support ratio and streamlining the administrative chain of command.
Greater fiscal transparency and credibility would include a commitment to a fixed percentage of total public expenditure being guaranteed for capital investment over a 10-year period. A credible commitment to raise at least the same revenue per capita as other comparable UK regions would also be made.
With capital investment set to fall by 60% in five years, I would increase the cuts in current expenditure from a cumulative 7% in real terms over the next four years to 12-15% to help prop up capital investment.
A list of public sector functions to be privatised/outsourced would be drawn up, satisfying the twin goals of cutting public expenditure and rebalancing the economy. Plus, all existing procurement contracts would be renegotiated to cut costs.
Traditionally, the view has been that maximising the size of the block grant is in the best economic interests of Northern Ireland, thinking that most economists regard as flawed. While NI enjoyed an expenditure boom throughout most of the last decade, it failed to narrow the prosperity gap with the UK. Her Majesty’s Treasury should be lobbied for greater fiscal flexibility with a view to swapping ineffective public expenditure for incentives. In effect, this would re-brand NI from a ‘Subsidies-R-Us’ economy to an ‘Incentives-R-Us’ one.
According to Bill Clinton, for anyone wanting to shape the future, an understanding of basic economics is vital. Therefore I would make David Smith’s book, Free Lunch: Easily Digestible Economics — why there’s no such thing as a free lunch, mandatory reading for all public representatives. Four words on page 26 — “people respond to incentives” — would be highlighted and become the motto for NI’s economic/fiscal strategy.
Assuming HMT approval, a 10% corporation tax rate would be marketed immediately to take effect in April 2013. This would attract investment now but would cost nothing for the first two years. Thereafter, the wider economic development budget would be reduced to pay for the incentive.
It would be unfair for the cuts to be made elsewhere as the least well-off rely more heavily on public services and would suffer. By the same token, deferring water charges, free prescriptions and free public transport for over 60s are not costless either. They result in the less well-off suffering indirectly as the foregone revenue results in cuts in public services elsewhere. Free prescriptions should be abolished; free public transport raised to 65; and water charges introduced. The £200m per annum from water charges would be ring-fenced for capital investment.
On the personnel front, I would beat down the doors of No 11, the White House and in Brussels for experts for public sector/economic reform to be parachuted in for a five-year period. Radical reform requires an infusion of radical reformers for an expert-led recovery. The Scottish Executive’s Council of Economic Ministers would be replicated (chaired by economist Sammy Wilson) to guarantee a regular interactive discussion.
The task of Finance Minister is certainly challenging. However, delivering fiscal austerity and economic development is a question of mission unpopular rather than mission impossible.
Mike Smyth, Head of the School of Economics, University of Ulster and First Trust Bank Economic Outlook and Business Review Author
As the Minister responsible for the economy of Northern Ireland, I have to confess to a certain level of frustration. So many of the policy levers required to manage and grow the economy are not available to me.
I look with envy at the powers available to George Osborne and Vince Cable in London and Brian Lenihan and Batt O’Keeffe in Dublin. They have control over income tax, social insurance, corporation tax and research and development tax credits.
Here in Northern Ireland, the only instrument at my disposal is selective financial assistance to existing businesses and to attract inward investment. My room for manoeuvre is very limited indeed. I am not sure that this is fully understood by people in Northern Ireland.
At this very difficult juncture in our economic development I have a number of priorities, chief of which is to intensify efforts to capture and grow export markets and to this end I will intensify the level of trade missions to India, South Korea and China as well as stepping up our contacts in continental European markets by forging alliances with other regional development authorities in Europe.
I also intend to look again at measures to intensify north-south business-to-business interactions, even at this difficult time for the Republic.
At times over the past 18 months I have found it very difficult to take action to ensure that banks play their part in helping the economy.
In repeated discussions with banking executives I have tried to emphasise that priority must be given to provide working capital and funds for growth to local businesses; I have had some success but I feel that there is much more that local banks in particular can do at this difficult time.
I will therefore require local banks to provide me on a monthly basis with reports on the levels of business lending — covering both the renewals of facilities and new lending facilities.
I have been impressed by the actions of the European Investment Bank (EIB) during the recession, when they made significant funds available to support small and medium-sized businesses across Europe.
Northern Ireland was able to secure some of these funds and I intend to open discussions with the EIB to secure additional investment funds. In addition I will be having discussions with representatives of some Sovereign Wealth Funds (SWF) to tease out whether there may be a role for these large investment funds in developing the Northern Ireland economy.
These SWFs are looking for low-risk, long-term investment opportunities and it may be that they could help to fill the gap in our capital investment programme caused by the cuts under the Comprehensive Spending Review.
It is also my intention to work even more closely with my colleagues in DSD and the Northern Ireland Housing Executive to help kickstart initiatives such as the Green New Deal, which has the potential to generate much-needed employment in the local construction sector as well as to tackle fuel poverty.
I will be supporting moves to allow the Housing Executive to leverage its substantial net asset base to raise the investment needed to expand new social housebuilding.
I feel that it is particularly important at the present time to increase the levels of cooperation between government departments, particularly between my own department, the Department for Employment and Learning, the Department for Regional Development and DSD.
We all have responsibilities for differing aspects of the development of our economy and society and I feel that we need to understand each other's priorities better so that we can work together more effectively and not, as is sometimes the case, at cross purposes.
Finally, having watched the unfolding sovereign debt crisis in Dublin, I have come to realise just how central a low rate of corporation tax has been to the successful industrial development of the Republic's economy.
The fact that the Irish government is not prepared to even countenance any negotiations about its low tax rate at the time when its economic sovereignty is so diminished convinces me that we in Northern Ireland should make every effort to get the power to set our own rate of corporation tax devolved to us.
To this end, I will support moves to lobby for the devolution of corporation tax powers among my Executive colleagues.