Belfast Telegraph

Friendless Ulster 'facing economic disaster'

Economy under threat: coalition’s austerity plans will hurt Northern Ireland more than any other region of the UK, leading experts warn

By David Gordon and Adrian Rutherford

Fears are growing that David Cameron's cutbacks will cause greater devastation in Northern Ireland than any other part of the UK.

Top economists have sounded grim warnings on the vulnerability of the province's fragile economy, due to its current heavy reliance on public spending.

And worrying signs are emerging that the first cutbacks wave is already crashing in and hurting businesses — with no sign of Government measures to alleviate the pain.

There are also rumbling concerns about the province's isolation from Whitehall corridors of power. One well-placed Stormont source has told this newspaper that the devolved administration has “no friends at court” when it comes to central Government.

The Belfast Telegraph conducted a survey of leading experts on the likely impact on Northern Ireland of the Cameron ‘austerity’ measures.

Internationally renowned economist Professor David Blanchflower responded: “I believe that this Government's misguided economic policies are going to be disastrous for the UK economy in general and will hit Northern Ireland especially hard. My fear is that we are observing the greatest macro-economic policy mistake in a hundred years.”

The gloom is being steadily deepened by local economic assessments. An Economic Outlook report published today has warned of “crisis”, with confidence lower than any other UK region, and business activity declining for almost three years.

An Ulster Bank report due out next week is expected to show further evidence of decline, linked to the slowdown in public expenditure.

Professor Blanchflower — currently based at a prestigious US university — was the most outspoken of the experts surveyed.

He sat on the Bank of England committee that sets interest rates and has been praised for recognising the need for lower rates much quicker than colleagues. Meanwhile George Magnus, a senior economic adviser with UBS Investment Bank, has backed giving Northern Ireland some level of protection.

Mr Magnus, widely acknowledged to have foreseen the US sub-prime mortgage debacle, told this newspaper: “There is a strong case for ‘progressive' application of cuts, similar to the structure of income tax, ie, poorer regions suffer less than wealthier regions.”

The Stormont Executive has been grappling with a £128m spending cuts bill imposed for the current financial year.

But much more savage cuts are planned in forthcoming years, with a total of more than £1 billion expected to be involved.

The crisis raises questions about the coalition Government's sensitivity to Northern Ireland's needs, given the extent to which public money is keeping the economy here afloat.

It also demands a coherent approach from Stormont — making a feasible case for special measures where justified, and agreeing on areas where cuts could have the least impact.

Local economist John Simpson said a public debate is needed here. “There are possible trade-offs,” he said. “Are ministers ready to restore the revenue foregone by holding down the regional rate? “Are ministers ready to make the Water Service a mutual company with its own charges?

“Would the public support a serious pay freeze in the public sector to avoid some of the possible loss of 20,000 public sector jobs?

“Simply to await the outcome of the detail spending review in October suggests a mixture of complacency and avoidance. Now is the time when the stark facts need to be met with considered, practical decisions.”

The Conservative-Lib Dem coalition Government is planning to produce a paper in the autumn on the feasibility of measures such as a special corporation tax rate and enterprise zone status for Northern Ireland.

But there is no guarantee that such proposals will be endorsed by the study, let alone in place by the time the most serious cutbacks start to hit.

The chair of the Assembly's Enterprise Committee, the SDLP’s Alban Maginness, said an exception must be made for the province.

“We have to expect cuts, but the type of cuts that are envisaged seem to me to be potentially very damaging to the recovery.

“What is the point of having all these cuts if the recovery is going to be paralysed or if they are so severe that it could take years for Northern Ireland to come out of recession?” he added.

Nigel Smyth, the director of CBI Northern Ireland, said the manner in which the cuts are implemented will be critical.

“We need to get the fiscal position of the UK back in the balance,” he said. “There is a massive imbalance in terms of how much we are spending and how much we're raising in taxes.

“A credible plan was required and certainly the coalition Government have set out a credible plan, which is obviously going to have an impact.

“The key issue then is how these cuts will be implemented here. If we can't get agreement in the Executive, if we don't look at this in a strategic manner, if we end up with some form of salami slicing, I think core public services could be at risk.”

Belfast Telegraph


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