Editor's Viewpoint: Budget brings pain but very little gain
Since taking office Prime Minister, David Cameron, has repeatedly said the regions of the UK heavily dependent on the public purse would not suffer disproportionately in any spending cuts.
It is a message which he appears to have failed to pass on to his Chancellor. For most of the measures announced in George Osborne’s emergency budget yesterday are purely negative for Northern Ireland.
He may argue that there are some incentives for business, but they will probably provide much more stimulus for firms in the Tories’ heartland of middle England than they will to SMEs in Northern Ireland. The cut in corporation tax and the exemption from National Insurance payments for micro-businesses are gestures towards the business sector, but the real incentives for the private sector here are still on the long finger.
The creation of an Enterprise Zone in the province and the reduction in corporation tax to the same level as exists across the border in the Republic could make a real difference in attracting inward investment, but sadly, the opportunity to do something radical has been missed, or, at best, postponed. There is no denying that Northern Ireland is over-reliant on the public sector and that the economy needs rebalanced. We cannot continue with an economy which is almost totally tied into the grant aid given to the province by the Treasury in London. For that block grant is going to come under greater and greater pressure in the coming years as the fiscal belt tightens.
The immediate fear is that Northern Ireland could slip into a local mini-recession. The most optimistic outlook suggests that this budget is likely to slow recovery, not speed it up. Much of the private sector here is reliant on household spending, and most of the household income comes from the public sector. A pay freeze, an increase in VAT, reduction in child tax credits and child benefits are measures which will make people hesitate before spending and that is bad for business. Even the bonus of cross-border shoppers coming here is likely to end due to the VAT increases and the relative strength of Sterling.
It is now imperative for Northern Ireland’s |political parties to work together to see how they will manage the cuts to the public purse. They will have to take tough decisions such as introducing water charges if departmental budgets are not to be slashed beyond recognition, imperilling services such as education and health.
At national level, the new coalition government must carefully consider the impact of its policies on the regions before the next round of public spending cuts in October. It must deal fairly with everyone throughout the UK and take into account historic economic imbalances and the level of need. The performance of the Chancellor yesterday was hardly compelling evidence that he understands this rationale.