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Esmond Birnie

Expect a downbeat Budget report for growth prospects in Northern Ireland

Esmond Birnie


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Prime Minister Boris Johnson alongside Chancellor Rishi Sunak (House of Commons/PA)

Prime Minister Boris Johnson alongside Chancellor Rishi Sunak (House of Commons/PA)

Prime Minister Boris Johnson alongside Chancellor Rishi Sunak (House of Commons/PA)

Wednesday's Budget may be something of a holding affair. Expect further "fiscal action" in November.

This is partly because the change from Chancellor Javid to Sunak happened so recently. Partly also because the full impact of COVID-19 on the economy remains to be determined.

Also expect a downbeat reassessment of growth prospects for the UK and Northern Ireland.

Until a few weeks ago there were a few signs of a post-Brexit/post-Election early spring time in the economy. Growing disruption by COVID-19 of various sectors - aviation, tourism, hospitality and manufacturing - has probably put a stop to that.

The Office for Budget Responsibility (OBR) should be providing its latest forecasts to accompany the Chancellor's Statement.

Expect UK growth in 2020 and 2021 to be marked down, perhaps from just over 1% to about 0.8%. Recent international forecasts such as those by OECD suggest that as recently as March 2019, the OBR was forecasting UK growth of 1.4% in 2020 and 1.6% in 2021.

Northern Ireland's growth rate will probably lag the UK average.

Some have questioned will the Executive gain any extra (Barnett-related) money. It is a good and important point. Alas, one where the answer may not be immediately or entirely clear.

The previous Chancellor, last autumn, committed to spending increases of about £14bn.

The 2019 Conservative Manifesto implies that by the end of this Parliament, UK current spending will have increased by £3bn per annum and capital spending by £22bn.

The New Decade, New Approach document was accompanied by a Treasury commitment to provide an extra £1bn of Barnett consequentials - presumably the read across from those UK-wide increases of £14bn, £3bn and £22bn.

So, the question on Wednesday will be whether Chancellor Sunak will commit to even higher spending and so will there be a further uplift for Stormont?

Beware, because it has happened before, of the same "new money" being announced for the second (or third) time!

The Chancellor's dilemma is that he is constrained by the previously established fiscal rule to balance the budget for current spending in two years' time. He could tear up that rule. From a Barnett Formula and Northern Ireland point of view, some would argue he should but he would damage the credibility of the Government by so doing.

It is unclear if there will be much by way of tax increases, or even cuts. A reduction in tax relief (for higher earners) around pensions was trailed but now seems unlikely given that the reaction was hostile.

For the first time in years the Government could increase the duty on petrol and diesel, but that would also be very unpopular.

We also know that UK corporation tax rates will almost certainly remain at 19%, further reduction being on hold for the foreseeable future. A Northern Ireland-specific reduction seems to be off the table.

Air Passenger Duty - the £13 added to each ticket on flights within the UK and Europe - is very much in the frame given recent turmoil in the aviation sector. Admittedly, it was always a poorly designed tax, especially from an environmental point of view, but the Chancellor needs all the revenue he can get so a reduction or removal of APD would be surprising. It raises about £3bn annually.

Expect a lot of rhetoric about working to narrow the prosperity gap of North of England versus the greater South East.

Changes in the rules to evaluate public sector spending projects - using expected productivity in the region rather than the impact on overall UK productivity - do not apply here as our rules were already "regionalised".

If rumoured part decentralisation of the Treasury does occur, maybe Northern Ireland could bid for some of those jobs.

Esmond Birnie is a senior economist with Ulster University

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