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Don’t beg for resources – spend them wisely
Sean Farren, Minister for Finance in the last Executive, has some advice for Peter Robinson
Devolution in the UK context grants all the appearance of significant responsibility to the devolved administrations of Northern Ireland, Scotland and Wales, particularly to the first two. The trappings of full ministerial office are there with ministers apparently able to exercise considerably authority over a wide range of functions and a Minister of Finance with the authority to prepare budgets, allocate underspends from one department to another and, most controversially in the case of Northern Ireland, strike the regional rate.
Significant as these responsibilities are the Stormont Minister of Finance and Personnel, just as with his/her counterparts in Edinburgh or Cardiff, has no little direct control over the size of the financial cake. Only the very limited contribution from the regional rate and from European sources, approximately 6-7%, is directly under the control of the minister and the Executive. The rest of the amount available to allocate in the budget is determined by the Treasury in Whitehall.
The net effect is that the Minister of Finance and, indeed, the whole Executive are essentially required to beg for any additional funds over and above the increases determined under the Barnett Formula. The Barnett Formula is the formula that determines the adjustments to which Northern Ireland, Scotland and Wales are entitled as part of the annual budgetary settlement.
The invidious situation in which our local Minister of Finance will find himself is, not that the Treasury is being necessarily parsimonious as far as Northern Ireland is concerned. Rather the situation is that the Treasury has strong evidence that Northern Ireland has, from a UK perspective, been generously treated for the past several decades. The extent of that apparent generosity is to be seen in the oft quoted fact that public expenditure per head of the population runs at about 30% more in the Northern Ireland than in many English regions. A similar situation pertains in both of the other devolved regions.
From the Treasury’s perspective, therefore, Northern Ireland does well under the Barnett Formula. That means that the case for additional funding is not ready made simply by parties agreeing to have devolution restored and then demanding as Mr Paisley puts it ‘more fuel to run the economy’ or ‘a significant peace dividend’ as Sinn Fein calls it.
If more money for government services was the key that would unlock the door to a Northern version of the Celtic Tiger, we would have had it unlocked years ago. Indeed it is often ignored just how much more is spent on health, education, social services, housing and other public services in the North than in the South. Yet we are still lagging behind as far as economic growth is concerned.
Furthermore while Northern Ireland doesn’t quite fall into the category of a developing country the clear evidence from such countries shows that over forty years of international aid has not had the positive effect intended. Whatever other good it has achieved lavish development aid has not lifted most of the recipient countries out of poverty. In fact the correlation is the very reverse in many cases, the more so-called development aid the greater their economic underdevelopment.
Indeed the example of the South itself shows that it was not until it almost became a basket case economy in the mid-1980s that it began pulling itself up by its own boot straps, not with massive external aid.
The lessons for Northern Ireland are simple and clear. Pouring more and more of other people’s money into our services, which is precisely what more than half of Northern Ireland’s allocation from the Treasury is, will only increase reliance on such sources not decrease them. It will lead to more public sector dependency, not less and effectively inhibit the very kind of creative entrepreneurship essential to economic growth.
The most powerful weapon an incoming Minister of Finance should have is the capacity to incentivise investment. For this two things are required – focused investment in infrastructure and the appropriate fiscal tools. The first can come from better use of current revenue and more expeditious delivery of key projects.
A lower corporation tax is the second. It would do more for our economy than any additional funding for public services, unless of course that funding was to be generated by ourselves.
The case for a reduced rate for Northern Ireland has already been well and truly made and the case for reducing the rate across the UK is gaining pace. We should be leading that argument and arguing that Northern Ireland become a test bed. Arguments that extending a lower corporation tax to other regions would be self-defeating ignore the strength of the case already being made and the very high likelihood that no one region would be allowed such an exclusive advantage for very long.
Investment in the enterprises Northern Ireland is likely to attract will come not just because of lower taxes but also because of our well-qualified workforce, modern infrastructure and the quality of life on offer. That investment will also come because there are important synergies, contacts and market opportunities to be realised on an all-Ireland basis resulting from the very significant presence there of global enterprises.
Let’s hope for all our sakes that the incoming Minister of Finance and the whole Executive can inject a greater sense of ‘can do’ and ‘can achieve’ particularly as far as economic development is concerned and that it is provided with the right, not the wrong tools to do so.
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