JM Thorn

27 April 2009

It is a common truism that you can’t solve a problem by throwing money at it.  However, when it comes to the peace process the British government has been doing its best to prove that wrong.  From its very inception the peace process has been underpinned by massive state funded patronage.  Some of this has been out and out bribery as in the case of the loyalists, or as a means of integrating political parties into the structures of the state as in the case of the Provisionals. 

One of the manifestations of this patronage has been the growth of the community sector in the north.  Employing thirty thousand people (as many the Civil Service) it is composed of an array of groups and bodies, largely staffed by political activists and supporters, which distribute state funding.  On top of this there is the layer of bureaucracy associated with the political settlement – the Executive, the Assembly, the Policing Board and all the associated quangos and commissions.   More generally there is the relatively high level of public spending in the north.  It gets about 26 per cent more than the UK average expenditure for every man, woman and child.   Under the Barnett Formula, used by the Treasury to distribute public money to the UK regions, Northern Ireland receives about £15 billion each year - £6 billion more than the amount sent to the Treasury.  The public sector is far above the UK average, with a third of the workforce employed directly by the Government and about 70 per cent of the working population dependant on Government money for their jobs.

It can be claimed that to some degree the peace in the north has been bought.   This was aided by the peace process coinciding with a long period of economic growth that filled the Government’s coffers with the necessary resources.  However, with the onset of the rescission the financial base of the peace settlement is looking less secure.  The small productive sector of the north’s economy is contracting rapidly and what little foreign investment that was attracted over recent years is in retreat.  This never amounted to much but it does blow a hole in the Executive’s stated economic strategy of promoting private sector growth.  Much more serious is the increasing pressure upon public spending.  The latest UK budget provides an indication of what is to come. 

While the general view is that the north did not suffer as greatly as expected in the Budget in the immediate period, the longer-term projections point to a tight squeeze on spending.  On crude figures the Executive stands to lose £7 million over the next two years.  The north will receive an additional £143million over this period – this is composed of  £116m for the Executive and £27m for social security.  There will also be an extra  £28.7m for policing.  On the minus side the Executive is to lose £123m from its budget  as part of a UK-wide “efficiency savings” drive imposed by Chancellor Alastair Darling.  These figures are crude because the money coming in and going out is not a direct match.  Some Government departments will therefore experience a greater cut in their budgets than others.  However, the deepest cuts are likely to come in two or three years time.   The Chancellor has cut UK public expenditure growth to only 0.7% post 2011, which will equate under the Barnett formula to growth in public expenditure of less than 0.5% per annum in Northern Ireland.  He is also demanding another £9 billion of belt-tightening across the UK, with the Stormont administration likely to be returning between £250m and £400m to the treasury as its share.  This means that the Executive will not only have to find an additional £122 million of efficiency savings by next year, but similar savings in the following three years.  Given that projections in the Budget are premised on the unlikely prospect of the UK returning to strong growth next year the savings demanded could be even greater.  This is likely to be the case irrespective of which party is returned to government after next year’s general election.  The Conservative leader has already promised “a new age of austerity” if he becomes prime minister. 

The combined effect of lower public spending growth and additional efficiency savings will leave the Executive with some difficult choices in terms off priorities and spending.  Populist polices such as the three year rates freeze, free travel for the over 60’s, free perspirations and additional winter fuel payments may have to be abandoned. Programmes for the building of schools, hospitals and roads may be stalled or scrapped. The housing budget is already facing a £200 million shortfall over the next two years, which could lead to it missing its 2010 target for bringing all social housing up to the decent homes standard.  Water charges will also be back on the agenda. Indeed, they are already factored into Executive’s budget even though there is not yet a separate household bill.
 
This squeeze on public spending will force the Executive into taking unpopular decisions.  It will also create tensions within the Executive as each party fights to preserve their own ministers’ budgets. Given the nature of the political settlement such disputes are likely to take on a strongly sectarian tone and have a destabilising affect.   There are already indications that the DUP is using the financial crisis to further dismantle the St Andrews Agreement.  Finance minister Nigel Dodds has said that “inefficient institutional structures” – the size of the Assembly, North-South bodies and the number of departments  - all needed to be examined.  Of course for the DUP this is not just a search for efficiencies - the changes they have suggested would effectively strip out what little gestures there are towards nationalist and further move the settlement towards unionist majority rule.   The financial underpinning of the settlement is starting to unravel. While this may not derail the peace process gravy train it is certainly in for a bumpier ride.