Gordon Brown’s peace dividend – smoke and mirrors and privatisation
10 November 2006
One of the few things that all the parties in the North have been agreed on over the period of the peace process has been the need for a “peace dividend”. This is often envisaged as a generous financial package from the British treasury that would underpin the stability of a power-sharing executive. Its primary purpose would be to upgrade public services and infrastructure that had been neglected during the Troubles. With this shot in the arm, the Northern economy would be in position to grow rapidly and enhance people’s prosperity. However, eight years after the signing of the Belfast Agreement this virtuous cycle of peace and prosperity has still not arrived. There is still political instability, the Assembly and Executive have been in suspension for nearly five years, and the economy is still underperforming. While there has been economic growth, the number of people unemployed (including those classed as “economically inactive”) is still high. Most strikingly, the economy continues to be dependent upon the state: public spending accounts for sixty per cent of GDP and almost seventy per cent of the workforce are directly or indirectly dependent on the pubic sector for employment. In the private sector, traditional industries such as textiles and engineering have continued to decline, while foreign investment has been relatively small scale and concentrated in low skill/low wage sectors such as call centres. Recently, the North’s top company, the aircraft manufacturer Shorts-Bombardier, announced hundreds of redundancies at its Belfast factory. Overall, there is a sense that the Northern economy is just about staying afloat. Economists have warned that an economic downturn and/or cuts in public spending would leave the North facing a bleak future.
Given this background it was no surprise the concept of a peace dividend took prominence at the St Andrews Talks. In the wake of those talks and the announcement of the St Andrews Agreement, the local political parties were invited for talks in London with chancellor Gordon Brown to discuss a financial package to underpin any future devolved Government. It was notable than when the local parties went to meet Brown it was as a multi-party delegation - all the parties were together including the DUP and Sinn Fein. This was quite appropriate as all the parties were basically saying the same thing. On economic policy at least they were “singing off the same hymn sheet”. This display of unity was not just a hastily arranged photo opportunity. For some time now the parties, primarily the DUP and Sinn Fein, have been developing an economic consensus. This has been forged through the Preparation for Government Committee which had been meeting regularly at Stormont. While most of the media attention has focused on the wrangles over how a new power sharing executive would operate, the Committee has advanced quite far on the programme that would be implemented by a future executive. In terms of economic policy there is broad agreement between the parties. This was revealed in the documents submitted to the Committee. Stripped of their green and orange ideological verbiage, such as the concept of the “all-Ireland economy” or complaints about “unfair” competition from the South, the proposals put forward by Sinn Fein and the DUP were remarkably similar. For example, the DUP document called for the “promotion of a genuine partnership between Government and business with Government taking on the role of facilitating entrepreneurial opportunity”, while the Sinn Fein document declared that “we should say yes to goal driven tax incentives which . . . help our entrepreneurs break into new markets”. The economic policy of both Sinn Fein and the DUP, and all the other parties for that matter, can be reduced to two basic elements. The first is a dramatic shift in the North’s economy towards the private sector (privatisation); and the second is a massive cut in corporation tax from 30 per cent to 12.5 per cent.
By the time the parties met with Brown their demands had been reduced to the mantra of “cut corporation tax”. In the event they were disappointed as Brown refused to move on this issue. Given the brevity of the meeting it was clear that the British treasury had already determined what the “peace divided” would be and were ignoring the pleading of local politicians. The headline figure of Brown’s “peace dividend” was £50bn over 10 years. The main elements of this were £35bn of public spending over four years and a 10-year £18bn investment strategy. Also, an executive would be allowed to “retain” receipts totalling more than £1 billion from the sale of public sector assets; “efficiency savings” worth £800 million; and EU receipts for regeneration worth about £500 million. When this package was announced the Government spin machine went into overdrive. Standing alongside Brown, and with one eye on the deputy leadership position he is campaigning for, Peter Hain described the Chancellor’s package as "significant" and "extraordinary". In a reference to the date (Nov1 ) he declared: “On All Saints' Day, it's a very good, saintly day for Northern Ireland.” The prospective Labour Party leader and Prime Minister must have been impressed!
Like most of Gordon Brown’s initiatives this “peace dividend” didn’t amount to much. It was all smoke and mirrors, designed to grab a headline in the next morning’s papers. Yet even the normally pliant media weren’t falling for this. It was met with scepticism. Even the most cursory examination revealed that Brown’s “dividend” contained nothing new. Indeed much of it had been announced years and months earlier. For example, the £35bn figure was based on annual expenditure rising from £8bn to £9.2bn by 2010-11. But this is little different to forecasts already placed on the record by Government. In December 2004, the then Secretary of State Paul Murphy wrote in a foreword to the NIO's Priorities and Budget report for 2005-2008: "Public spending will continue to grow over the next three years, reaching £9bn annually by 2008”. In a 2005 speech to the Irish Congress of Trade Unions, Mr Hain said expenditure "will continue to grow over the next three years, reaching £9bn annually by 2008". Also, Brown gave the impression that the £18bn investment strategy was a new initiative. In fact the investment strategy was first launched in December 2004. That was worth an estimated £16bn for the period 2005 to 2015. What the Chancellor has done is to extend that period by two years and increase its projected value to £18bn. Part of that £18bn will come from within the budget for annual expenditure (i.e. the £35bn). Therefore, the £50bn headline figure is misleading as some of the money is being counted twice! Finally, some 20 per cent of the £18bn will not be direct upfront Government investment; it will come from business under PFI schemes, with public paying the companies back at a premium over the next twenty to thirty years. Brown’s “peace divided” is a scam. There is nothing additional. It is merely a repackaging of what the British Government intends to do irrespective of whether devolution is restored or not.
However, it does bring to the fore a difference between the local parties and the British Government. While both want to shift the North’s economy away from the public sector there is a difference over how this should proceed. Brown favours a more gradual approach where public money continues going into the North but into private hands rather than to public services – a type of welfare for business which is delivered through the mechanisms of PFIs and privatisation. The local parties also support this but want to go a step further by drastically cutting corporation tax. The argument behind this, supported by local businesses and economists, is that this will lead to a massive increase in foreign investment as multi-nationals rush to the North to take advantage of its lower tax rates. However, this is a rather tenuous assumption. The fact is that the North is a low wage/low skill economy and will continue to attract companies such as call centres. Indeed, the main argument coming from businesses is that the dominance of the public sector “crowds out” private sector investment because workers are relatively well off. Arguments which amount to a call for the general lowering of living standards don’t suggest that businesses are expecting an influx of quality highly paid jobs. Also, any lowering in corporation tax would lead to a fall in tax revenue that would have to be made up either by increased taxes on households or cuts in public services. Workers would be hit by a double whammy of lower wages and higher taxes. The economic shock therapy advocated by the local parties actually puts them to the right of New Labour!
It should also be remembered that this is not the first peace dividend. In December 2002, Gordon Brown flew into Belfast to announce a financial package for the faltering power sharing executive. This Reform and Reinvestment initiative, which again had privatisation at its heart, produced water charges and higher household rates! The policies put forward by Brown and the local parties demonstrate that a restoration of power sharing is certainly not a panacea to our ills. Unfortunately, many within the trade union movement have bought into this myth, some even going so far as to support a corporate tax cut and supporting calls by local business that they remain exempt from rates – the workers alone should pay this bill! If working class people are to defend living standards we need to get organised to defend public services. That will mean building within trade unions and communities to challenge not only the Government but the current trade union bosses and the grip of the main parties, all agreed on pro-capitalist policies, who are currently in positions of leadership and are part of the problem.