Sorting NI’s public finances

UTV this evening runs what promises to be a fascinating programme on what three experts would do to address Northern Ireland’s public finance deficit – around £600m give or take, assuming some sort of deal on Welfare Reform and taking into account Barnett consequentials.

I am not an expert, of course, but merely a humble citizen. But, for the fun of it, here are some thoughts on what I personally (writing in a purely personal capacity) would do.

This applies only to what is known as Departmental Expenditure (currently almost exactly £10b) – it does not refer to Annually Managed Expenditure (c. £8b) or UK Treasury spending in or for Northern Ireland (c. £5b).

Revenue Raising

I outlined the case for Revenue Raising two weeks ago, but should be clear I would not actually do all of it personally. Also, I would set out a five-year strategy for raising revenue, not just one, so that households and businesses could be prepared; and I would be specific about where the money so raised would go.

Personally, I would be inclined to do the following:

1. Remove the Rates Cap and Raise Regional Rates by 7% for 2015/16 and inflation plus 3% for the four years thereafter to raise £50 million in year one and another £100 million over the next Assembly term.

This would be allocated to the Health Budget, specifically to ensure the availability of cancer drugs.

2. Introduce Motorway Tolls (at levels similar to the Republic of Ireland) at M1 Ballyskeagh, M2 Ballycraigy [i.e. the new service stations] and A2 Dee Street to raise £75 million per year.

This would be allocated to the Capital Budget, specifically to ensure the construction of key freeflows and expressways along the A1, A6 and A2, with extra specific benefits:

  • assurance to the hard-pressed construction industry that projects will proceed;
  • improved connections for the North West and improved safety;
  • greater use of public transport by commuters (to avoid tolls) thus alleviating the funding problems in that area; and
  • in the longer term, it is easier to apply to the European Investment Bank for loans for tolled roads than not.

3. Introduce water charges, but deferred by one year (the year of the most significant Regional Rates increase) and not brought in fully until the 2019/20 financial year to raise £100 million in 2016/17 rising to £250 million in 2019/20.

The would be allocated to the Capital Budget aimed primarily at the upgrading of water and sewerage infrastructure, but also perhaps to more general infrastructure projects such as the North-South electricity pipeline, thus securing sufficient power and water even in emergencies in preparation for the closure of the Kilroot power station in 2021.

(See also my note on a Levy in Indirect Savings below.)

Not Revenue Raising

Note that the above means, at least initially, I would not re-introduce Prescription Charges (the amount so raised simply isn’t worth it and I fail to see why people with progressive conditions should pay a particular penalty in effect simply for having them); nor would I introduce bin charges or fire call-out charges.

The Regional Rate even if it added Water Charges would remain the lowest household charge in the UK even at the end of the next Assembly term (meaning Northern Ireland would retain its status as the UK’s “lowest taxed region”, all else being equal).

It is possible that pressure would come to have income tax and aggregates levy devolved to Northern Ireland, as will now be the case in Scotland. In principle, I support this (as I support a Federal UK and thus the same powers for Scotland, Northern Ireland and Wales). In practice, however, I would leave them unchanged either way.

Direct savings

I am sure there is a technical term for this, but what I mean here is “government give-aways” which should be re-assessed.

1. I would be inclined to leave tuition fees alone, but would contemplate raising them slightly during the next Assembly term if the DEL (or successor department) budget remained tight – raising them is a progressive taxation move as they are only paid by graduates upon earning a certain amount in any case, but I would be wary immediately of imposing further financial problems (even if long-term) on young people (even if confined to a particular group).

2. I would restrict concessionary fares (i.e. those for over-60s and Translink’s own staff and families) on public transport to non-peak hours; it may not then be necessary to raise the qualifying age to apply only to pensioners. It is hard to say precisely what this would save, but it may be in the region of £20 million annually initially, and rising.

Anything so raised would be reallocated to public transport to secure new routes and maintain fares at roughly the current level. It would also have the benefit of increasing train capacity during non-peak hours (and probably reducing it slightly during peak hours).

Indirect savings

Even with all this, I have only saved about a quarter of the £600 million gap in Year One (which exists even with Welfare Reform implemented and the Treasury’s October loan paid off), and in practice with pressure on Health budgets and the immediate requirement to invest in infrastructure, I am probably still only treading water with subsequent rises. We still need close to half a billion from somewhere!

1. I would be inclined towards a voluntary public service redundancy scheme aimed primarily at Health and Education administrators and Civil Servants. Some suggest this would save £300m, though I am not so sure in the current jobs climate. Let’s guesstimate half that – £150m.

2. I would run a fundamental Public Sector and Assembly Reform Programme over the next Assembly Term, including:

  • reduction in the number of Departments to six (Education, Economy, Environment, Health, Justice, Treasury);
  • abolition of OFMDFM and its replacement by a small Executive Office (which no longer requires Junior Ministers);
  • removal of the Finance Unit from all Departments, with all payments made directly from (and indeed to) the NI Treasury;
  • removal of two Civil Service grades;
  • legislation to ensure local Councils take on only functions relevant to them (no more “European Officers” and such like); and
  • reduction in the size of the Assembly to 90 members and reduction in Office Costs Allowance for Ministers and the Speaker.

I have no idea what this would save, frankly! However, it would have extremely positive long-term effects not just on reducing the cost of government but also on improving cooperation/efficiency and simplifying access to information and services for citizens.

3. I would be inclined towards what would no doubt be a highly controversial but temporary Public Sector Levy (not totally dissimilar from the Pension Levy introduced in the Republic of Ireland six years ago).

The point is this: average earnings in Northern Ireland are roughly 88% of the UK average, yet average household income is 96% – the gap is made up partly by slightly higher welfare receipts but mainly by our lower “household taxes” (most obviously a Regional Rate averaging about £800 versus Council Tax+Water Charges averaging about £1900).

Public Sector earnings in Northern Ireland, however, are 99% of the UK average meaning that households with earners in the public sector are in fact considerably better off than they are elsewhere in the UK (a household with two public sector workers will on average be £600 better off).

The levy would be designed, therefore, to make up for that differential. It would probably decline over the course of the Assembly Term (as Regional Rates rose and Water Charges were introduced) and would likely initially be introduced at 2% of pre-tax income – on all public sector workers by a loose estimate this would raise (save) £120 million, although I would be inclined to exempt direct service positions (like nurses or teachers).

Cuts

We are nearly there – with a voluntary redundancy programme, a reform programme and a temporary levy, I have probably mustered another £300 million. I am three quarters of the way there!

It is worth noting, however, that I have done this without implementing any actual “cuts”.

1. I would remove the exemption of Education from efficiency savingssaving £70 million.

These would predominantly have to be found at administrative level, for example by sectors having to share services. However, there is no doubt further school mergers (ahem, closures) would follow. This would be initially painful, but in the long run makes for a sensible rationalisation of the school estate.

2. Further to the above, I would integrate Teacher Training.

This does, in effect, mean the closure of the site at St Mary’s or Stranmillis (likely the former). That is the way it is; we cannot afford such duplication.

3. Further to that, I would introduce further integration of facilities.

For example, it may be possible marginally to reduce funding to local government (i.e. allocating a larger share of the Rates bill to central government) in the expectation that they would invest in shared leisure centres.

4. I would streamline planning.

Further to the rationalisation of Departments above, the Planning System remains a burden. It causes delays, frustrates investment and can so much as double infrastructure construction costs versus Continental Europe.

5. I would “invest to save” in improved management of public services.

Currently decision making takes too long, involves (in particular) too many meetings, and consists of terms such as “framework”, “strategy” and “collaboration” which have frankly lost all meaning!

Conclusion

I think I am just about there!

As can be seen, it is not easy. I have introduced motorway rolls, radically streamlined government, introduced extra charges and levies, and I have closed some facilities (and I had assumed the introduction of Welfare Reform minus “Bedroom Tax”).

Yet, interestingly, I have secured better medicines, introduced better infrastructure, and brought in more efficient government. It is not all bad!

I have left some things untouched too. I have not taken the scythe to the voluntary sector; I have left arts and minority languages funding in place; I have not introduced Prescription Charges.

Of course, no one reading this will agree with every item. As I’ve long said, compromise is a good thing – so over to the readers here and the panellists on UTV tonight!

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One thought on “Sorting NI’s public finances

  1. Eileen Cairnduff says:

    Don’t know about the tolls but the ideas about concessionary fares are very sound. No one should object to these unless they are of course using their bus passes to go to & from work!!! Good point re the trains too as they can be so jammed at peak times.

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