Category Archives: Economy

We are still too reliant on debt

This superb article from the Washington Post about the need the “change the debt dialogue” speaks for itself and requires no further comment.

We still have an obsession with debt. It is seen as an absolute necessity, an accepted norm, even a good thing, when it comes to further education, property ownership or business start-up. It even drifts into “good thing” territory with reference to mobile phones, vehicles or even furniture.

It really isn’t. Eventually any Ponzi scheme is bound to collapse like a stack of dominoes. Fall far enough, and they’ll even break the table!

Countries like Germany manage perfectly well without stacking up such debt. People work as they are educated, rent until they can more easily afford to buy, and use investment for business. It is a more austere world, but also a more stable one – and one in which the very notion of things like “store credit” is alien. What is more, it is a more equal society and the wealth is not all stacked up in one corner while everyone else subsists on credit.

We need to change our entire attitude to debt. I do not know where we start, but it is clear we should.

“Living Wage” a meaningless term

I don’t like George Osborne, but he is a cunning operator. In the recent Budget, he stole the Left’s clothes by introducing a “National Living Wage”. Brilliant.

Introducing it was not the cunning move, of course. Redefining it was. Instead of the academically agreed figure of £7.80, he put it at £7.20. He then said he’d raise it to £9, more than Labour. Furthermore, he restricted it to age 25+.

His opponents inevitably struggled because actually here were the Conservatives shifting responsibility for subsidising low pay from the taxpayer to Tesco’s.

And then they fell into the real trap. “Ah, but given what he has done to tax credits, the real living wage is now £12”, screamed some.

Hold on.

Not everyone qualified for tax credits, and they come in different forms in varying amounts depending on age, income and dependants. In other words, tying the level of the “Living Wage” to tax credits is an admission that it too depends heavily on circumstances. And if it depends heavily on circumstances, it varies from individual to individual and from time to time, rendering the whole concept (at least when expressed as an hourly figure) meaningless.

This may be no bad realisation. Low pay is a huge economic scourge. The “Living Wage” was presented as a magic bullet when it isn’t. The real issue is low productivity (30% below Germany’s) resulting inevitably in low wages. Sorting that needs not a magic bullet, but a more fundamental structural change.

NI needs to stop prioritising low-value business sectors

There is currently a vociferous and well organised lobby to reduce VAT for the hospitality sector in Northern Ireland. There has even been an Assembly motion, which in fairness was reasonably designed to suggest the idea should be looked at. Yet the whole prioritisation of the hospitality sector demonstrates all that is wrong with Northern Ireland’s economy policy prioritisation – for it is actually low value, and hence low paid.

Where are the most successful economies and most prosperous societies in the European Union? Perhaps Scandinavia, Benelux and parts of Germany? Tell me, how much do they prioritise their hospitality sector?

Not a lot, actually. Denmark, which has typically had the highest GDP/capita in the EU (excluding tiny Luxembourg) since it joined in 1973, does not attempt to prioritise it at all. Its VAT rate, already a hefty 25%, applies equally across the entire hospitality sector. Others make some effort, but it is relatively insignificant and, where any reductions apply, they are often made up for by additional municipal taxes (or are designed not to help the hospitality sector itself but to help encourage other business). None of those countries – Denmark, Sweden, Finland, Belgium, Netherlands or Germany – is renowned for its tourist or dining industry (with the arguable temporary exception of Denmark in the latter case, and even then only at the very high end of fine dining), nor particularly for great leisure opportunities. In other words, a strong hospitality sector does not a functioning economy make – indeed, it is not even necessary.

This is because hospitality is low value. There is very little real money to be made out of it. It relies often on one-off visitors paying a slight premium for something in which there are few margins to start with. As a consequence, it is extremely low paid. Even in Belfast, it is noteworthy that most waiters and receptionists in hotels and restaurants are foreign, prepared to accept lower wages than the locals. There is of course no harm in promoting Northern Ireland as a golf mecca, or a conflict resolution conference host, or the home of film tourism – but we need not rely on this to deliver high-paid employment and exciting careers in business.

Denmark, Sweden, Finland, Belgium, the Netherlands and Germany are trading nations; they export real goods and real services of real value. That is how they make their money – not hospitality. The hospitality sector likes to promote itself as “bringing in” millions to the economy, but actually most of this is merely circulating; it is only when you begin exporting high-value products and services – like cars, or wind turbines, or shipping services, or medicines, or engineering equipment and know-how – that you bring in real money and thus create well paid employment. With that trade will, of course, arise hospitality opportunities – but we need to be clear it is that way around. The odd tourist will not create the type of employment skilled graduates want; but the odd trader in high-end knowledge and equipment will.

Focusing on hospitality, therefore, is like focusing on call centres. Those types of starter jobs have their place, of course, and they are not to be knocked – but after the starter, there has to be a main course…

Stormont Budget: the way out

Cathy Gormley-Heenan and Newton Emerson are swiftly evolving into a BBC commentator dream team, because they both add genuine interest to the discourse and they actually disagree with each other! One thing they did agree on Thursday was that it is in all parties’ interests to help Sinn Fein out of the hole into which it has dug itself.

My own preference was outlined here a month ago – I believe strongly that devolving economic control would work politically and would be the best option in the longer term. It won’t happen, however.

Short of that, there is a simple route, hinted at in fact by Mike Nesbitt of all people on the same programme, which would have the effect of returning half a billion to the Assembly Budget over the average Assembly term – a “win” Sinn Fein could claim if it wished.

Simply, money that is not spent by the Northern Ireland departments should remain in Northern Ireland.

Currently, with some specific exceptions, money which is not spend from each Northern Ireland Department’s budget is returned to the UK Treasury. Usually, this is a very small amount, because as the end of the financial year approaches (in February and March), Departments off-load the extra – hence we see pavements dug up, short term employment training schemes run, and minor roadworks cunningly brought forward a few months. However, some of the money cannot be off-loaded so quickly, and back it goes. This averages £100m per year – 1% of the overall current resource budget.

Allowing the Northern Ireland Executive to maintain this money in a “Runover Fund” would therefore add £100m to the following year’s budget on average; furthermore, the value of that would be considerably greater because in fact Departments would not have to rush in February and March to off-load their money (being easily able to negotiate keeping it in the following year’s pot).

Added to my implicit proposal that Northern Ireland should only have to make up the difference of doing welfare or legal aid its own way (thus breaching “parity”) and not be inflicted with the whole bill, and that it should only be required to do this in the specific areas where its policy is different, and the total saving could in fact exceed £200m, with value considerably higher than that.

Convert this into £1b over an Assembly term, allow Sinn Fein to take the credit, and the Assembly has a reasonable chance of survival. Whether anyone would care is another matter completely, of course…

Northern Ireland scarily like Greece

I am concerned again at those, predominantly on the Left but occasionally on the Euro-sceptic Right, who are suggesting that Greece is a victim of circumstances (or of the EU). It is a victim of its own gross stupidity, and the EU has been more than generous with its offers of assistance.

Greece effectively doubled public sector pay in the 2000s, and was then surprised as inflation soared in effect to as high as 30% – based entirely on borrowing money on the back of dodgy finance figures rather than actual exports (in fact its trade deficit came to approach 10% of GDP). In return, the EU offered an exceptional 30-year deal to sort out its government debt and half of private-sector debt was written off. Poor Greece, eh?! And how unreasonable of those pesky Eurocrats!

Northern Ireland has not done anything on that scale, it has to be said. However, it too did gain from a remarkable rise in public spending (and public sector jobs and salaries), with the subvention (the gap between revenue raised in Northern Ireland and public money spent) doubling from 1998 to 2007, plus significant EU funds. The Executive came to think that its job was merely to take credit for doling out money Northern Ireland had not actually earned and, like the Greek Government, made no allowance for the day when financial reality struck. The UK’s offer to Northern Ireland last year of “£2 billion more spending power” was significantly less generous than that of the EU but it was generous and, after all, the average Northern Irish person in the street has not suffered anything on remotely the same scale as the average (not ultra-rich) Greek.

The scales are different but the fundamental problem is the same – the governments involved have failed abjectly to address the basic problem of unsustainable public spending, including one particular party who insists that all the self-created problems were really someone else’s fault (alongside the fiction the restrictions are being imposed by someone else who is actually taking every reasonable step to help).

Northern Ireland and Greece are both behaving like noisy teenagers blaming everyone else for the bad consequences of what were actually their own actions, having been given countless opportunities to sort it out.

So, we now have supposedly “left-wing” parties more interested in deflecting blame for the problem than solving it. The worst thing is that the cost for this ludicrous self-preserving folly will be borne almost entirely by those who can least afford to pay it.

NI parties put ideology first, evidence nowhere

I had understood there was a project under way in Northern Ireland this year promoting “evidence-based policy making”, but it has not made itself evident. Instead, even the better elected representatives are being dragged down into Stormont’s crazy Fantasyland.

One MLA had an article in the Belfast Telegraph on Monday suggesting, if my understanding of it was correct, that the “voluntary exit” scheme was an opportunity to pay the “Living Wage” to all civil servants. The article made no mention of how many civil servants are not currently on the “Living Wage” and would thus stand to gain from this – which is a shame, because a series of Assembly Questions in late 2014 revealed the figure. It was zero.

This point is on the public record within the Assembly itself – a series of questions to another MLA last year established it.

It is true that this figure does not include Health Trusts or such like, staffed strictly speaking by public servants rather than civil servants (but there is no reason to believe they are any different). The average public sector wage in Northern Ireland is the same as it is in Great Britain; but, interestingly, the average wage in the junior grades is actually higher in Northern Ireland. So there is no reason to believe that any public sector workers at all in Northern Ireland are on below Living Wage (especially as “discretionary” low-wage services such as cleaning offices are being phased out), and if there are any it is a tiny number (and indeed, no reason not to fix that as it would cost almost nothing).

So, in terms of the public sector (the one affected by the “voluntary exit scheme”), this is literally a non-issue.

The difficulty I have with this is that the MLA involved had clearly chosen not even to seek any evidence before making his case. He simply put a pre-existing ideology on to an issue without any regard for the actual facts. It is hard to come up with real-world solutions if you cannot even assess correctly the real-world problems.

The real-world problem is the precise contrary to the one implied in the article. Two essential points were missed – no doubt because they did not suit the left-leaning and frankly simplistic ideology the article sought to articulate. Firstly, the “voluntary exit scheme” is necessitated by the very fact that public sector workers will not tolerate lower wages here than in Great Britain, leaving the only option available a reduction in public sector jobs (the assumption that jobs should go before wages is arguable either way, but that is the debate we should be having). Secondly, to be totally straightforward about this, low pay is an issue in the private sector, not the public (and so it is increasing private sector pay, unmentioned in the article, which is the real priority here).

On the first of these, it remains a bizarre trait of those who claim to be of the “left” that they continue to focus the pay argument around those who are the best paid. A family of public sector workers in Northern Ireland not only takes home the same average pay as their equivalent in Great Britain, but actually pays far lower household taxes – leaving it, on average, around 7% better off (and still gaining from above-average spend on public services). A family of private sector workers, on the other hand, will on average be 12% worse off even after those lower household taxes. Why on earth is the “left” so obsessed with the former and so ignorant of the latter?!

On the second, the worst issue about all of this is that politicians are desperate to pretend there are simple answers to complex problems. It is, after all, easy to say “the private sector should pay more”; the problem is that Northern Ireland is overburdened with industries which are becoming unproductive faster than those which predominate elsewhere in the UK and Ireland; and an inevitable consequence of that lack of productivity is stalled growth and ever lower wages (comparatively). To put this right requires a complete re-shaping of the Northern Ireland economy away from low-value, (increasingly) unproductive sectors.

Re-shaping the economy away from low-value, unproductive sectors? That sounds, you know, hard! No votes in hard stuff! Never mind the evidence, let us just agree it is much easier to moan about “banks” and suggest people who are already paying the “Living Wage” should, er, pay the “Living Wage”… while the people who are really low paid continue to suffer.

Ourselves alone… but with other people’s money…

The sight of Martin McGuinness addressing an anti-austerity rally in London at the weekend showed just how far Sinn Féin has travelled away from its supposed goal of a “United Ireland”. Not only was the Irish Republican Leader directly intervening in British politics, but he was doing so as part of his ongoing campaign to hold the begging bowl out to the UK Government to secure more English money. “Ourselves alone” it most certainly ain’t.

To be clear, the average person in Northern Ireland receives the highest amount of public spending in the UK but pays the lowest taxes in the UK (even, in fact, excluding devolved household taxes, which are themselves by far the lowest). Revenue raised in Northern Ireland itself just about covers all of our devolved spending, but scarcely any welfare and nothing at all of the common defence of diplomacy budget. Of course, Northern Irish people contribute in many other ways so we shouldn’t feel too guilty about it, but we have to be realistic that we are already reliant on revenue raised elsewhere in the UK and the situation is already a highly generous one. It is worth noting that Northern Ireland also has access to international philanthropic and EU programme funding unavailable elsewhere in the UK, effectively raising spending per head still further.

So, a Northern Ireland party demanding more public spending in Northern Ireland can, logically, only be suggesting one of two things: either a) we are going to raise our own household taxes and domestic charges (prescription, tuition, perhaps roads, bins); or b) we want England to give us even more money, on top of the inflated amount it already effectively gives us. Sinn Féin does not advocate the former beyond removing the rates cap (a good idea, but one which would raise only a tenth of the budget of the smallest department); so clearly it advocates the latter. In other words, Sinn Féin’s strategy for a “United Ireland” consists of demanding ever more money from, er, England… “Ourselves kind of not really alone because we are wholly reliant on someone else’s money”.

Sinn Féin bases its case on the UK Government “having taken £1.5 billion out of the Northern Ireland budget”. There is a case that, in real terms, it has removed £1.4 billion from spending in Northern Ireland, but ironically only if you include defence (600 personnel and associated spending were moved away from Northern Ireland last year alone – how amusing that Sinn Féin is now opposing this…); yet proportionately this figure is the lowest of the four countries of the UK. In other words, the three other countries of the UK – the ones Sinn Féin is holding the begging bowl out to – have suffered worse reductions in public spending in real terms. Of course, their economies are not as reliant on the public sector so living standards have not declined as sharply – but it was Sinn Féin who told us how our bloated bureaucracy would protect us in the case of recession, yet another shocking misjudgement!

The craziest thing of all, of course, is that the purpose of the UK’s “austerity” programme is to run a surplus in the government accounts (i.e. raise more in revenue than is spent on services or welfare in order to reduce the overall debt). There are only three EU countries which currently manage this – Germany, Estonia and, er, Ireland. That last one is Ireland – the country Sinn Féin wants us to merge with…

Sinn Féin’s plan for a “United Ireland” therefore consists of maximising our financial distinctiveness from the rest of Ireland and making us more reliant on English money. I would suggest you couldn’t make it up – except Sinn Féin just has…!

SDLP the most pro-austerity party of them all

“Anti-austerity” is one of those wonderful catch-all phrases that responsibility-shirking politicians so enjoy. After all, who could possibly be “pro-austerity”?

Of course, it turns out those who shout the loudest are usually the most guilty. “Austerity” has developed a political meaning quite distinct from its dictionary meaning; it is of course usefully vague and seems to mean “an overall policy in support of public spending reductions”.

Who on earth would support that terrible idea? Since when did less spending on stuff get anyone any votes?

Well, last month as it happens; you cannot realistically be “pro-austerity” in this political Newspeak, but you can of course be “pro-low taxes”. This is, of course, the same thing ultimately – and it is quite popular.

And of course there is no Northern Irish party more pro-low taxes (and, therefore, pro-austerity as an inevitable consequence) than the SDLP. After all, the SDLP is so supportive of low taxes, it even believes people living in £1.2 million mansions should pay just a third of their rates bill. (It is very important, naturally, for a “social democratic” party to defend “vulnerable people” who may not otherwise be able to afford the February mid-term ski-trip or the brand new 7-series.)

Apparently it is quite reasonable that some poor bugger living in Cornwall who already pays double the Northern Ireland average in household taxes plus water bills, prescription charges and full-whack tuition fees should contribute to the cost of Northern Ireland’s public services; but a chap in Cultra with a Bentley in the driveway who actually benefits directly from those services should pay just a sixth of those household taxes and none of the rest of it. Quite reasonable, that is, if you have absolutely no concept of fairness at all. Even Sinn Fein gets that the boy in Cultra should contribute more. but this has proven beyond the grasp of the SDLP.

There is, of course, the small matter that the poor bugger in Cornwall elected a Conservative government who also see no reason that he should pay so much for public services when people in Cultra (and Carnalbanagh and Cullaville for that matter) get away with paying so comparatively little and when the representatives they elect waste it on inefficiency and segregation.

So the crux of the matter is this: the SDLP is the most pro-austerity party of them all. By demanding we pay vast sums to support a welfare system which does not work, intervening to support segregation of public services such as teacher training, and refusing point blank to consider raising any further revenue whatsoever – even from people in £1.2 million mansions – it is enforcing austerity on the public in a way which goes well beyond anything the DUP or Conservatives propose.

If the SDLP were serious about being “anti-austerity”, it would support integration of public services (starting with teacher training); and it would support revenue raising from the wealthiest (starting with having everyone pay all their rates), thus enabling vast sums (£2b or 20% of the current resource budget under devolved control) to be re-allocated to “front-line public services” and “protecting the vulnerable”. But the SDLP does not want to re-allocate money to front-line services or to protect the vulnerable; it just wants to play the blame game.

For a once great party, the SDLP’s fundamentalist pro-austerity stance, going well beyond that advocated by anyone else, is a disgrace.

NI parties have no case to make to Treasury

Full text of letter in NI regional papers:

Sinn Féin and the SDLP led the way in opposing our Welfare Reform Bill, deliberately leaving a £2.8 billion hole in this year’s Assembly Budget.

It appears they hope this will be filled by the generosity of the UK taxpayer, despite the fact Northern Ireland already receives £10 billion more that it raises in taxes. We are to “stand together” to demand still more, they say.

This would seem somewhat fanciful given the state of the UK’s finances and its current government’s likely priorities, but let us pretend for a moment that it is an option. Essentially, we are asking for still more money from the English taxpayer for Northern Ireland’s public services. How does that case look?

Firstly, those English householders already pay prescription charges, water bills, three times the tuition fees and Council Tax which is typically over double the Household Rates paid in Northern Ireland. Introducing all of this for Northern Ireland would raise almost £1 billion – that alone adding almost 10% to the Assembly’s annual current resource spending.

Secondly, we may look at our own wastage on segregated provision. Just this year, the Executive overruled a Minister who wanted to move away from the current system of training too many teachers in small and segregated and subsidised institutions inefficiently at a premium. Over an Assembly term, even starting this process by removing the subsidy would save £10 million – and that is just one example. By most estimates, integrating all such services (as is normal in England) would save over £1 billion per year for reallocation to frontline services – enough for the voluntary exit scheme, welfare mitigation and the reduction in Corporation Tax taken together!

Thirdly, there are other quirks here too. For example, both parties voted for a cap which means someone in a £1.2 million mansion pays just a third of their rates. Some voluntary organisations do not pay rates at all. Our concessionary fares scheme includes more people (at greater cost) than the English equivalent. All of this adds up to further millions lost to our budget.

So, we could in fact add over £2 billion (20% of current resource spending) to our frontline service budget by doing things differently ourselves – applying the same charges as in England, cutting the costs of division, and removing some of the quirks. That our populist politicians choose to ignore that obvious truth is not the fault of the English taxpayer!

The response from the UK Government to our begging bowl will be negative. That is hardly unreasonable, given our refusal even to meet halfway. Do we want lower household taxes, ongoing sectarian division and added giveaways? Then we will have to pay for them ourselves!

That is the choice – and politicians who refuse to make it have no business being in government. Of course, we could always just ‘devolve economic control’…

What the NIO should do now…

What should the Northern Ireland Office do to resolve the current impasse with the Northern Ireland institutions?

Easy, actually. Implement the Smith Commission proposals. Here! Now!

The link gives the details, but we can run down specifically what that would mean:

– Memorandum of Understanding for managing different tax/welfare structures (this enables differentiation if that is the route Northern Ireland chooses);

– devolution of Income Tax (on earned income), Aggregates Levy alongside Air Passenger Duty (if Northern Ireland doesn’t want “austerity”, it now has all the tools to raise taxes to make up the difference itself, and stand or die by these decisions at Assembly Elections);

– assignment of first ten points of VAT to the Northern Ireland budget (this has the effect of promoting policies favourable to value-added economic activity, as much of this will add to the NI budget);

– non-devolution of Corporation Tax (as Northern Ireland has not fulfilled the obligations of the Stormont House Agreement, some penalty should be paid);

– reservation (i.e. un-devolution) of pensions and benefits to do with parenting or low income alongside tax credits (it makes sense to do these across the UK anyway);

– reservation (i.e. un-devolution) of equality laws (it has taken too long for Northern Ireland to tidy up its equality legislation and so makes sense to share best practice across the UK);

– maintenance of devolution of disability benefits with removal of ‘parity’ requirements (this is Nationalists’ key concern apparently, and they now have the aforementioned tools to raise the money themselves from their own voters to pay for any differentiation, including the administration of a different system, without having to pay for the entire system);

– representation of Northern Ireland interests by Northern Ireland ministers directly to European Union (this is particularly important in Northern Ireland given our land border); and

– replacement of cross-community Assembly votes with two thirds super majorities (also now used in Westminster for certain specific votes under the Fixed Terms Act).

The Barnett formula and ‘consequentials’ would of course be maintained, and logically the baseline for welfare payments would be set within it (this would most sensibly be done at the New Year 2012 level, before the Welfare Reform Act, effectively adding £300 million to the NI Executive’s annual budget – a politically feasible amount for the Treasury). This means that Northern Ireland starts from a baseline position of public spending at around £2,000 more per head than the UK average plus an extra welfare subsidy – but if it chooses to move any of that up or down, that is its choice, and it pays for or gains from that as appropriate. The welfare ‘crisis’ would be resolved – some powers would be withdrawn, but others would be maintained and ‘parity’ in effect ended.

So, problem solved – because as a package, I suspect this would find support among the Northern Ireland parties:

– Nationalists can claim victory by securing abolition of parity (with a £300 million welfare subsidy), ‘devolution of economic control’ and ‘more power in Irish hands’ (they could hardly turn down the chance to deliver on ‘no one loses out’ by maintaining DLA as is, having now been handed the fiscal tools to raise taxes to pay for it…);

– Unionists can claim victory also for the welfare subsidy and for ‘protecting the Union’ by securing directly equivalent devolution models (and the DUP would no doubt relish the opportunity directly to pursue its low tax model, albeit with the obvious consequent reductions in public spending…); and

– Progressives would also welcome the effective removal of ‘designations’ (they may remain but would be irrelevant, with protections now offered by super-majority votes) and may then pursue the logical progression of a government/opposition model using that super-majority protection.

Most importantly than any of that, the public would now see the Assembly as much more transparent. It would have to raise money from the public directly if it wished to raise public spending or welfare protections; but it would also have the opportunity to offer reduced taxes if it wished to encourage public sector efficiency, private consumption and tackling of individual/corporate debt. The public would be better informed, civic society would be challenged, and political debate would become meaningful (Scotland would even act as a direct comparison).

Real politics, I believe it is called… that is why I strongly believe the NIO should do this, and do it now!

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