Press releases providing analyses of Party General Election commitments

Description

Analysis of the Manifestos of the 5 largest NI political Parties.

 

See next "box" for full text of 2 press releases analysing the Manifestos in terms of pledges on spending and taxation.

Subject

Release: Immediate 2 Dec. 2019

 

Lots of spending commitments but where does the funding come from? Conservative-Labour & DUP-SF fiscal policies weighed in the balance

Dr Esmond Birnie, Senior Economist

“Summary

In election after election here in NI the position of a champion of fiscal caution has been a lonely one given that the Manifestos of the main NI Parties have invariably been filled with many spending commitments but little recognition of the task in terms of funding such spending. Such fiscal imbalance continues in 2019 although the DUP and SF manifestos are very professional productions and do include some imaginative ideas. One irony is that politics in GB may be converging towards what happens in NI- as both the Conservatives and Labour compete to offer as many spending give aways as possible. The sums may not really add up at all.

It has been claimed that this Election is unusual. It certainly is in terms of implications for government fiscal policy (spending and taxation) [Note 1] [Note 2].

Hitherto we have been used to contests between one Party (usually Conservatives) supposedly offering low spending-low taxation and another Party (usually Labour) leaning towards higher spending-higher taxation. This is time is different- both GB Parties have been vying in terms of spending give-aways.

In terms of extra spending on both day to day Departmental activity and capital projects, the Conservatives have committed to £25bn extra annually and Labour to at least £138bn. These are obviously big numbers and IF such extra spending was delivered in GB there would be a read across to the funding to the Northern Ireland block grant (through the Barnett Formula) of roughly £630m-£3,500m annually [Note 3]. One important question, and it applies on both sides of the Irish Sea, is whether there is enough capacity to spend all that extra money productively? Capacity in the sense of: (1.) ability of the civil engineering/construction sector to gear itself up to deliver a sudden jump in activity and output or, indeed, ability of the labour market to supply enough additional staff for the NHS and (2.) the ability of the Civil Service to process the money without bottlenecks, inflation or even waste.

At the end of November the independent Institute for Fiscal Studies criticized both of the GB Parties in terms of the sustainability, coherence or even “honesty” of their fiscal proposals. There were some (limited) indications that both GB Parties recognised that not all of the extra spending could be funded through borrowing- taxation would have to play a role. PM Johnson cancelled the previous Conservative plan to reduce Corporation Tax from the current 19% to 17.5%. Labour have indicated higher Income Tax on the highest earners through a combination of starting the 45% Rate at £80,000 and a re-introduction of a 50% top rate. It is unclear how much extra revenue such taxes would really raise- given avoidance activity.

What of Northern Ireland?

Commitments to extra spending by the DUP and SF

Both Parties are making a large number of commitments to extra spending (and very few costings are applied).

Amongst the most eye catching DUP spending bids are: proposed bridge from NI to Scotland, an undersea electricity connection to Iceland (admittedly both of these multi-billion spending commitments would follow from a feasibility study) and very large (UK-wide)spending on roads (particularly the A75 and A77 in SW Scotland) and as well as rolling out new generation digital access.

In the DUP’s 12 point policy plan for devolution at least the following points will imply extra spending (and possibly some of the other points too):

• NHS and mental health

• Schools

• Economy

• Welfare

• Green and pleasant land (e.g. environment)

• Stronger communities (e.g. social housing and criminal justice)

The DUP do commit to spending at least £1bn more on health by 2021 (up from £5.6bn) [Note 4]. The DUP appear to be following recent policy in England by implying public spending might be used to deal with the situation whereby increased tax costs on pension contributions have discouraged labour supply by senior medics. There is a commitment to a “fair, sustainable” social care system but what that might be remains unspecified. The DUP are supporting a further welfare reform mitigation package once the existing one expires in the Spring of next year.

SF’s economic policy priorities imply areas where extra spending will be required:

• Replacement of Steps2Success with a new work programme

• Extension funded childcare

• Apply a (higher than present) living wage in the public sector

• Local government development initiatives beyond greater Belfast

• Electric vehicles in the public sector

• More social clauses in public procurement

• The sectoral support in the draft Industrial Strategy Economy 2030 should be extended to, for example, tourism and retail.

Do SF and the DUP envisage any tax increases?

SF appear slightly more forthright about this. They write about acquiring extra “economic powers” for the NI assembly-this includes tax devolution although it is about more than that. This does beg the question how far it would be appropriate or even legally possible to devolve major taxes such as Income Tax or VAT to the regional assembly.

The DUP Manifesto implies a wide range of tax reductions at the UK-wide level: National Insurance thresholds, Income Tax thresholds, VAT and Air Passenger Duty.

The DUP say that they want to “overhaul” Business Rates (the Conservatives have talked of something similar for GB) but this may really mean a decrease in total tax paid. They have re-affirmed support for De-Rating for manufacturing and they wish to look at new tax credits (implying revenue reductions) for skills and productivity. The DUP do write about prioritising capital investment in the water industry [Note 4]. Nothing is said about whether domestic water charges could be part of the funding package (they probably do need to be- putting NIW onto a stable, semi-commercialised basis enabling the company to borrow from private capital markets).

Some of the most imaginative ideas of the two NI Parties

DUP

• The Licence fee based model of the funding the BBC is hard to justify. (To the extent that the BBC in practice often makes programmes that are very similar to the commercial channels, the public service funding model gets harder to justify.)

• More sharing around the regions some of the exhibits of the national museums and galleries based on London.

• Plant a tree for every person living in NI, i.e. c. 1.9m (since the 17^th Century Ulster/Northern Ireland has become one of the least forested regions in Europe).

• The machinery of government- how might the NI Civil Service collaborate more closely with Whitehall [Note 5]? Changing the stated responsibility of Permanent Secretaries from being to “their own Departmental Minister” to the Executive collectively [Note 6].

SF

• Transparency is needed in dealings between businesses and government to avoid outcomes which are not in the public interest.

• NI may be stuck in a “low level equilibrium” of low skills, low wages and low productivity.

• SF are correct to say it is vitally important that we make NI as attractive as possible for tourist, newcomers and potential investors- It is not so clear that equality and human rights legislations are really top priorities for such people.

Some clever ideas which may not fly

• DUP are proposing that agriculture should be such a strategic priority at the UK level that funding to support it should be taken out of the Barnett formula, i.e. post Brexit the level of subsidy for farming in NI should continue to be proportionally much higher than in GB (as it was through the EU’s CAP and Single Farm Payment etc.). They can try that with the Treasury but I can’t see them buying it.

• “Same distance travelled” principle- another DUP idea. This seems to imply that NI should be given a concession whereby the reduction in carbon production by 2050 would be somewhere less than 100%- the argument being it is harder to do in NI. It is true we have a larger farming sector and living on an island we don’t have the option of using electric trains rather than air travel. That said, we have the advantage of never having had such big carbon producing sectors as coal mining, iron and steel and chemicals. Ironically, SF seem much more comfortable with going with GB-led carbon zero by 2050.

Policy convergence

In some respects, SF and the DUP have ended up with very similar approaches.  Notably, compared to previous policy documents, both Parties recognise that the NI economy needs to achieve much higher levels of productivity (output per worker).This could be interpreted as indicating what the obvious challenges are. Maybe it is a (small) hopeful sign about potential devolution. At the same time, in terms of fiscal policies the two NI Parties seem united in wishing to load even more burden onto the broad backs of the taxpayers (particularly in GB).”

Ends

Notes

1. This press release is NOT about telling people how to vote. They will make up their own minds based on a range of factors. What the economist can do is evaluate how far the fiscal plans of the largest Parties are viable- especially in terms of to what extent they propose to increase government spending and then fund such increases in terms of higher taxation.

2. Some caveats- We have a lot of material. At this stage, the fiscal policies of the Liberal Democrats, SNIP, Greens, UUP, SDLP and Alliance are not being considered.

3. Estimating the Barnett consequential or benefit to NI in terms of extra funding is not as straightforward it might seem although the basic Barnett formula is simple enough- if there is an increase in public spending in England/GB of a £Xbn then NI receives its population share, i.e. for an increase in GB, NI should receive, other things being equal, 1.9m/64.5m or 2.9%. In practice, for certain types of public expenditure- saying building an Olympic stadium- HM Treasury can decide the spending is either only partially “comparable” with NI or totally non-comparable. In such cases the size of the Barnett consequential is adjusted back accordingly. In this press release I’ve opted for the “modest” assumption that the Barnett consequentials  could be 2.5% of the increase in England/GB. Note that the Labour Party Manifesto itself claimed spending in NI would increase by £1.9bn p.a. It is not clear how they arrived at this figure- it “feels” a bit on the low side (especially when they were also quoting a £10bn p.a. increase for Scotland, i.e. five times more than NI but with “only” two and a half times larger population).

4. There are some difficulties in interpreting this “round figure” increase. It is stated as “at least”, so it might turn out higher. It should probably be taken as £1bn in cash term (so including inflationary increase) and, possibly, over two years, i.e. during 2020-21 and 2021-22. In that case, the annual percentage increase i.e. 1/5.6 but over 2 years, is large and of the order of 8% p.a. If, however, the £1bn is rolled out over 3 years, e.g. 2019-20, 2020-21 and 2021-22 then the increase is “only” 5-6% p.a. which is not unprecedented.

5. NIW recently indicated that in order to avoid a “no drains, no cranes” scenario they would need £2.5bn of investment during 2021-27.

6. This does not go as far as outright merger (some branches of the public sector in NI are part of a common administration with GB, e.g. HMRC). RHI certainly presented the question as to how far with a population of only 1.9m NI really has the critical mass and sufficient expertise to efficiently run its own civil service.

7. This might prevent some of the confusion which characterised the RHI crisis. It doesn’t resolve the question of whether if, as was stated in evidence to the Coghlin RHI Inquiry, there is a mentality at the top of the NI Civil Service that “you do not say no to a Minister” whether this is always a good thing and how  such a mentality might be changed?

About Ulster University

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For more information please visit ulster.ac.uk

For further information please contact:

Dr Esmond Birnie, Senior Economist, 07703 184459, [email protected]

Release: Immediate Wed. 4 Dec. 2019

 

Santa comes early: Lots of spending in the 5 NI Party Manifestos but little sense of where the money comes from

Dr Esmond Birnie, Senior Economist

“Summary

Quite rightly there has been a lot of emphasis in this election regarding the extent to which the spending plans of the two largest GB Parties do not add up (the pessimistic analysis of the independent Institute for Fiscal Studies). The Conservatives are committing to at least £25bn extra per annum and Labour to more than £138bn annually. IF (a big IF) those sums were sustainable that would imply a wave of cash coming to NI through the Barnett consequentials (at about 2.5% of the GB figures in the range £600m to £3,500m).Could we cope with such a level of extra money by spending it sensibly and productively over the short to medium term? (The RHI fiasco suggests grounds for caution and that was a relatively small scale affair).

As to the Manifesto Commitments of the five largest NI Parties (DUP, Sinn Fein (SF), SDLP, UUP and Alliance (APNI) the Table below provides a summary. It is clear there are a lot of spending commitments- almost none of these are costed [Note 1]. Also, many commitments to cut taxes. It is extremely rare for a NI Party to suggest either a cut in public spending or an increase in taxation. All five Parties come up with some genuinely good ideas. Sometimes also their plans may unfortunately be “too clever by half”- sophisticated but not likely to survive contact with various realities including HM Treasury.

[More detail on the DUP, SF and Conservative and Labour proposals are contained in my earlier press release- 2 December 2019]

Manifesto key points	DUP	SF	APNI	SDLP	UUP
Increased spending	Proposed Bridge to Scotland. Proposed cable to Iceland. UK digital. Roads in Scotland (A75 and A77)	Welfare mitigation package. Staffing in health. Deal climate emergency. From September Economic Strategy Document- Childcare. Higher public sector wages.	Carbon zero by 2030. Integrated educ. & STEM. Bengoa in health. Childcare. Social care. Welfare package.	Carbon zero by 2030. Fund TV licences for 75+. Welfare package. New train stations. Increase number social houses.	Health. Welfare package. TV licences for 75+. Carbon zero by 2035.
Decreased spending	HS2 rail in GB.
Tax cuts	Nat. Insurance threshold raised. Income Tax threshold raised. Various VAT cuts. Abolish short haul APD.	From September Economic Strategy Document- “Economic powers”, though which taxes and move up or down?	Income Tax threshold. Some VAT reductions.	Abolish APD. Lower VAT tourism. Lower Corporation Tax.	Implied support for lower VAT tourism and abolish APD.
Tax increases			Carbon and other environmental taxes.	Carbon and other green taxes (but NO domestic water charges).
	DUP	SF	APNI	SDLP	UUP
Good ideas	Raise UK wide productivity. TV licence model doubtful. London museums should lend more to regions. NI reserve re. carbon zero by 2050.	More transparency in Stormont-industry support relationship. Increase NI productivity.	Computer coding in schools. Abolish Apprenticeship Levy.	Take hard decisions health (though, what are these?).	Declare health emergency leading to a direct rule Minister. End cap on NI university places.
“Too clever by half”?	Replace Apprenticeship Levy with another levy. Keep agriculture support at existing levels. “Same distance” travelled re. carbon reduction.	Tourists and inwards investors into NI are very concerned about Bill of Rights and Equality Act.	£50bn UK wide Regional Rebalancing Programme. A new regional funding formula after Barnett (but would that be better than Barnett?) Keep support spending for farming high.	Reduce Corporation Tax (will NI achieve the pre-conditions: devolution in place and a sustainable NI Budget?)	Merge Health Trusts- isn’t Belfast Trust already showing signs of diseconomies of scale? Any Barnett consequentials from GB health must be spent on health in NI. 12,500 houses built p.a. Fix at CAP spending for agric. 5 years.

 

• Mostly, the Parties accept this is “not a normal election” (what election is normal?) and to some extent argue it is about Brexit etc. The DUP Manifesto was longest at about 50 pages (followed by APNI (c. 40), SDLP (29), UUP (c. 20) and SF (c. 15). SF is the outlier in terms of how little detail they give about specific policies.

• All 5 Parties are united on extending the “transitional” welfare package beyond March 2020- but what about how far the previous package was under-spent and don’t we have a big problem of high economic inactivity?

• Three Parties aim to reach NI carbon zero by 2030 (or 2035). SF would probably agree with that too. The DUP implies that NI should have some flexibility to achieve less than a 100% reduction by 2050 (so, reducing by, say, 80%). The challenge of a quick, deep cut is it implies sudden ramp up in public expenditure demands, large costs on businesses and probably unavoidably higher transport and heating costs to low income households.

• Largely, there is silence on the new tax NI “should” have (domestic Water Charges)- SDLP explicitly rule out. There is no obvious answer in these documents as to how a NIW request for £2.5bn of investment could be funded.

• Apart from Water Charges, SDLP and APNI are enthusiastic about green taxing implying these will be very “progressive” (but will only the rich pay?).

• There is (rightly) criticism of the Apprenticeship Levy although (curiously) the DUP want to put in place a new training levy.

• Lower VAT for tourism is popular, as is abolition of Air Passenger Duty (APD). Can we really be sure that demand would be highly responsive to lower price?

• The only major spending cut I can find relates to GB (not NI)- axe the HS2 rail line London-North (where projected cost has escalated from c. £30bn to £50bn to £80bn+). Ironically, the DUP propose this notwithstanding their desire for a feasibility study of a bridge to Scotland and power cable to Iceland.

• Also, a lot of support for keeping existing levels (as per CAP) or spending to support agriculture. Is this another cop-out, a locking into past policies which haven’t worked that well?

• Only one Party, it seems (the SDLP), mentions cutting Corporation Tax: that was once almost “the economic policy of the 5 Parties”- has that boat sailed in a world where the UK rate is down to 19% and the US down to about 20%?”

Ends

Note

1. One exception is the DUP pledge to increase health spending by £1bn by the end of this Assembly term (2021).

About Ulster University

Ulster University is one of the top 150 global young universities under 50. Ulster University is a modern, forward-looking institution with student experience at the very heart of everything we do. Our high quality teaching, informed by world-leading research across key sectors, boosts the economy and has a positive impact on the lives of people around the world.

For more information please visit ulster.ac.uk

For further information please contact:

Dr Esmond Birnie, Senior Economist, 07703 184459, [email protected]