Budget Bill: Second Stage (Assembly)

Northern Ireland Assembly, 15 February 2011

I cannot support the Budget in its present form. There has not been adequate time for public consultation, the Budget is not credible and it lacks detail, and some departmental figures do not add up. It also includes some extremely optimistic assumptions. I believe that it is merely an interim Budget that cannot survive the next four years. In fact, I believe that it is a temporary measure to get us through the election, after which many of the more difficult issues will have to be revisited. It is clear that the Executive will have to look again at their priorities and will be forced to make the difficult decisions that they have avoided over the past four years.

The review will undermine the Executive’s claim that they were providing stability and strategic vision by producing a four-year draft Budget. I find it difficult to assess the draft Budget, as we do not have a Programme for Government. The Executive have failed to produce one. That means that there are no objectives, outcomes or targets against which the Budget can be assessed. It makes very optimistic assumptions about assets sales based on an unlikely uplift in the property market. It also includes ideas to raise funds from the social housing sector and Belfast harbour. That is rather speculative, may not be practical and may require further legislation. There are too many questions about the draft Budget to approve it without major changes.

We have to look at the context in which the draft Budget was drawn up. It obviously has been dictated by theTory cuts to the Northern Ireland block. Although we accept the need to reduce public borrowing, the Government’s proposals are reckless, vindictive and ideologically motivated and will create severe problems for the Northern Ireland economy. The Government argue that there is no alternative, but many economists, including a number of Tories, suggest that the proposed cuts are in danger of driving us back into recession.

The Tories claim that the cuts are fair and that everyone must share the pain. That is clearly not the case, as the recent report from the Institute for Fiscal Studies (IFS) pointed out that the Budget is regressive and will hit the poorest hardest, particularly those with children. Like so many previous Tory Budgets, it is focused on cutting services to the poor, the elderly and the vulnerable, and instead of imposing taxes on the banks and financial institutions that caused the financial crisis, the Tories have increased VAT, the burden of which falls heaviest on those on low incomes. Similarly, the cuts in welfare, housing benefit, disability allowances and tax credit will have the greatest impact on the most vulnerable. According to the IFS, it is the most regressive Budget in generations. The fact that we in Northern Ireland are more dependent on public services means that we will suffer disproportionately. It is important that we do not follow Tory-imposed policies blindly.

George Osborne has claimed that the Budget has protected poor families from cuts. The IFS disagrees, pointing out that the welfare cuts mean that working families on low incomes, particularly those with children, are the biggest losers. It will also have a dramatic effect on the regions in the UK, such as Northern Ireland, that are more dependent on public services. The policies have little to do with the economic situation but are based on ideology and hostility to public services. A cut to the Northern Ireland block grant is based on that ideology and totally ignores the impact that it will have on our economy.

The Budget deficit has provided the Tories with an opportunity to attack the public sector. They are committed to reducing public sector services, and Osborne has admitted as much. The public sector is not an awful waste of taxpayers’ money, which some Tories seem to believe, but is there to provide a safety net and essential services for the young, elderly, disabled, poor and most vulnerable members of our community. Unfortunately, in Northern Ireland, a high proportion of people rely on public services, and we will be worse hit than other areas of the United Kingdom.

The cuts set out in the comprehensive spending review are easily the deepest and most sustained cuts to public expenditure since the Second World War. The Budget was based on a number of assertions that the cuts would help the economy to grow and that public sector cuts would lead to private sector growth.

The reduction in public borrowing is dependent on economic growth, but, to date, there is no evidence of that occurring. In fact, the evidence is to the contrary. The most recent growth figures, which were published in January, are appalling and fully justify my prediction last June that the cuts would lead to a double-dip recession. That is likely to happen in the next quarter, when the full cuts and tax increases come into operation.

The Government’s policy is a perfect example of Tory ideology taking precedence over common sense. It is like a medieval doctor bleeding patients in the hope that they might recover, when, in practice, that is more likely to kill the patients. The Tory strategy depends on economic growth, while the policies that have been introduced effectively reduce demand in the economy and cut growth. The figures raise even more questions about the credibility of the Northern Ireland Budget. If the cuts cause the GB economy, which was moving steadily out of recession, to return to negative growth, they will clearly have a disastrous impact on our economy, which has not yet moved out of recession.

It is important that we see the Budget in the context of the present state of the Northern Ireland economy, which is fragile and needs tender nurturing. A recent Ulster Bank report indicated that, in the second quarter of 2010, economic growth was 0·4%. The projected growth for the whole year was less than 1%. That indicates that the economic recovery is extremely weak and must be treated with care. In addition, growth in the economy has been limited to the service sector, and construction continues to decline. A major factor in the growth in the retail sector has been the influx of shoppers from the Republic to take advantage of the weak pound. However, there has been a significant decline in the value of the euro, and, as a result, traffic from the Republic is beginning to dry up. If that continues, as I believe it will, we may be back into recession.

The report showed that economic activity was extremely low and that there was plenty of spare capacity in the economy. In the private sector, the service sector is producing 11% below its 2007 peak. In addition, manufacturing is down by 15% from its peak, and engineering is down by a third. That is reflected in the level of unemployment, which rose for 27 consecutive months. The rate of job losses has been much more severe here than in the rest of the United Kingdom, and the Ulster Bank suggests that unemployment will not peak until 2012. Therefore, the economic climate in which we are presenting the Budget is one of negative growth and increasing unemployment.

The welfare reforms introduced by Westminster will have a further negative effect on the local economy. Reform of the national welfare system is a major issue for Northern Ireland, because the local Executive have no control over national changes to benefits or tax credits. As the local population is more dependent on welfare benefits than in other UK regions, the overall expected cuts of up to £20 billion in welfare payments will undoubtedly have a disproportionate effect on our economy.

The Northern Ireland economy is not capable of taking further cuts at present. Although the cuts are necessary in the longer run, they will have to be phased in. It is important that we get out of the recession first. We are in extreme danger of ending up with a double-dip recession. Tory economic policies are driven by the need to make immediate cuts in public expenditure, regardless of the impact on public services and ignoring the risk of a double-dip recession. Proportionately, Northern Ireland has a much larger public sector than other parts of the United Kingdom, and that will, therefore, lead to disproportionate reductions in services.

Since the previous Budget in 2007, the economic situation in Northern Ireland has been transformed totally. The economic climate has changed from boom to gloom. During that period, decisions were made that, with hindsight, do not seem to be priorities. The Assembly took a number of decisions, one example of which is the freezing of the domestic rate. That has cost us £50 million. The introduction of free prescription charges cost £15 million. The abolition of industrial derating could have saved £160 million. Free bus passes for the over 60s cost £12 million.

All those things are desirable and, in a perfect society, we could all support them. However, given the change in circumstances, we have to review some of those decisions.


The point that I am trying to make is that we made those decisions before we got into the economic crisis. Perhaps we would not make those same decisions now. We have an ongoing situation with Northern Ireland Water, and we have deferred doing anything about it. We could have saved over £1 billion if we had cut out the subsidy for Northern Ireland Water. Many of the decisions that have been taken by the Executive to date have reduced the amount of money available for other services. The decision not to impose water charges has meant that less funding is available for health and education. Although a rates freeze is politically attractive, it is totally unacceptable if it has to be paid for by a reduction in healthcare for the sick and elderly. Many of those decisions will have to be revisited after the election.

If we look at the proposals in the Budget and the departmental allocations, I am concerned about the cuts in education and the impact that the reduction in the DEL budget will have on the number of students who can attend higher education. I am particularly concerned that there are no details regarding the level of student fees and how that will impact on students, particularly those from poor backgrounds.

Although I welcome the Minister acknowledging the potential of the green new deal in the draft Budget, he appears to be using it as a smokescreen for cuts to other green initiatives. The Minister has set aside £4 million a year for green new deal initiatives. That is grossly inadequate, but the Green Party welcomed it as a first step in the right direction. However, we now learn that the £4 million will be funded by cuts in other projects, including some that have the potential to help to deliver some of the objectives of the green new deal.

First, we were told that the green new deal would be funded by revenue raised from the plastic bag tax, which we have advocated for many years. Then DOE announced £4 million of cuts to environmental enforcement measures, which are helping Northern Ireland to comply with EU directives. We were told that that money would be allocated to the green new deal. Then the Minister scrapped the rates relief scheme, which would have provided support for people who wanted to insulate their houses. Again, we were told that that money would be redirected to a green new deal fund.

Insulating houses is a priority in the green new deal, so the Minister is simply giving with one hand and taking away handfuls with the other. Investing in insulation would create jobs, help to tackle fuel poverty and reduce carbon emissions. Some 400 people have taken advantage of the rates relief scheme since it was introduced. The scheme appeared to be working and delivering on the potential of the green new deal, so I cannot understand why the Minister has chosen to scrap it.

Very specific measures have to be scrapped. There has been the promise of a green new deal to appease the green lobby, which now includes the Confederation of British Industry, the Institute of Directors, environmental groups and trade unions, yet there are absolutely no details on how that money is to be spent. The Ministerhas moved some money around and, seemingly, removed some money entirely. It is not a green Budget. It will do little to help Northern Ireland’s position as a leader in the new green economy. Of course, the Minister has a record and has not been particularly forthcoming in supporting green initiatives.

Other Members referred to the budget for Invest NI. It causes me considerable concern because growing the economy and creating jobs remains a priority, which, obviously, it should be. However, the reduction in Invest NI’s budget will mean that it will not have sufficient funds to support the foreseeable number of new investment projects. We are at risk of missing available job creation opportunities.

I want to refer to my main concern about the Budget allocations. I find it particularly depressing that people now use the health budget to score political points. Basically, the health budget is fundamental to society’s welfare. It should not be used as a political football. We should listen to the concerns of the Chief Medical Officer. I have no political axe to grind with anyone on the issue. I speak as an economist and as someone who has had a long interest in health economics since I was first appointed to the Eastern Health and Social Services Board in 1981 and sacked by Mrs Thatcher four years later. My concerns about health spending began with the previous Budget, when health received an increase of only 2·6% while the NHS in England was given an increase of 4% in real terms despite not having the same waiting list problems that we had here. That 2·6% increase was the lowest for many years and compared badly with the average of around 8% over the previous five years of direct rule.

The direct rule Ministers gave us 8% for the health budget, and the devolved Government have given us 2·6%. In practice, given the demographic trends and the fact that NHS inflation is significantly higher than basic inflation, the 2·6% increase was, at best, a freeze in overall expenditure.

The 2007 Programme for Government included new programmes to reduce the suicide rate, promote healthier ways of living, halt the rise in obesity and implement the long-delayed Bamford report. However, the Budget did not provide any additional resources to fund those programmes. The Appleby report, which was based on need, looked at the standard of care in Northern Ireland compared with that in England, and it identified a shortfall of £500 million in health spending over the CSR period. Therefore, not only would we have lower standards of care, but the gap between entitlements and expectations in Northern Ireland compared with those in England would continue to widen. He concluded that access targets and waiting times here would not match English levels in the foreseeable future.

When I voted against that Budget, I warned that it would mean cuts in the National Health Service and lead to job losses and longer waiting lists. That has come about, and it will be accelerated if we accept the draft Budget.

The differential in health expenditure between Northern Ireland and England has reduced significantly in recent years. A recent study shows that, taking account of age profile and deprivation levels, the Health Service in Northern Ireland requires 10% more resources per head than England owing to the higher levels of need. The differential in 2007 was 4%, and proposals for 2008-09 totally eroded it.

Efficiencies can clearly be made in the organisation and delivery of the Health Service. I believe that there have been significant improvements in recent years. There are, without doubt, opportunities to make further savings, but they will not have a significant impact on overall health spending. Fundamentally, the Health Service is underfunded, yet it is faced with new demands daily, despite being unable to meet existing demands, such as the implementation of the Bamford report. The fact that Bamford’s recommendations have not been implemented and mental health is still grossly underfunded is a disgrace to any society.

I will now speak about potential savings and alternative forms of revenue raising. I agree with what Mr Beggs said about the dualling of the A5. It should at least be downgraded. To spend £675 million on such a road cannot be justified, given its usage. The Green Party has opposed that scheme since 2009, when we had a long and detailed discussion with environmentalists and local landowners. The scheme is disproportionate, will destroy the natural habitat and severely impact on agriculture in the area. Significant savings could be made by downgrading that scheme.

Savings could also be made on local government reform. I am not clear about how much for that is in the Budget. I declare an interest as a member of North Down Borough Council. For the past year, it has been clear that the original drivers for the review of public administration cannot be achieved. The main driver for reform was to be savings to the ratepayer. Those savings cannot be guaranteed in the present economic state, so it would be irresponsible to spend £118 million that we do not have in the Budget to fund the changes. However, I emphasise that it is essential that we review all our priorities, policies and decisions that were made in the good times. There should be no sacred cows.

If we are to work within the block grant, we must revise our priorities and consider alternative sources of funding. We should seek additional powers to raise tax and, in particular, to introduce a local income tax to replace domestic rates.

The current draft Budget highlights how little control we have over our Budget, which is almost wholly determined by a formula set by Westminster.

Rates are one tax over which we have control, and the Executive could consider a supermarket tax similar to that proposed by the Scottish Government. That involves increasing the business rates on large retailers with a rateable value of more than £750,000. That would apply mainly to supermarkets and out-of-town retail parks. As well as raising extra revenue, it would support small traders and town centres. If it encouraged people to shop locally, it would also be more environmentally friendly.

The tax would help to rebalance the disadvantages faced by small businesses as supermarkets take advantage of size and economies of scale — an advantage beyond the reach of small businesses. An increase in tax on big business reduces the strain on small business, levels the playing field and promotes competition in the market. It would also compensate for the delay by the Assembly in introducing PPS 5, which limits out-of-town shopping.

The Executive must revisit the options for funding government services. They must review all options, particularly income-based alternatives such as local income tax. That would clearly be fair, because it is based on the ability to pay. It would also mean that non-taxed householders contributed to funding. Other options include local sales tax, service tax, land value tax and green taxes, which would help the environment as well as raising revenue, based on the principle that the polluter pays.

The Green Party believes that the Assembly should acquire tax-raising powers so that all increases in public expenditure are not met solely from a property tax paid by the ratepayer but from a basket of taxes. We must re-examine our priorities, reconsider our previous decisions and ensure that scarce resources are allocated in the most efficient and effective manner.

The Green Party believes that the Westminster cuts agenda is ideologically driven, economically illiterate and will have a disproportionate effect on the poorest in Northern Ireland and the rest of the UK. We reject the Executive’s decision simply to implement the cuts, and we are particularly concerned about the impact that they will have on health, education and the green new deal. The Executive should consider alternatives to cutting vital local services, revise the draft Budget to reduce those cuts by incorporating progressive ways to raise revenue and ensure that the wealthiest pay more and the poorer pay less. In the longer term, we should be looking at obtaining flexibility in our tax system so that we are not solely dependent on the block grant determined by Westminster.

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