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“No government” matters for business and the economy

Before we become too gloomy, economies can sometimes grow in spite of chaotic politics. Italy in the 1950s had many world-beating companies despite short-lived governments and corruption. South Korean has developed leading steel, car and electronics companies notwithstanding a divided peninsula. Israel’s high technology firms are renowned even given the constant threat of war.

Here in Northern Ireland the economy has continued to grow and last year employment growth was over 2%.

However, the cost of about 600 days of “no government” has been accumulating. Two areas may be particularly important: budgetary questions, and the inability to develop policies.

Budgetary questions

The process of setting a Budget for Northern Ireland public services for 2019-20 should have started. The Department for Finance Briefing in December 2017 demonstrated how stretched Northern Ireland public finances now are. We have had two annual Budgets without the benefit of political scrutiny.

It becomes less and less credible to mechanically project forward previous spending patterns. Can we continue to “protect” the real terms spending going into hospitals and schools? This has placed even more extreme pressure on the rest of the public services. There are other anomalies- schools are somewhat protected but colleges and universities are not, hospitals have been protected but not social care. No government means we cannot be more strategic about what government should do or should stop doing.

Given the severity of the fiscal challenges there is a case for radical political leadership which would reverse some of the previous fiscal give away policies.

Lack of policy development in general

The draft Programme for Government appeared back in 2016. Similarly, the draft Industrial Strategy, published back in January 2017, requires updating. The absence of political leadership has made it very difficult to identify a short list of top priorities relating to Brexit. Perhaps even more importantly for the very long run future, given that relative levels of living standards  have been declining compared to the UK average, and the productivity gap has shown little sign of narrowing, it is important to ask whether there is anything government can do to kick start greater economic convergence. But, it is very hard to see how such an assessment could occur in the present political situation and we now know the reduction in Corporation Tax is not going to happen any time soon.

We may not be able to identify a precise cost figure relating to no government. It could, however, be considerable. After all, several hundred million pounds worth of government funded investment have been delayed (York Street Inter-change, health restructuring, the North-South interconnector, broadband). Some of that may happen later but some of the funding may be gone for good. Another way to look at it would be to say that if the Northern Ireland economy grows by 2 % in a good year and if no government depresses that by, say, a tenth of 0.2% in each of years 2017, 2018 and 2019 that would be equivalent, in today’s money, to a “cost” of about £230m.