Deal or No Deal: Economic consequences of creeping Direct Rule

At the end of this week, Northern Ireland may be entering a political twilight zone or the shadowlands- the gap between two deadlines (as previously stated by the Secretary of State).

   26 October 2017

At the end of this week, Northern Ireland may be entering a political twilight zone or the shadowlands- the gap between two deadlines (as previously stated by the Secretary of State). Monday 30 October may be the point at which legislation (probably now at Westminster) has to begin to get through a Budget for this financial year, 2017-18. And, Monday 6 November has been stated as the deadline for putting an Executive back in place.

Let’s consider the possible economic/business implications of both scenarios- No Deal or a Deal:

NO Deal is made to restore devolution:

Devolution in Northern Ireland (NI) effectively ended in late January. This week may have seen the latest phase of the inter-Party talks come to (another) inconclusive end. The legislation which could be about to be announced at Westminster to introduce a Budget for 2017-18 for the NI Departments is indicative of a creeping return to Direct Rule. What might this mean in economic and business terms?

The Budget legislation at Westminster may be a second best but it does at least mean we avoid the 5% cut in yearly Departmental funding which the terms of the NI Act imply.

Whilst this process implies some loss in local democratic accountability, it is likely that the Secretary has used his best guess as to what a devolved Stormont would have done anyway; notably, in terms of the emphasis on extra funds for Health.

What is regrettable is a loss of an opportunity to link together the NI Budget with the developing policy statements such as the Programme for Government and the Executive’s Industrial Strategy.

The £950m of monies provided through the Conservative/DUP Confidence and Supply Deal remain unspent. In the absence of active government Ministers in NI it remains unclear when decisions will be made, e.g. about infrastructure, and so it still unclear when that money will be unlocked. And it is only when Direct Rule becomes very activist- perhaps not until 2018- that this will change.

Or, a Deal is made to restore devolution:

After a gap period since the end of January and one Assembly Election (and a surprise General Election), devolution is coming back to Northern Ireland (NI). What might be some of the economic consequences?

There could be some gain to “brand NI” (or, at least, a reduction in some previous damage) if we are seen to have a working government.

A further benefit will be the introduction of some local accountability into the process around agreeing an Executive Budget for the year 2017-18 (though, given that the process is going to be very rushed it is likely that the Budget that we are going to get will have been somewhat pre-cooked).

There is now an opportunity to finalise the next Programme for Government (2017-22), with its innovative emphasis on outcomes, and also the Executive’s Industrial Strategy which places a strong emphasis on making NI more competitive compared to benchmark regions/countries.

Having a working Executive provides the potential that some difficult policy questions will be dealt with:

  • The structural reform of healthcare (i.e. apply aspects of the Bengoa review).
  • Close the funding gap between our universities and their counterparts in GB (perhaps through increasing the level of tuition fees, though balancing that with appropriate measures to ensure wide social access).
  • Domestic rating- increasing the payments made by the most expensive properties.
  • Considering the scope to raise more taxes/charges in the region.
  • Identify what NI’s Brexit priorities are in the UK/EU exit negotiations.

From an economic and business point of view a period of political stability would be helpful- that this Assembly mandate would run its course without any further existential crises; this week’s agreement comes on top of the previous agreements Stormont House (2014) and Fresh Start (2015).

Finally, now that Ministers are back at their desks, spending decisions could be made, notably about infrastructure investment, which could unlock some of the £950m of funding included in this Summer’s Conservative-DUP Confidence and Supply arrangement.

Dr Esmond Birnie

Senior Economist (Economic Research)

Department of Acc, Finance & Economics

Areas of expertise Economic policy, competitiveness, economic growth and productivity.