Where did the axe fall in the UK and what does this mean for Northern Ireland?
The Comprehensive Spending Review is the government’s first attempt at improving the nation’s fiscal position by reducing its expenditure. Chancellor George Osborne’s speech is only the start of a process aimed at adjusting the overall budget lines of government departments from April 2011 onwards. The cuts are easily the deepest and most sustained cuts to public expenditure since the Second World War.
The principals
The Chancellor has claimed that three principals have guided his review of spending - “reform, fairness and growth”. Reform will be concentrated on the welfare system and public services. The fairness aspect is concentrated on making sure “those with the broadest shoulders bear the greatest burden” and we saw a few token gestures highlighted in Wednesday’s speech such as the removal of child benefits from households which contain a high-earner.
Ring-fencing
As expected, the health budget was ring-fenced in the UK and education was largely protected. But significant cuts were imposed on a range of other departments such as Treasury, Transport, and Business, Innovation and Skills.
Cutting the bureaucrats not front-line services
In an effort to protect front-line services, the coalition government can insist where administration savings are to be made in UK departments - but there is no guarantee that Northern Ireland’s departments will choose to cut administrators over front-line services.
Which Departments took the biggest hit?
Treasury has been hammered with a 33 per cent cut over the four year period and the Cabinet Office will see a decline of 28 per cent of its budget. Environment will endure a 29 per cent cut, Local Government will see a decline of 27 per cent over the spending period. Transport will take a 21 percent cut over the review period, the Department of Business Innovation and Skills will see a decline of 25 per cent and the Department of Culture, Media and Sport will see a fall of 24 per cent.
Resource Budgets versus Capital
Most departmental capital budgets took an enormous hit and even health and education were not immune. Overall the UK’s capital budget will fall in real terms by 29 per cent over the four years.
What about Northern Ireland?
Northern Ireland’s block grant, which is currently in the region of £9.3 billion, will be £9.4 billion in 2011-2012 and only £9.5 billion at the end of the four year period. According to the report this represents an accumulative fall of 6.9 per cent in real growth. The local capital budget is set to take a significant knock with proposals to take spending on local capital projects down from £1.2 billion this year to £0.8 billion by 2014-2015 (a cut in real terms of 37 per cent).
With a reduced block grant the Northern Ireland Executive will now be preparing a Draft Budget for the local economy which we expect to see in late November or early December.
Local Ministers are not expected to announce large scale public sector redundancies and are more likely to be exploring a combination of initiatives including cost cutting, natural wastage in terms of public sector wage freezes and revenue raising.
Some good news for the local economy came by way of the announcement of a £25 million access fund to resolve the issues arising from the collapse of the Presbyterian Mutual Society. There is talk of a £175 million loan to the local Executive although when the details of that loan and the conditions attached are available we can make a better judgement with regard to its desirability.
Welfare reforms will have a further negative impact on the local economy
The reform of the national welfare system is a major issue for Northern Ireland as the local Executive has no control over national changes to benefits or tax credits. As the local population is more dependent upon welfare benefits than other UK regions, the overall expected cuts of up to £20 billion in welfare payments will undoubtedly have a disproportionate impact upon the local economy.
Will all this work?
This is where the biggest challenge lies. The government has taken a gamble - that public spending cuts will not knock an already weak economy back into recession. But only time will tell.