Paying our way

Paying our way 2010’s second budget makes a start on cutting the deficit but, as expected, proves unpopular. Supporters see it as a necessity but detractors warn that it will punish the poor.

All parties agree on the need to cut the UK’s deficit, totalling £149 billion in borrowing for this financial year. The dividing lines, though, appear over the method needed to fill the country’s fiscal gap.

This was clear in the initial comments from the Northern Ireland Secretary and Finance Minister, and further demonstrated as local parties sent in their views. Closer to the coalition, the UUP and Alliance were most positive, or at least accepting, about George Osborne’s plans.

Owen Paterson pointed out that the UK Government was currently borrowing £300,000 a minute or “one in every four pounds we spend”. Failing to tackle the deficit would lead to “disastrous increases” in interest and mortgage rates.

“We are all paying the bills of past irresponsibility to lay the foundations for our future economic prosperity,” he stated, and recognised that some measures would be difficult for everyone. Paterson concluded with a promise to listen to views from Northern Ireland residents on how to make government more efficient.

Sammy Wilson set the pattern for most of the parties’ responses. He was disappointed by the combined “burden” on families caused by the VAT increase, child benefit freeze, housing benefit and tax credit cuts.

However, he welcomed the re-established link between earnings and the basic state pension, corporation tax cut, reduced income tax allowance, national insurance break, and the Treasury’s focus on rebalancing the regional economy.

Political party reaction was led by Nigel Dodds, Martin McGuinness, Mark Durkan, the UUP’s David McNarry, Alliance’s Stephen Farry and Green MLA Brian Wilson.

VAT

Dodds feared that increasing VAT would impact harder on Northern Ireland, especially its poorest residents, as the province lagged behind other UK regions in the economic cycle.

McGuinness and Durkan concurred, with the deputy First Minister pointing out that “if people have less money in their pockets they will spend less and jobs will be lost.” Derry’s MP feared its impact on cross-border shopping.

Brian Wilson was an especially strong critic, calling VAT “the most regressive tax” and suggesting that the Budget looked after the City of London “which caused the near collapse of the banks, while the rest of us are left footing the bill.”

For the UUP, David McNarry saw the VAT rise as an “unavoidable” necessity. However, Farry echoed the Greens and saw it as a “regressive” move.

Corporation tax

The rate for large companies falls from 28 to 27 per cent, with further 1 per cent cuts per annum over the next three years. Smaller company rates fall from 21 to 20 per cent for this year.

Dodds welcomed the Treasury’s investigation into reducing corporation tax and establishing an enterprise zone, but emphasised “we really need action”.

Likewise, Mark Durkan was cautious, recalling that the previous tax cut campaign was unsuccessful and warning of a “public expenditure price” for a lower rate. However, he was pleased to see the overall cut, especially for smaller companies. Sinn Féin supports a harmonised rate across the island but doubts whether the Treasury will favour Northern Ireland.

“This Budget is geared towards rebalancing the economy and we must ensure we get the most out of what is on offer,” McNarry commented. Farry welcomed the phased reduction in the tax but pointed out the “fundamental disadvantage” due to the Republic’s much lower rate (12.5 per cent).

Pay and welfare

Some of the strongest criticism of welfare cuts came from Durkan, pointing out the province’s high dependency on unemployment, illness and disability benefits.

“Furthermore, there are questions about proposals that will expect lone parents to look for work when their youngest child goes to school,” he commented. “Often the problem here is lack of work as opposed to lack of work ethic.”

Dodds and Durkan welcomed the restored earning link for state pensions and the exemption for lower paid public servants from the pay freeze. The link was also welcomed by the SDLP. McNarry demanded a comprehensive Executive paper on public sector pay.

Devolution

Apart from welfare, the Executive’s budget is likely to stay intact until the Comprehensive Spending Review reports.

Dodds repeated the DUP’s call for efficiency in government and “proper planning” to ensure that people see the minimum reductions in front-line services.

“The Northern Ireland Executive must now agree an immediate framework on how they are going to approach these reductions in a manner that protects frontline services and jobs,” McNarry stated. Ring-fenced health funding was his key demand.

Anticipating an eventual cut of over £1 billion, Farry called on the Executive to prioritise a shared future, introducing water charges to take pressure off other services and an internal spending review within Northern Ireland.

Alternatives

The most radical alternative to the Budget came from Sinn Féin, with McGuinness demanding an end to the “illegal occupations” in Iraq and Afghanistan and the Trident replacement.

He has put this proposal directly to David Cameron. Treasury figures show the Afghan war cost around £4.2 billion to the UK in 2009-2010, with the scaled-down operation in Iraq costing £358 million. Trident could cost £15-£20 billion to replace over several years, according to official estimates.

McGuinness wants to see an all-Ireland economic recovery plan, organised through the North/South Ministerial Council and including an Irish national job creation strategy.

To Durkan, the ‘We’re all in this together’ slogan rang hollow. Those who caused the financial crisis must pay for it, he contended. Brian Wilson called for a clampdown on tax avoidance and evasion, to raise up to £100 billion.

The DUP warns against “deep, draconian action at this stage” and wants more attention on Northern Ireland’s needs, with an enterprise zone set up quickly.

The Comprehensive Spending Review is now the next major stage in the fiscal cycle. UK ministers will decide their priorities during July and will final settlements in August. Decisions will then follow when the Cabinet signs off the final version this autumn; the review is to be published on 20 October.

Northern Ireland spending forecasts
£ billion Resource DEL Capital DEL Total DEL
2008-2009 (outturn) 9.1 1.3 10.4
2009-2010 (estimate) 9.9 1.3 11.2
2010-2011 (plans) 9.8 1.2 11.0

Source: Budget page 43

DEL = departmental expenditure limit

Figures cover Northern Ireland Executive and NIO allocations

Scots win possible fuel duty cut

A fuel duty discount in remote rural areas may be piloted in Scotland, the Budget announced. Nigel Dodds was disappointed with the Scots’ selection. Northern Ireland, he pointed out, is the only part of the UK with a land border and the Republic’s duty is lower: “The DUP will be looking to the Government as to whether it intends to roll this pilot scheme out across other areas of the country.”

The Treasury told agendaNi that the idea is in its early stages and “all relevant factors” will be considered in deciding whether to provide a discount. This includes the difference in average fuel costs between urban and rural areas. The coalition parties have 12 MPs in Scotland, mainly holding rural seats.

Local businesses will, though, benefit from a scheme to encourage new private sector jobs. New businesses will not have to pay the first £5,000 of employers’ national insurance for their first 10 employees. This applies to all UK regions outside South East England. Starting no later than September 2010, the scheme will last three years and will be backdated to include any new company set up from Budget Day (22 June).

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